Business & Real Estate Articles

We live in Wisconsin or Minnesota, where we share a joke: we have six months of winter and six months of construction. Both can present opportunities for falls that are best prevented.

Avoiding lawsuits, whether it is your home or business, means taking care of your property. "It’s very important for business," said Brian Weber, a Johns, Flaherty & Collins attorney.

"Keep your sidewalks, driveways and parking areas clear of ice and snow. Stay on top of building maintenance issues to make sure water is not draining on sidewalks or another area where the water can freeze," he said.

If you hire someone to clear these areas, Weber said it is important to have a written contract indicating the worker is an independent contractor and not an employee. The document should also hold the company harmless if sued because of a weather-related fall.

Clauses also should indicate when and where snow removal should be done—such as before the time your business would open and the minimum depth of snow when the plowing should begin.

Other needs for businesses include making sure your insurance covers risks your company may have should a slip and fall occur.

Beyond winter conditions, it is important to maintain a safe place for your employees and customers. That means repairing uneven steps or flooring. Posting a sign—giving notice—warning about these conditions may minimize liability, but not prevent it.

"Posting a sign puts people on notice to take extra caution," Weber said. "A business would be less likely to have responsibility for injuries if the sign is put up, but slip and fall lawsuits can be expensive to defend even if you don’t ultimately have financial liability."

While businesses are held to a higher standard than homeowners, someone falling on a sidewalk in front of your house could also result in a lawsuit. Homeowners would be wise to follow the same guidelines as businesses.

Tips to avoid slip and falls

While it may be unclear who caused a dangerous condition, it is important to be alert to the danger and to have it promptly repaired or removed to ensure a safe environment—because whatever, whoever the cause, the property owner could be held liable.

A business further needs to have company-wide awareness about the importance of maintaining the property—not just those whose job it is to clean or keep it in good repair.

What should you do?

• Clean up intermittent spills as soon as they occur and encourage others to be on the lookout for them.
• Remove snow and ice from doorways, sidewalks and parking areas.
• Eliminate clutter, particularly if it obstructs views.
• Tape or tack down mats, rugs and carpets, and make sure there are no carpet wrinkles or electrical cords or other items that could cause someone to trip.
• Always close cabinets or storage drawers.
• Keep work areas and walkways well lit.

For more information on slip and fall accidents, contact Brian Weber at 608-784-5678.

Unless you’ve experienced a physical disability, it’s hard to understand the complexities of getting around independently in the world today. Until you’ve faced a flight of stairs without the use of your legs or tried to read a menu without sight, it’s hard to empathize with those who face these daunting realities every day.

Smart business owners, however, will take extra steps to accommodate as many prospective customers as possible, whatever those customers’ abilities. While it can be financially impossible to anticipate and prepare for all the possibilities, some accommodations are actually required by law.

Federal Law: Access

Physical accessibility rules generally fall under Title III of the federal Americans With Disabilities Act. Title III covers public accommodations (e.g., hotels, restaurants, retail stores, libraries), commercial facilities (office buildings, warehouses, factories) and private agencies that offer certain exams and courses for educational or occupational certification.

Title III requires these covered entities to make reasonable modifications to facilities or policies to accommodate people with disabilities, do so in an integrated setting and ensure accessibility. (The ADA refers to the latter as removal of physical barriers if it is “readily achievable.”) It also requires businesses to provide alternative communication options. That means the menu issue may be resolved either by providing the menu in braille or training servers to read it to people with vision challenges.

Title III does allow exceptions for instances where accommodations would require fundamental alteration to the nature of the goods or services, and it does not require businesses to provide personal or individually prescribed devices, such as wheelchairs or hearing aids.

Additionally, only commercial facilities constructed subsequent to January 1993 when Title III became law are required to fully conform to accessibility guidelines. It’s important to note those guidelines shifted again in March 2012, building on what’s been learned in the years since Title III took effect.

For buildings constructed prior to 1993 that were grandfathered into the new approach, they are still expected to remove physical barriers when doing so is “readily achievable,” a standard determined on a case-by-case basis.

Wisconsin Law: Fair Treatment

To ensure fair treatment of people with disabilities, Wisconsin also has the Wisconsin Public Accommodations and Amusements Law. It applies to lodging, restaurants, hospitals and clinics, beauty salons, any place where accommodations, amusements, goods or services are available. This law states it is illegal “to deny service or to give unequal treatment in service because of sex, race, color, creed, disability, sexual orientation, national origin or ancestry.”

That means an insurance company, for example, cannot refuse to provide or charge a higher rate for auto insurance to someone with a disability. And a hotel cannot refuse service to someone because he or she requires the aid of a guide dog.

It’s important for businesses to understand and be familiar with laws pertaining to services for people with disabilities. Penalties for violating Wisconsin’s Public Accommodations and Amusements Law range from $100 to $1,000 for a first offense to as much as $100,000 for repeat violations. For violating ADA laws, civil penalties can cost up to $55,000 for the first violation and $110,000 for any subsequent violation.

Once you understand the laws and how they affect your enterprise, be sure to incorporate appropriate steps into your policy and procedures manual. You’ll find the preemptive action builds good will and probably your customer base, too. Doing all that while also managing risk is smart business.

Many businesses and individuals rely on advertising to let the world know what they have to offer. While it is a great, direct-to-consumer vehicle, it is also one that is riddled with potential hazards, the most common being claims by consumers of false and misleading advertisements.

False advertising can be defined as any untrue, deceptive or misleading statement made to induce the public to enter into any contract to purchase merchandise, real estate, securities, and services. It applies to print ads in newspapers, television and radio spots, even oral representations made by an individual or entity intending to sell or distribute merchandise, real estate, securities and services.

Common Offenses

Some common examples of false and misleading advertisements include:

• Advertising a sale on a particular product where the product pictured in the ad does not represent the actual product. No one wants to pay $100 for an MP3 player that’s worth only $15.
• Offering a big sale on a particular product — TVs for example — and suggesting you have plenty of stock when you only have a small inventory. If you don’t say “while supplies last,” you’re misleading consumers. It gets worse if you try to up-sell the customer to a more expensive product because you’re out of the sale item. In that instance, you may be accused of bait-and-switch tactics.
• Offering written or oral performance guarantees that may not be realistic. People use products in different ways and those products may not hold up as well based on variations in use.
• Inflating prices to make a sale seem better than it is. If you sell a tool that’s normally $30, mark it up to $40 and then advertise it at $20, indicating it’s 50 percent off, that’s deceptive.

Preventing Problems

To avoid these problems, be sure to disclose all the information you have on a product or service. If you suspect, even in passing, that you may be misleading customers, take a different approach.

Don’t advertise or promote something you can’t give a customer. Don’t publicize offers or discounts for products or services if you have no intention of honoring the publicized offer or discount.

If a customer complains he or she was misled, address the issue quickly and directly. Find out why your customer thought your advertising was deceptive, how the actual product or service differed from what was advertised. Then do what you can to satisfy him or her. One unhappy customer will share his or her dissatisfaction with ten others, and people don’t want to do business with someone who lies or misrepresents themselves or their products and services.

In many cases, working directly with the customer will solve the problem. But if, despite your efforts, a customer threatens legal action, call your attorney. If you indeed misrepresented a product or service to a customer, you may be liable for double the monetary damages, court costs and reasonable attorney fees if the customer prevails in a civil suit against you or your business.

In the end, the best advice is to follow the golden rule. Put yourself in the place of your customers and treat them the way you would like to be treated. You can and should still run a profitable business. Just be honest about how you do it.

Though a lot of the details have yet to be determined, it appears the new bankruptcy law that takes effect October 17, 2005, will provide much-needed relief for creditors.

Bankruptcy filings have climbed steadily in recent years. In 2004, 1.5 million people filed for bankruptcy, representing an increase of 27 percent from 2003 and 300 percent from two decades ago. With three-quarters of debtors filing under Chapter 7, where debts are canceled, creditors in the United States are discharging billions of dollars in personal debt each year. The Nilson Report puts those losses at $160 billion for 2004.

Authors of the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" hope to change that with 230 pages of new law designed to make Chapter 7 bankruptcies more difficult to get. Clearly, many changes are included in the new law, but three main components are likely to have the most impact on Wisconsin creditors and consumers.

Credit Counseling. In order to file bankruptcy, debtors mush show they have gone through credit counseling. This is good news for creditors not only because it may lead to collecting more receivables, but also because it may help you spot when a bankruptcy is coming. The downside is that the increase in individual payment plans could also increase administrative costs. You may find you’re spending more time working out and tracking payment plans that may ultimately fail.

In any event, it’s a good idea to begin planning now to deal with more credit counseling services and establishing your own internal practices for working out payment plans with delinquent debtors.

Means Test. To qualify for a Chapter 7 bankruptcy under the new law, debtors must be at or below the state median income. It’s not clear yet what number will be used for the median income, but figures from the U.S. Census Bureau place it at approximately $63,947 per year for a family of four in Wisconsin.

Debtors making more than the state median income will have to file under Chapter 13 (which requires establishing a payment plan) or qualify under a means test. The means test will be designed to determine whether you have enough money left after deducting reasonable expenses to pay a meaningful amount to unsecured creditors.

Again, these amounts have yet to be defined. Until they are, it will be difficult to assess exactly how effective they will be in preventing Chapter 7 bankruptcies.

Verification of Accuracy. Currently, when attorneys handle bankruptcies for a client, they sign the petition indicating that its contents are true and accurate, but they have no obligation to confirm that their client’s claims are true.

Under the new law, the bankruptcy attorney must verify everything the client reports. That could result in background checks, credit checks and other actions which together could require significant time for the attorneys and therefore significantly higher bankruptcy fees for clients. This could have a secondary effect of reducing bankruptcy filings because debtors can’t afford the attorney.

Obviously, your best insurance against losing receivables to bankruptcy comes into play long before a bankruptcy is ever filed.

First, don’t continue extending credit when it becomes apparent a customer is having financial problems. Frequently, many small business owners run into problems when they’re too nice. These companies will have customers that keep saying they will pay next week, so the creditor sends them the next shipment even though the bill for the last one remains unpaid.

Second, secure debts whenever possible. You can secure debts with the property that’s being delivered, secure the debt to the customer’s property (most commonly a mortgage of some type) or obtain security interest in a vehicle. Obviously, this makes more sense for larger debts; it may not be worthwhile for smaller amounts.

Third, stay in communication with debtors who are getting behind in payments. Don’t ignore the delinquencies and hope debtors will take care of them on their own. A simple phone call can allow you to work out a payment plan to help a debtor get back on track before the delinquency becomes a serious problem.

Finally, bill promptly. If you don’t send out your bills in a timely fashion, you may run into problems with people paying in a timely fashion.

These few extra steps on the front end can save you the time and hassle associated with bankruptcy and, equally important, the cost of uncollected debt. They can be your assurance that the new law has the desired effect — at least for your company.

Reprinted with permission from the River Valley Business Report, Fall 2005.

Money’s tough to come by these days. And that has businesses and consumers both doing their best to be sure they give and get what’s owed and fair. Ironically, it’s that drive for fairness that leads to thousands of billing disputes each year—billing disputes that take valuable time away from your core business and threaten your business’ hard-earned reputation. 

To avoid billing disputes, it helps to understand why they happen in the first place. Billing disputes most often arise from (1) delayed billing, (2) invoices that exceed estimates, (3) billing errors and (4) dissatisfaction with goods or services provided.

Understanding these reasons is half the battle in preventing billing disputes. Clearly, if you do some work for a customer and then wait six months to bill him or her, that allows too much time to forget the level and extent of the services you provided. And if you charge more than you said you would without any explanation or written agreement, you’re setting yourself up for trouble.

In all events, the best way to prevent billing disputes is through good communication. Do it continuously and do it in writing.

• State in writing what each party is providing. The customer obviously will be providing payment. The business, too, needs to indicate what specific goods or services it is providing, along with any warranties.
• In addition to stating your rate for goods or services in writing, you need also to disclose, in writing, any additional costs that may appear on the final bill, such as taxes or shipping.
• Invoices at regular, agreed-upon intervals is actually a form of communication in itself. If you have a project that takes several months to complete, it’s a lot easier for most customers to pay monthly amounts along the way rather than getting hit with the entire amount at the end. Regular invoices also keep customers abreast of how the charges are accruing.
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• If changes are made along the way to what either party is providing the other, be sure to put it in writing and be sure both parties have a copy of the agreed-upon changes.

If despite your best efforts a billing dispute occurs, communication is still the key. Don’t avoid it. Instead, address it proactively. Talk with your customer right away and be sure to listen so you understand exactly what his or her concerns are. Then you can explain the details and how costs were assessed. If the customer still disputes the amount, you can gently refer to what you have in writing. If the issue remains, explore discounts, payment options and other ways to accommodate the client or customer.

Remember the end goal is satisfying your customer. Otherwise, you lose not only that customer, but the others—current and prospective—that he or she will then tell. Working instead to find a reasonable solution will keep the customer happy and your reputation intact.

A billing dispute can happen in any business, but how you handle it has an impact on that customer and many others. 

“Address it immediately,” said Johns, Flaherty & Collins attorney Brandon Prinsen. “Don’t avoid it.”

Disputes can arise out of any number of problems:

• A customer unhappy with the quality of a finished product or service.
• Billing errors.
• A misunderstanding about what was expected.
• Late delivery of the product or service.
• Perceived rudeness on the part of you or the business.
• A customer unable to pay because of a change in circumstances.

Not responding to a call or email further frustrates the unhappy customer who may speak negatively about you to others. If you work to resolve the problem, that customer will more likely become loyal and say positive things about your business.

“Try to accommodate the customer as much as possible. Keep the line of communication open and be willing to explain the bill,” Prinsen said.

The best way to prevent billing disputes is a written contract outlining costs, expectations and delivery date. “Make sure both of you understand the contract before you sign,” said Prinsen, who often helps businesses develop such contracts.

“Sometimes a client wants to change the scope, maybe wanting additional services or products. Make sure that change is in writing with any added costs, time for completion and process listed,” he said.

Communicating with the business should be your first step in any billing dispute, according to attorney Joe Veenstra. 

“If you ignore the bill, it could end up in collections which would affect your credit rating,” he said.

“The company should be willing to verify the charges in writing,” he added. “If you dispute what is documented, contact that business and tell them you are contesting the bill and why. If you simply don’t have the money to pay the bill, talk to the business about setting up a payment plan.”

If you find yourself being harassed, Veenstra recommends contacting a lawyer and documenting by date, time and content any calls, e-mails, letters and voicemails from that business or collection agency.

“You are protected from harassment under the Fair Debt Collection Practices Act,” he said.

He also advises documenting all calls and emails and responding in writing to the customer. “Once the project is completed or the goods sold, make sure your bill is timely,” Veenstra said. “If it is not, the client may have spent money allocated for the work.”

Most of all, he said, “You want to maintain a level of trust with your customers that you will deliver quality services or goods in a timely manner.”

Yes, Dr. Brown can bring suit against Mr. Evans, but it’s highly unlikely he will be awarded $10,000, according to litigation attorney Terence Collins. The rule is that when no specific fee is quoted for professional services there is an implied agreement that the charges will be ordinary and reasonable. In this case, it doesn't look like there was anything unusual about Mr. Evan's condition that required Dr. Brown to do anything extraordinary to treat it. Therefore, a court would award to Dr. Brown the amount that would be ordinary and reasonable for the service performed and that would be a lot closer to $250 than $10,000.

You may also be interested to know that the prevailing party in a lawsuit is awarded statutory costs, such as filing fees, copying fees, etc., along with statutory attorneys’ fees. The amount of statutory attorneys’ fees would be either $50 or $100, depending on how much the prevailing party was awarded for damages in the underlying lawsuit.

As businessmen and women, you make decisions every day that impact the staying power of your organizations. However, one decision-making area that probably falls completely outside your core business may be one of the most important in determining whether your business stays or goes — business insurance.

Business insurance is an essential part of any good business plan. Though it is one thing that can literally insure your future, 40 percent of small businesses go without it because they believe it’s too expensive. What they fail to realize is that the cost of not having insurance can far exceed annual premiums and could ultimately result in the closure of their business. Once they understand exactly what type of insurance they need and how much of it, many are surprised to see just how affordable it is.

As in any good business decision, the first rule is know thyself. Conduct a risk assessment to determine your specific needs. A risk assessment includes fives steps: (1) identifying hazards or risks inherent in your business; (2) assessing the likelihood, consequences and impact of the hazards or risks; (3) developing programs, procedures and systems to minimize or eliminate risks; (4) developing a plan to respond to, and minimize the impact of, hazards in case they do occur; and (5) insuring all risks.

The process can seem overwhelming, but a team of good advisors can make it much easier. Seek the advice of a good business attorney. A business attorney can ensure you have the right organizational structure to protect your personal assets and help perform the risk assessment. You should also consult a knowledgeable and trusted insurance agent and a financial consultant who specializes in businesses like yours. You can also find additional help and resources online.

Once you identify your needs and begin looking at types of business insurance, you’ll find it generally falls into eight categories:

• Property insurance to protect physical assets.
• Business interruption insurance to provide reimbursement for lost business revenues.
• Key employee insurance to cover losses stemming from loss of a key employee.
• Fidelity bonds to cover losses due to employee fraud, theft or, perhaps, error.
• Health insurance to provide as a benefit to employees.
• Life insurance to cover owners or key employees.
• Liability insurance to cover injuries, property damage, errors and other similar problems.
• Umbrella insurance.

Obviously, liability insurance is the most broad-ranging category of insurance, and you’ll have several choices to make here, too. General liability insurance, for example, covers bodily injury and property damage to third parties occurring within business operations. Product liability insurance, on the other hand, covers bodily injury and property damage resulting from the business’ products. Similarly, professional liability insurance provides the same coverage but for losses resulting from a business’ services. Errors and omissions insurance, workers compensation and business automobile liability are other types of liability insurance to consider. An umbrella liability insurance policy can provide additional liability coverage beyond the dollar limits of primary liability policies.

With a basic understanding of your business’ needs and the types of insurance available, all you need are the following tips to get the most out of your insurance investment.

First, many insurance companies want your business. Research to find the right coverage at the right price.

Second, know your policies’ exclusions. Policies generally exclude certain risks. Identify those exclusions and consider purchasing coverage "riders" or additional policies to cover them.

Third, the average small business needs $2 million to $3 million of liability coverage. Work with your team of advisors to determine the amount you need for yours.

Fourth, review your policies annually and pay attention to notices mailed by the insurance companies throughout the year. Frequently, those notices will contain coverage changes, and you’ll want to make insurance adjustments accordingly.

Fifth, evaluate new or newly risky business products and services and consider abandoning, modifying or acquiring additional insurance coverage for them.

Sixth, insurers may offer business owner’s policies (known as BOPs) that combine different types of coverage and offer them at lower rates for qualifying small businesses. A BOP may be a great way for you to save.

Finally, as you shop around, you may find you get the lowest bids for different coverages from different insurance companies. But you may also find advantages to working with one insurance provider, including multiple-policy discounts, elimination of expensive duplicate coverage, convenience and an agent who knows the details of the different policies and can spot gaps in coverage.

Determining your needs and shopping for business insurance can be time-consuming and the choices overwhelming. But the investment of your time (and money) now can make the difference in your business’ future — and whether it has one.

Reprinted with permission from the River Valley Business Report, Summer 2004.

The reason you have heard a range of years advised for keeping business records is because not all paperwork is alike. Some documents are more important than others, according to Johns, Flaherty & Collins attorney Robert Smyth.

“There is a lot of paperwork that you won’t want to keep forever because of storage constraints,” he said. “But the most important documents need to be maintained permanently.”

“Any important document, such as deeds to real estate, titles and bills of sale to vehicles should all be retained permanently,” Smyth added.

His general rule is to keep business records for seven years unless they fall into a category of needing to be kept permanently. Examples of documents to be maintained permanently include but are not limited to:

• Account audits, annual financial statements and investment records
• Canceled checks for important payments, like taxes and special contracts
• Cash books
• Construction documents
• Contracts and leases
• Minute books
• Stockholder records
• Licenses
• Insurance policies and claims
• Tax returns and related work papers
• Trademarks and patents
• Depreciation schedules
• Property appraisals and other property records

The most important business documents are tax records. “The IRS can conduct an audit going back three years, but many times you may need information from a return years after it is filed.”

A piece of equipment might have been on a depreciation schedule for tax purposes, but still have value if sold, a reason ledgers, books and tax returns should be maintained.
Smyth has worked with clients whose business difficulties have been directly related to poor recordkeeping.

“You have to have good records,” Smyth said. “It’s probably better to have too much than too little.”

For more information on business records, contact Bob Smyth at 608-784-5678.

When entrepreneurs develop a business idea, it’s natural for them to want to jump right in and begin conducting business as soon as possible. But like so many aspects of developing a business, the wisest among them also plan ahead, choosing the structure that best fits their business operations and objectives.

If you’re planning to start a business or own a growing one, it helps to understand the pros and cons of different structures. One size does not fit all, nor does one size always fit the same company over the years.

The simplest, easiest structure to form, sell or transfer is the sole proprietorship where one owner has full control of the company. Money passes freely between the business and the owner, so when the company loses money, the owner typically saves on taxes. When the company makes money, the owner makes more and pays more taxes.

The biggest downside to sole proprietorships is that they leave owners vulnerable to any problems incurred in the business. If someone were to sue a sole proprietorship, they’d essentially be suing the individual owner — and all the owner’s personal assets are on the line with the business.

Many companies begin as sole proprietorships by default — simply because the owner didn’t set up anything else.

General partnerships are similar in that regard. Two or more people start a business together, and because they don’t set up any other structure, they end up as general partners. But general partnerships potentially carry more risk than any other business structure. A major drawback to general partnerships is that any one partner can incur debt for the business and all partners can be held personally liable for it.

You can tweak general partnerships to become limited liability partnerships, preventing partners from being responsible for others’ debts, but another structure is probably a safer option.

Corporations are common structures. They are appealing because they have been around for hundreds of years, have a long string of case law clarifying the rules and are more uniform from state to state.

Corporations provide an automatic structure (consisting of shareholders, directors and officers), insulate owners from liability and offer different tax options. With C corporations, for example, the company is taxed on the profit; whereas with a subchapter S corporation, profits pass through to shareholders and only shareholders pay income taxes.

Corporations have a couple of notable disadvantages. One is cost (e.g., incorporation and annual report filing fees). Typically, those are fairly minimal for a business with few owners unless you are doing business in a number of states, there are different classes of ownership, there is a need for a buy-sell agreement or other situations exist necessitating other documents or planning.

Another disadvantage is that corporations must operate according to established rules. That means maintaining separate bank accounts exclusively for the business, annual meetings and minutes and annual report filings in every state applicable.

If you fail to treat the business as a completely separate, stand-alone entity, you run the risk of a creditor "piercing the corporate veil." If the veil is pierced, your personal assets may be at risk for a corporate liability.

An important part of maintaining the integrity of the corporate entity is to be sure third parties dealing with the business realize they are dealing with a separate entity. The corporate status should be listed in conjunction with the name of your business wherever it may appear publicly — on business cards, signage, letterhead, ads, Web sites, customer correspondence, invoices and checks.

The most common business structure is the limited liability company (LLC). A hybrid between partnerships and corporations, LLCs have the formalities of a corporation but greater flexibility in management and organization. They essentially combine the liability protection of a corporation with the pass-through taxation of a partnership or sole proprietorship.

Deciding on a structure may not be a one-time effort in your business. Any time a company experiences or anticipates considerable growth, a change in business models or any other significant development, it’s time to re-examine whether you have the correct structure.

As you consider your options, keep in mind that different structures can impact taxes and other operations in subtle ways, so it is critical to gather input from your key professional advisors, including your attorney, accountant, banker and insurance agent. They can help you determine the right structure for your business with all the opportunities you see today as well as those still to come.

Reprinted with permission from the The Business News, December 2007.

Understanding that the correct price for your business is the highest price a buyer is willing to pay should make valuating it an easy proposition. But knowing you’ve gotten the most possible from your years of investment and hard work is as difficult as being certain you got highest possible dollar value for your home. It’s complicated — half art, half science.

Further complicating the issue, a decision to sell your business isn’t the only time you’ll need to determine its worth. Valuations are also needed if you want to obtain a loan, arrive at a figure for a buy-sell agreement, gift an interest in the business to your children or calculate estate taxes upon the owner’s death.

Fortunately, there are several steps and several experts who can help determine a value that is fair to all parties involved.

Valuation methods

Many methods are accepted as appropriate for determining the value of a business. People hear commonly about earnings multiples and balance sheet approaches, but none are necessarily more common than another, nor are they one size fits all.

• Multiplication (or capitalization) of earnings — establishes a price by multiplying past or current earnings,
• Excess earnings — works much like earnings multiplication but splits off return on assets from other earnings,
• Cash flow — determines the worth of a business according to its ability to service debt and pay expenses,
• Balance sheet — establishes a price based upon the net value of a business’ equipment, inventory and other assets,
• Cost to create — calculates value based on a new owner’s costs to staff, lease, obtain fixed assets and to develop intangibles, such as licenses, copyrights, contracts, etc.,
• Rule of thumb — relies on industry-specific rules of thumb (usually best used in concert with another method),
• Value of specific intangible assets — considers the buyer’s desire to purchase an intangible asset versus creating it.

The method right for you should depend on the type of business you run. If you have a manufacturing business, you may want to go with the balance sheet method where you have an appraiser come in and determine the value of the equipment. Service businesses, however, are usually lean on assets. And if the business is especially dependent on an individual, it’s far more difficult to determine a value for sale purposes because its value is so dependent on the individual and relationships he or she has built with clients. If it’s not so individual-dependent, as in the case of a retail business, appraisers are more likely to use the earnings multiplier model, which usually looks at three times annual earnings.

Establishing value

Unfortunately there’s not a standard way to come up with a value for each business. Some larger companies will turn to business valuation consultants, an effective but expensive option. Most businesses, however, find they can get the help they need from trade associations and others in their business.

Bankers, accountants and attorneys are also key consultants to help in the process, especially when you’re considering selling your business. In addition to helping you arrive at a fair price, they can help you weigh the tax consequences and determine how best to structure thesale. For example, would it be more advantageous for you to take cash up-front or spread payments out over five years? Would you benefit more from a stock sale or asset sale? How should you allocate the price to various assets to minimize taxes?

Preparing to sell your business

After learning how best to valuate your business, you’ll want to determine what business assets you want to sell (e.g., equipment, inventory, tools, customer lists, accounts receivables, real estate, etc.).

Keep in mind that in the valuation process, a little foresight can help increase the value of your business. Try to anticipate both the assets and the information a prospective buyer will want. Be prepared to offer a long list of documents to justify your asking price:

• Financial statements and tax returns for the last three to five years,
• Corporate books, records and cash flow analysis,
• Asset list, including equipment, inventory, accounts receivables, long-term contracts and customer lists,
• List of liabilities to be assumed/retained,
• Employment information, including contracts, a list of benefits offered to employees and a list of accrued vacation, sick or personal days,
• Vendor/supplier list,
• Insurance contracts,
• Lists of any government orders or environmental issues,
• Survey and building plans,
• A list of licenses needed to run the business.

It’s also helpful to have an idea of what you as seller would be willing to or want to do after the sale, especially in terms of signing a noncompete agreement or continuing to work in the business after the sale.

Before information is released to a prospective buyer, however, assure yourself they are serious and financially able to complete the purchase, and require they sign a confidentiality agreement.

One rule of thumb

Whether you’re valuating your business for a future sale or an operating loan, the process can be complex. Rules of thumb are difficult to apply — with one exception: Don’t rely on only one opinion.

Talk to more than one person. Talk to trade association contacts and others in your business. Talk to your accountant about valuation methods. Talk to your attorney for advice on structuring the sale. Talk to your banker about his or her experience in valuating businesses like yours for loan purposes.

Consulting a variety of resources may require more time, but the payoff in getting a fair price for your hard-won business will be well worth the added investment.

Reprinted with permission from the River Valley Business Report, Summer 2003.

Many business owners work day in and day out to build value in their companies, but few know the actual value of their enterprise.

Knowing the true value of your business is important for a number of reasons. Obviously, you need to know the value of any business you are considering buying or selling, but valuations are also needed to borrow money, take on a partner, develop or update an estate plan or gift shares of the company.

Some may think the value is based on the company’s balance sheet. Others may base the value on the cash flow. The true value of a business is actually a combination of these factors and more. Business valuations can also be based on insurable value, cost of replacement, capitalized earnings, future earnings, market data and the intangible but important goodwill value.

Generally, the methods depend on the type of business and why you’re measuring it and will fall under an asset, market or income approach. A manufacturing business, for example, may put more emphasis on the balance sheet and value of the fixed assets. A service business without a lot of fixed assets, on the other hand, might focus on cash flow, earnings and good will.

The purpose for the valuation is another important factor in determining the method. A healthy business looking for new ownership may use a very different method than a struggling one looking to liquidate or a small business owner planning to gift shares of the business to family members.

Because of all the variables, business valuations can be complicated, so the first step is finding expert help to guide you in the process. An accountant with particular experience in valuation in your industry or a valuation firm can help you determine the appropriate standard and method for evaluating the subject business.

Valuation firms generally go across industries. They find similar businesses around the country and use factors such as stock or purchase price to arrive at a fair market value. The best indicator of fair market value is what an unrelated third party would pay for the business.

Business valuations can be expensive, so it’s wise to get a couple of quotes. Prices can vary widely and will depend on the type of business, gross receipts and the purpose of the valuation.

Keep in mind, if you are evaluating a business for lending purposes, your bank will generally do its own valuation using its own tools. Although their conclusion may differ from that of an accountant or valuation firm, the bank would still use its own method when determining the amount it is willing to loan a business.

In order to perform a proper valuation, the experts will need financial statements for the last three to five years, a list of assets and depreciation schedule, organizational and operational books and records, and details of any existing employment or client contracts. It also helps to have vendor and supplier lists, insurance contracts, information about any government orders or environmental issues, land surveys and business plans and a list of licenses needed to operate the business.

Appraisers typically combine that information with external valuation processes and use a few different methods to arrive at a value. Rather than averaging the findings from the different methods, they rank them according to their relative importance in the business type and industry and arrive at a final value estimate. Most then will test the final value estimate for accuracy.

Without a valuation, it’s not uncommon for business owners to over- or under-value their companies, simply because they may not be aware of all the variables or current market prices. But if you’re looking to conduct any transaction where you need to know the actual value of your enterprise, an accurate valuation is the only way for all parties to proceed fairly and with confidence.

Reprinted with permission from The Business News, April 21, 2008.

Organizing a new corporation can be a daunting task. While new owners are eager to begin providing and marketing their new product or service, they face a multitude of forms and details required to get underway. It’s tempting simply to focus on the bare minimum, the here and now, and, consequently, overlook one of the most important tools for your long-term success.

Laws and regulations don’t require buy-sell agreements, but securing and protecting your business interests do. Buy-sell agreements spell out what happens to shares when one of the shareholders leaves the company, detailing pricing and terms of payment.

Buy-sell agreements typically apply to corporations, but similar agreements are also recommended for partnerships and other business structures where shares of the company are closely held and involve more than just one individual. Such agreements are important because most people carefully choose their business partners, and they don’t want unknown third parties coming in, buying stock, reviewing the books and dictating the course the business should take.

Developing a good buy-sell agreement takes much discussion and time. Agreements should be customized to your company’s and shareholders’ unique situations, establishing different buy-sell terms for the many scenarios your company may face.

Most agreements will include five primary considerations.

• Trigger events. This details the circumstances to which the agreement applies. Business owners will want to consider (but not necessarily include) provisions for voluntary sale, involuntary sale, death, disability, divorce (in which a shareholder’s spouse is granted shares of stock) and bankruptcy.
• Valuation of shares. Perhaps the most difficult part of establishing buy-sell agreements is establishing the price of shares. One of the more common means for arriving at a price is for shareholders to determine the value each year at annual meetings. Theoretically, if you have all shareholders — each with an interest in their own shares and the success of the company — working together to establish the value, you can arrive at a fair price. Prices can also be based upon book value of the assets, a multiple of earnings, capitalized earnings or some other formula. Accountants can be valuable resources for helping you determine what makes the most sense for your company.
• Options/required purchases. It’s important to spell out who is entitled to purchase shares. You may want to stipulate that the shares are purchased by the corporation itself, that remaining shareholders are required to buy the shares or that remaining shareholders simply have first option to buy.
• Payment terms. When determining payment terms for purchasing shares, you may want to consider different terms for different trigger events. For example, if a shareholder leaves to join a competitor, you may want to buy them out (at a lower price) and pay them more slowly and at a lower interest rate. On the other hand, if a shareholder dies, you may wish to pay their estate quickly. If such a layout would be substantial, the company may benefit from having life insurance policies on its major shareholders, ensuring the cash is there when needed.
• Enforcement. Even the best buy-sell agreements can be interpreted differently by different people, especially when it comes to valuation. It’s best to anticipate such differences by including a section regarding enforcement. Here you can stipulate how disagreements will be handled. Will you go to court right away or will there be an attempt at arbitration? If you seek arbitration, will it be binding?As with any important business documents, it’s important to seek help from professionals. Look for an accountant experienced in valuation and one who has a track record for helping companies in this regard. Likewise, you’ll want an experienced attorney to help you draft the buy-sell agreement that’s best for your business. Just as you would with your business partners, seek people whose judgment you respect and with whom you feel comfortable working.Finally, remember that a good agreement not only will protect individual shareholders and their beneficiaries, it will also protect the business, ensuring your hard work here and now will result in lasting impact and long-term benefits.

Reprinted with permission from the River Valley Business Report, Summer 2002.

Buying or selling a business may be one of the biggest career and personal decisions you'll ever make. Making the right decision can bring personal and financial rewards you could not have realized otherwise. Making the wrong decision can do just the opposite. 

The key to making the right decision is taking every step carefully-weighing everything from the value of the business to financing the sale.

Step 1—Evaluate the business's worth. Obviously, a business valuation is critical for setting the right price for the business, but it's also critical for securing financing.

The valuation method used will depend on the type of business. It can be based on past or current earnings, return on assets, cash flow, the balance sheet, value of assets and other factors.

Accountants and valuation firms experienced in evaluating businesses in the subject industry or profession can help determine the correct standard and method for the valuation as well as help guide buyers and sellers through the valuation and sale process.

Step 2—Negotiate the purchase structure. If the business is a corporation, the buyer and seller will need to decide whether to transfer assets or stock.

Sellers will tend to want a stock sale for tax purposes. The sale of stock is the sale of a capital asset, so the seller pays income taxes on any long-term gain at the current maximum capital gains rate of 15 percent.

Buyers, on the other hand, most likely will prefer to buy assets. When buyers purchase the stock of a business, they are also purchasing any potential problems the business has, such as liability claims by customers, employment law violations and back taxes. Buying stock means buying a lot of potential risks.

When buyers purchase assets, they can depreciate the assets-regardless of whether the assets had already been fully or partially depreciated by the former owner-and enjoy the resulting tax benefits.

Once the buyer and seller agree to an asset- or stock-based transaction, they'll need to weigh several other factors, such as whether to purchase all assets at once. If the seller is selling business assets and a building, for example, the parties may want to enter into a long-term lease agreement for the building with an option to purchase at a later time. A lot will depend on how much cash the buyer has available and the resulting tax impact to both parties.

It may also depend on the wishes of the seller. Many prefer to lease their buildings and enjoy steady income streams from rental (income that is not earned income and therefore not subject to Social Security tax).

Step 3—Conduct due diligence. Buyers need to review as much information as possible about the business to be sure they know exactly what they are purchasing - the good and the bad. To that end, buyers should obtain from the seller:

• copies of five years worth of tax returns and financial records;
• environmental assessments of any real property involved;
• employee records to determine which employees they may need or want to retain or rehire;
• equipment and inventory lists; and
• customer lists and purchases per customer to assess any concentration of business in just a few customers, the likelihood of retaining customers after purchase, etc.

During this phase, buyers should also consider what kind of relationship they want to maintain with sellers after the sale. In some cases, the buyer may want the seller to remain as a consultant for a period of time.

Buyers may also need to consider having sellers sign non-compete agreements to prevent them from starting another like business or working for a competitor. Sometimes buyers want to make payments to the seller over time for this very reason. As long as the buyer still owes money to the seller, the seller has a vested interest in the business performing well and is less likely to disparage the company or lure customers away.

Step 4—Secure financing. The whole process of evaluation, negotiation and due diligence should be worked on in conjunction with securing financing. All of these steps will help the buyer determine how much to pay and under what terms.

Usually for the buyer, the more you can pay over time the better. If buyers need additional cash up front, they can benefit by working with an experienced business banker who's aware of all the financing possibilities available, such as Small Business Administration and Wisconsin Development loans. A seller may prefer payments over time as well to spread out the tax impact.

Missing any one of these steps could lead to regrettable decisions. Buyers and sellers both need good teams to watch out for their best interests. From valuation experts to accountants and attorneys experienced in buying and selling businesses, trusted advisors can help you throughout the process and ensure any desired or needed contingencies are included in the final sale agreement.

La Crosse Contract Lawyer | La Crosse Business Lawyers

Many business owners, especially those in equipment and service industries (e.g., health care, consulting, information technology, insurance, food service, etc.), have long relied on automatic renewal clauses to maintain uninterrupted operations with clients. But a new law in Wisconsin now requires those businesses to notify customers of automatic renewal or extension provisions in order to enforce them.

Essentially, the law requires businesses entering, renewing or modifying any business contract after May 1, 2011, to initially disclose automatic renewal or extension in a conspicuous way. And it requires businesses to formally remind customers of the provisions upon renewal or extension. Failure to comply means termination of the contract.

The law applies to business contracts, defined as contracts “entered into for the lease of business equipment, if any of the business equipment is used primarily in this state, or for providing business services.” To meet the definition of a business contract, the agreement must be for the “direct benefit of the end user of the business equipment or business services.”

Many exceptions apply, however. To be certain your business contracts meet current legal requirements as well as your needs, consult with an experienced business attorney.

The scandals swirling around some of America’s corporate giants lately has seriously threatened their long-term viability and in at least one case led to bankruptcy. While these headline-grabbing cases largely resulted from intentional deceit and ‘cooking the books,’ many local, smaller, privately held companies are also guilty of compromising their corporate integrity. Though their mistakes are typically unwitting, these smaller entities stand to suffer the same fate as their larger counterparts.

Corporations, limited liability companies and limited partnerships, regardless of size, should take several steps distinguishing them from individuals engaged in business. People who set up these types of businesses usually do so to lessen the tax burden, protect individual officers and owners from liabilities of the business and/or take advantage of other benefits that may not be available to sole proprietors or other structures.

Maintaining that separate identity is key to enjoying the benefits. Without it, officers and owners may be held personally liable for the acts or debts of the business. Even more threatening, if someone sues the business, the person bringing the action may be looking to "pierce the corporate veil" and ultimately access the assets of individual owners or officers. In any case, be it a plaintiff or the Internal Revenue Service checking your practices, these parties will look to see if the business has been acting like a corporation (or limited liability company or limited partnership, as the case may be) in maintaining a distinct identity from its owners.

To maintain a separate identity, businesses need to take three key steps.

First, keep business finances separate from the finances of the owners. Refrain from co-mingling personal and business funds, and be sure to keep a separate bank account for the business, along with separate accounting records.

Also, be consistent in identifying personal assets versus business assets. For example, if the business owns the car you drive, the business should also carry the insurance policy that covers its use and pay for its registration each year.

Second, follow rules for maintaining your legal identity. Corporations, limited liability companies and limited partnerships should have at least one meeting per year of the owners, and minutes should record the discussions had and decisions made at the meeting. Discussions at these meetings may focus on salaries, benefit plans, major purchases, or simply offer a chance to review the past year and plan for the one ahead. The by-laws, operating agreement or other governing document may require more than one meeting each year.

Keeping board members and officers current is another critical, though often overlooked, rule. Frequently, officers who have moved or died or otherwise left the business have not been replaced.

Finally corporations are required to file annual reports with the state. Be sure to submit these and any other reports timely and consistently. Failure to do so could result in an unwanted dissolution.

Third, make sure vendors and other third parties know they are dealing with a separate legal entity rather than an individual. Whatever your status (i.e., a corporation, limited liability company, etc.), it’s important to communicate that to the parties with whom you conduct business. Your status should be included on business cards, invoices, letterhead and vehicle lettering. In addition, whenever signing documents for the business, such as loan papers, contractual agreements, etc., sign as an officer for the business rather than as an individual, indicating the name of the business and your official title.

Neglecting any of these three steps could eliminate the protections afforded as a corporation or other entity, removing the benefits and protections you originally sought when obtaining that status. By taking the time to ensure your company’s distinct identity, you not only protect the company’s integrity, you also protect your profits and your future.

Reprinted with permission from the River Valley Business Report, Fall 2002.

The speed of business today has necessitated many changes in the way it is conducted. From online stores to the proliferation of credit cards, cash transactions are nearly obsolete — requiring most businesses to extend some form of credit in order to survive.

Extending credit takes many forms. Billing for services performed, providing financing for goods and accepting credit cards are commonplace in modern business. Whatever the form, credit often encourages customers to spend more, builds good customer relations and makes customers less sensitive to price — all of which lead to increased sales.

To realize the benefits, however, business owners must exercise caution when extending credit, especially in this era of home foreclosures and consumer debt exceeding 2 trillion dollars. The first step is developing a credit and collection policy to guide future decisions. The policy should consider several factors, including

• your cash flow needs, accordingly specifying payment deadlines and finance charges;
• the cost of credit — if you will be billing clients on a regular basis, for example, you will need to calculate the time it takes to produce invoices; if you accept credit cards, you’ll need to factor in credit card fees of 2 to 6 percent of sales;
• in what instances and to which customers you will extend credit and how much credit you will offer; and
• how long your business will attempt collection before turning accounts over to a collection agency or pursuing legal remedies.

Credit policies must comply with state and federal laws governing credit and collections, so it is wise to have an experienced attorney review your policy before executing it.

Second, assess credit risk. Ask customers to complete a credit application indicating business structure (if a company) and business and bank references. Then check those references and the customer’s credit report to assess risk. You can also check public records to see if the customer has any outstanding judgments or liens.

Third, when justified, seek a security interest and "perfect" it. For larger transactions, it’s smart to get a full financial disclosure statement so you can see all the customer’s debts and assets. If you believe the customer can afford the subject transaction with your company, require him or her to provide some collateral against the debt. A UCC financing statement filed with the Department of Financial Institutions in Wisconsin will "perfect" it, letting all other creditors know of your interest in it.

Fourth, consider written agreements. In cases where you will be invoicing for goods purchased or services rendered — even in smaller amounts — written agreements can be valuable not only in clarifying payment terms but also as future court evidence if needed.

Fifth, respond promptly to past-due invoices. If a customer’s payment is past-due, contact him or her right away in person or by telephone. Customers are more responsive to people than they are to reminder notices.

Sixth, when talking with customers about delinquent payments, listen to their reasons explaining why. In some cases, late payments may be due to a problem with the product or service purchased, which you should correct. In other cases, payments may be late because of an oversight or temporary cash flow issue, indicating an aberration. Occasionally, late payments may signal growing financial problems for your customer and a need for you to curb or perhaps temporarily suspend credit privileges.

Seventh, don’t react emotionally when listening to your customers’ excuses. Instead, calmly request a payment date and amount.

Eighth, cut your losses. If you see warning signs that a customer is experiencing significant financial problems — payments become later and later, civil judgments accumulate or substantially more credit is requested — it may be time to insist on cash up front or suspend your business relationship, at least for a time.

In the end, customers are only customers are long as they are actually paying for goods and services. And businesses are only in business as long as they can turn a profit — or at least break even.

Reprinted with permission from the River Valley Business Report, Spring 2008.

Bankruptcy courts have been notoriously debtor-friendly over the years, existing for the sole purpose of giving debtors a fresh start. But a recent United States Supreme Court ruling broke with custom to give creditors a break.

Robert Marrama, a businessman who ran a flooring company in Massachusetts, filed a Chapter 7 liquidation bankruptcy in 2003. In his filing, however, he failed to disclose a Maine vacation home placed in a trust, listing the value of his interest in the property as zero.

When the trustee learned of the home, he said he would liquidate the property and distribute the proceeds to Marrama’s debtors. Marrama then tried to convert the bankruptcy to a Chapter 13 which would allow him to keep the property and pay debts over time.

Ordinarily, the law allows debtors to convert bankruptcy cases from one chapter of the code to another, but the Supreme Court’s ruling in the case allows the court to remove that right for fraudulent conduct.

A Chapter 7 bankruptcy is definitely more beneficial to debtors who can qualify because it frees them from debt rather than restructuring their obligations. In Marrama’s case, he tried to fit his circumstances into a Chapter 7 by misleading the court about his actual assets.

Like other prominent bankruptcy cases, the case serves as an important reminder to creditors to do everything possible to protect their interests — from the time they lend money to the time they learn a debtor is filing bankruptcy.

Obviously, it’s wise up front to conduct a thorough financial background check and obtain secured interest wherever possible. When debtors do fall behind on payments, don’t wait 60 to 90 days to attempt collection. Contact them right away.

When people do file for bankruptcy protection, creditors too often simply write off amounts owed by these debtors. But two relatively simple steps can make a big difference in the amount of money you can recover.

First, always file a proof of claim. A proof of claim is the only way to assert your right to any distributions from the bankruptcy. While a proof of claim doesn’t guarantee you a distribution, failing to file one guarantees you will not receive any monies from the bankruptcy process.

The proof of claim should include documentation for the debt, as well as evidence of the secured status of the debt if applicable, and should be filed with the bankruptcy court within 90 days after the first date set for the meeting of creditors.

Second, compare assets in the petition against your records. The decision in the Marrama case encourages creditors to carefully review the assets disclosed in a bankruptcy petition to see if they spot any red flags.

Bankruptcy petitions will list all the debtor’s assets. Compare your records and the debtor’s financial statement you collected at the time you extended credit against the assets listed in the bankruptcy petition. Remember when people file for bankruptcy, they try to minimize assets whereas when applying for a loan, they try to maximize them.

If you see an asset missing or misrepresented, report it to the trustee. Such an omission may increase the amount of debt you recover and mean a lot of money for your company. The discovery in the Marrama case, for example, meant more than $100,000 was available for creditors.

Once someone files for bankruptcy protection, your only options for collection are through the bankruptcy court. Considering that last year, more than 11,000 people and businesses in Wisconsin filed for bankruptcy protection, you have a lot to lose by simply writing off the losses. The Marrama case demonstrates well that the little time it takes to file a proof of claim and double-check the petitioner’s assets could prove valuable to your bottom line.

Reprinted with permission from the River Valley Business Report, Summer 2007

I’m behind in my credit card payments. Now they are demanding immediate payment in full. Can they do this?

When you obtain a credit card, you agree to be bound by certain terms. You will receive a written statement of those terms from the credit card company. Many agreements with credit card companies permit the company to seek immediate payment of all credit card charges if a customer gets behind in payments.

When the agreement provides for this, a company can seek immediate payment for an account in default, meaning one in which one or more payments are missed.

However, from a practical standpoint, most credit card companies will not demand payment in full, because they make money off the interest we pay," said Johns, Flaherty & Collins attorney Brian Weber.

While a company could go after a customer for missing just one payment, it is much more likely to take action for multiple missed payments. The type of action depends on how much is owed on the card.

In Wisconsin, debt of less than $5,000 goes to small claims court, which is faster and less complicated. A higher debt goes to Circuit Court in a civil lawsuit, which can take 18 months or longer. Increasingly, credit card contracts contain arbitration provisions that provide for arbitration to resolve the issue.

"Generally, small claims court is quicker than arbitration, and arbitration is quicker and less expensive than a civil lawsuit," Weber said.

In all of these cases, debtors can give their side of the dispute in court or to the arbitrator. Many credit card agreements provide that the law that is applied is from the state in which the credit card company is incorporated, rather than the customer’s home state.

With legal and court costs, growing interest and penalties, it can be very costly to ignore credit card payments, according to Weber.

"If you get in a situation where you are in over your head and it appears that you will never pay off your credit card balance, it may be best to consult a debt consolidation advisor or an attorney," he said.

My local power company just requested an easement to erect some windmills on my farm property. What is an easement, and do I have to oblige?

An easement is the legal right to use someone else’s land for a particular purpose. Easements are sought and granted for a variety of uses, such as access roads, utility lines and windmills.

"Old-time law refers to easement interests as dominant and servient estates," says Johns, Flaherty & Collins attorney Greg Bonney. "Property owners have the servient estate which is the land burdened by an easement, and the easement holder has the dominant estate indicating the property is for their use."

As the servient estate, Bonney says you would still own the property and pay taxes on it while the power company would own the windmills and could take necessary steps on your property to maintain the windmills. While those steps may prevent your full enjoyment or use of the property, there are many cases where easements actually benefit the property owner.

You do not have to oblige the power company, but you may be subject to eminent domain rules allowing the government may impose the easement.

Whether you choose or are forced to grant the easement, be sure to negotiate for the best deal you can. In many instances, property owners are better off simply selling the land, according to Bonney. "Whatever the case, negotiate the best deal you can. If that means granting an easement, be very restrictive and specific with the rights you grant. And before you sign anything, it’s best to have a lawyer review the agreement."

For more information about easements, contact Greg Bonney at 608-784-5678.

For local or regional businesses looking to expand their marketplaces, Internet sales (or e-commerce) can place a global marketplace just keystrokes away. Last year, in fact, the business-to-consumer e-commerce market grew nearly six times faster than total retail sales. According to the National Retail Federation, 2007 retail sales reached $165.9 billion, marking an increase of more than 20 percent over 2006.

While worldwide virtual storefronts have exposed businesses to a whole new set of consumers, they have also exposed businesses to a whole new set of legal headaches. Online businesses must deal with everything from overseas sales regulations and Internet service providers’ terms to copyright and trademark issues. Yet some of the most common sources of legal problems — and solutions — mirror those of traditional brick-and-mortar operations.

• Corporate structure and identity. Business owners often spend great time and energy choosing the appropriate structure for their business and filing all the ongoing paperwork and paying all the continuing fees to keep it in effect, only to overlook it as part of their corporate identity. If your business is incorporated, your name, documents and Web pages should indicate so. If your business is a limited liability partnership, ‘LLP’ should be part of the business name and documentation. It’s important for customers, whether online or face-to-face, to know with what kind of entity they are conducting business.
• Disclaimers. If you have ever purchased airline tickets online, you’ve likely seen elaborate disclaimers, often with sections of big, bold print. Though you may not need anything as lengthy, it’s important to provide accurate, thorough disclaimers, and if there are portions of the disclaimer that have a potentially major impact on the relationship between a business and customer, those portions must be conspicuous (e.g., in bold or highlighted text). Wisconsin courts generally disfavor disclaimers that insulate an entity from its own negligence, misconduct or wrongdoing, so don’t expect a disclaimer to absolve you of all responsibility.
• Privacy. Consumer privacy has become an increasing issue online. If you plan to conduct online sales, you may want to consider a two-fold strategy to protect your customers as well as your business. First, use disclaimers to explain your privacy safeguards and limit liability. Second, take whatever actions are needed to protect the integrity of your Web site and any data you obtain from it.
• Terms and conditions. Like any contract, if you want something to be part of a business agreement, you need to put it in writing. Terms and conditions should be comprehensive, covering everything from credit terms, privacy and nondisclosure conditions to warranty details. You can even stipulate that any lawsuits filed against your business go to arbitration.
• Customer service. The biggest issue for companies involved in e-commerce is not a technical but rather a universal one. Providing good customer service is still paramount, and that entails everything from prompt response and follow-up to customer queries and complaints to coordinating your inventory to be sure you have advertised products available. The more your customers like you, the more they will come back and the less likely they are to sue you. Don’t let them down.

The legal issues and pitfalls related to Internet commerce are many and varied, but the opportunities are tremendous and diverse. And the law is catching up with technology. If you’d like to grow your marketplace by making your products and services available online, your best bet for staying safe is consulting a business attorney with expertise in e-commerce or an e-commerce consultant to be sure you have taken every practical step to protect your enterprise while unveiling it to the world.

Reprinted with permission from River Valley Business Report, Fall 2008.

It is hard to imagine how an executive of a family-owned business in the Milwaukee area could get away with embezzling $31 million from the company. But Sujata "Sue" Sachdeva, former Koss Corp. employee, is accused of spending that much money over at least the last five years on luxury clothing, furs, shoes, jewelry, trips and renovations to her home.

That astoundingly large case was very unusual but it is in some ways very similar to the smaller embezzlements that have occurred closer to home in recent years. These cases have involved thousands of dollars instead of millions in small businesses and sometimes government offices.

“In almost every case, there is a lack of accounting controls that contribute to the problem,” according to Johns, Flaherty & Collins attorney Terence Collins. “Sadly, a trusted employee who has access to the cash is usually behind the theft.”

At the lower level of companies, employees may steal by not ringing up sales and pocketing the money themselves. At higher levels, executives do something more sophisticated to mask the theft.

It is not always easy to know whether money has been stolen since a drop in profits may be because of other problems with the company or an economic downturn. But some changes in a business’ financial condition, such as an increase in money owed the company, “can also be a sign of embezzlement,” Collins said.

Other warning signs include:

• An unexpected or unexplained drop in profits
• Disorganized and/or changed accounting records
• Unusual sales returns on credits with the same customer
• An employee working late, weekends and not taking vacations and/or has a big change in his/her standard of living
• Delayed account deposits and/or bounced business checks
• Inventory shortages
• Slow collections
• Many company checks being sent to the same vendor or a vendor’s address being the same as an employee

Collins does not suggest you suspect every employee but that you ensure good controls and procedures are in place in your business.

Embezzlement can happen to you

After stumbling on some unusual changes in accounting, a business owner suspected an employee was taking money from the company.

Attorney Terence Collins, who worked with the business owner, said there were “several issues to consider.”

Since it was an employee matter, the owner had to be careful in how he handled the staff member while he quietly gathered documents and information that could be evidence of the embezzlement. Also, Collins helped the client identify insurance policies and bonds applicable to the loss.

“The big issue was how to confront the employee. We brought in the authorities to be there at the time.”

Once that person was arrested, the business owner received advice on how to clean up the problems created by the employee and prevent future embezzlements.

“In concert with accountants, we suggested procedures, especially with cash control,” Collins said. “The client turned his business around and is more confident because of the policies put in place.”

For more information on protecting your business, contact Terence Collins at 608-784-5678.

by Brandon J. Prinsen, Attorney, Johns, Flaherty & Collins, SC
(Wisconsin Business Lawyer | Embezzlement Warning Signs)

Recent events in the greater La Crosse area demonstrate that no business, no region is immune from the threat of embezzlement. It's an unfortunate reality that employers need to vigilantly safeguard their assets from those they must trust the most: their own employees.

Embezzlement often increases during difficult economic times, which may explain increasing reports of employee fraud. Experts now indicate that employee fraud costs businesses about 7 percent of their profits (Association of Certified Fraud Examiners). It causes a third of all business bankruptcies (U.S. Chamber of Commerce) and a fifth of all business failures (American Management Association).

ACFE research shows that the businesses most commonly victimized include banking and financial services, insurance, government, health care and manufacturing, with small businesses being especially vulnerable. In fact the median loss for small businesses (fewer than 100 employees) was $200,000, with check tampering and fraudulent billing being the most common ploys.

Interestingly, offenders are most often employed in the accounting department or upper management and are first-time offenders. Some of their more common tactics include:

Spotting fraud is difficult, as evidenced by the fact that so much money is lost before embezzlement is identified. Still, there are many signs that indicate something is awry. Be especially watchful for these warning signs:

If you spot any of these warning signs or suspect through other means that an employee may be embezzling from your company, act swiftly to address it. Pull together your trusted business advisors, including an accountant and an attorney experienced in spotting and dealing with fraud, to quickly investigate and act upon business theft. The longer it takes to uncover, the greater the potential loss.

• Stealing cash by taking money from tills and petty cash drawers, pocketing payments intended for the business.
• Stealing supplies and property either for personal use or resale to others.
  Adding additional people, such as family members or friends, to the payroll.
• Submitting bogus reimbursement requests.
• Accepting kickbacks from suppliers and vendors.
• Taking out loans or credit lines for the business without anyone else knowing or authorizing the loan.
• Check kiting and lapping where employees take payments intended for the company and float or move money around from other payments and between accounts to cover the theft.

Spotting fraud is difficult, as evidenced by the fact that so much money is lost before embezzlement is identified. Still, there are many signs that indicate something is awry. Be especially watchful for these warning signs:

• A drop in profits without a drop in business.
• A delay between receipt of payments and bank deposits.
• An employee's standard of living increases without a commensurate change in salary.
• Account receivables and payables don't balance.
• A large number of payments to the same individuals or an increase in business with a particular customer.
• Disorganized or missing financial documents (especially around audit time).
• Petty cash needs to be replenished more often.

If you spot any of these warning signs or suspect through other means that an employee may be embezzling from your company, act swiftly to address it. Pull together your trusted business advisors, including an accountant and an attorney experienced in spotting and dealing with fraud, to quickly investigate and act upon business theft. The longer it takes to uncover, the greater the potential loss.

How can we find out about foreclosure sales and how do they work?

Across Wisconsin in 2008 and into 2009, sheriff sales of foreclosed homes hit record numbers. Finding these sales, often held dramatically on the front steps of the courthouse, is easy.

Legal notices are published in the county newspaper of record for six consecutive weeks prior to the sale, appearing no more than eight weeks in advance. That notice includes a description of the property, time and place of the sale and the clerk in charge.

More difficult than finding a sale is identifying when such a home is a good buy, according to attorney Brian Weber, whose practice includes working with banks on foreclosures.

“Nobody wins in a foreclosure, or very rarely,” he said, adding, “You need to do your research to make sure the property is worth what you would want or have to pay. Also learn whether there are liens like property taxes against a property that you must assume.”

Since it takes six to 12 months to complete a foreclosure sale, and that happens only after a family has had serious financial problems, the house may not be in the best repair. “Very rarely do you find a house that is fully ready to move into,” Weber said.

The actual foreclosure procedure includes breach letters, a lawsuit, public notices, judgments, newspaper publication, the foreclosure sale, confirmation of the sale in court and deed transference.

“Almost always the financial institution is the only bidder,” Weber said. “If you buy a foreclosed property at a sheriff’s auction, you have to put a minimum of 10 percent down in cash or equities the day of the sale. Confirmation comes within two weeks from a judge who approves the sale, normally only a formality. At that time, you pay the balance of your bid.”

For more information on foreclosure law, contact Brian Weber at 608-784-5678.

Business owners face long holiday checklists. Not only do they have their personal gift and planning lists, but they also often have business-related lists for holiday cards, parties, client gifts or year-end bonuses. There’s one list, however, that’s paramount to a healthy business, and the end of a year is the ideal time to be sure to check every item on it.

It’s the small business owner’s annual checklist of business and legal documents — the annual review of which can dramatically affect your company’s bottom line. December is an ideal time to review core documents because it’s late enough in the year to provide a good snapshot of your company’s performance while still lending time to address needed changes before a new year begins.

• Financial Statements and Budgets — Begin by updating your balance sheet, income statement and cash flow statement. You can then use these foundational financial documents to analyze earnings ratios, evaluate all the other items on your check list and ultimately develop a budget for the coming year.
• Year End Tax Planning — Assess your tax situation to determine whether any action should be taken before year’s end to reduce your liability or adjust for the coming year’s forecast. Review property taxes, capital gains and losses, equipment or real property depreciation and projected income.
• Equipment and Real Estate Leases — Review leases annually not only to determine whether you still have the best financing available but also to understand your legal liability under the lease terms. You also need to understand the risk to your personal assets. The results will help you determine whether to renegotiate, adjust your insurance policies or change your corporate structure.
• Business Insurance — Evaluate premiums, deductibles and past and anticipated needs to determine whether adjustments are in order for the coming year. Oftentimes an annual review will reveal minor adjustments that can have a major impact on your company’s financial performance.
• Employee Benefits Packages — With the increasing cost of benefits to small business owners, it’s always wise to review your offerings on an annual basis. Be careful not only to consider the cost of benefits offered but also their worth to employees. Does your benefits package help you attract and retain valued, skilled employees? Is it competitive with what other employers in your industry offer? Occasionally business owners find that minor modifications (e.g., trading one or two holidays per year for flex time) boost employee morale and satisfaction while also saving money.
• Employment, Customer and Vendor Contracts — It’s especially important to review any contracts that may need to be renewed for the coming year. Check to be sure all parties are in compliance with the contract terms and that the contract itself conforms to any relevant industry regulations. You’ll also want to consider price/cost adjustments that may impact contracted dollar amounts. Factors such as fluctuating gas prices, supply costs and demand may dictate a need for fee adjustments.

The small business owner’s year-end checklist may not be the most fun list you’ll complete this season, but it could be the most profitable. The savings and growth that could result make it worth becoming an annual tradition.

Reprinted with permission from River Valley Business Report, Winter 2009.

With almost one in ten people still jobless in the U.S., many unemployed workers are turning to independent contractor work, bringing new opportunities — and challenges — to American workplaces.

These alternative arrangements offer both employers and contractors added flexibility and oftentimes financial benefits they couldn’t derive through traditional employer-employee relationships. But they also bring some challenges that need to be addressed in order to protect both parties. The majority of those issues center on taxation and liability.

Employers must withhold income taxes on employees’ compensation and pay 50 percent of the employees’ payroll taxes. Independent contractors pay their own income tax and 100 percent of their payroll taxes. If a person fails to pay these taxes, the Internal Revenue Service will seek payment from the business if they perceive the person to be an employee. But if it’s clear that the worker is an independent contractor, the business can’t be held responsible.

Likewise, businesses may be liable for the actions of employees when acting on behalf of employers; whereas independent contractors are liable for their own actions. That means if someone causes injury or property damage on the job and he or she is your employee, your business can be held liable and the injured party can seek reimbursement or damages from you and your insurance company.

But if that person is an independent contractor, he or she — and his or her insurance company — will be responsible for damages.

Further, if an employee is injured on the job, the company may be responsible for any worker’s compensation claims as a result of the injury. That’s not the case if the worker is an independent contractor.

Clearly, it’s important to understand the differences between employees and independent contractors, and respect the delineation. The IRS and courts primarily look at three factors when distinguishing the difference: behavior, finances and nature of relationship.

Workers are more likely to be viewed as independent contractors when they have

• a separate business entity such as a corporation;
• a written contract with the company that defines the relationship (not an employment agreement); and
• other accounts in addition to the subject company.

Conversely, workers are more likely to be viewed as employees when the company

• requires the worker comply with instructions about when, where and how the work is to be performed;
• the company provides training for the worker;
• the company requires the worker to perform services personally as opposed to subcontracting labor; and
• the company provides compensation or benefits that look like those of an employee’s.

When you consider hiring someone, it’s safest to decide up front whether that person will be an employee or an independent contractor based upon the true nature of his or her relationship with your company. Then stick with that decision.

I'm about to be named a director in a medium-sized company. Should I consider purchasing directors' and officers' liability insurance?

In the business world following Enron, it's natural to worry about whether you are liable for what a company does while serving on its board, said Brent Smith, an attorney with Johns, Flaherty & Collins.

The good news is Wisconsin offers immunity for most acts of directors while serving on boards of non-profits. "The idea is to encourage people to serve on the boards of non-profit organizations, where the great majority of directors are unpaid," said Smith, who is a busy volunteer on several state and local boards.

In the case of for-profit companies, Smith said liability insurance is important. Prospective or current board members could ask the company to pay the premiums since they receive little or no stipend for their service.

"I assume a medium-sized company in La Crosse would have between 100 and 200 people. Oftentimes, the company purchases coverage for board members," Smith said.

The larger the company, the more compensation a director usually gets for serving on the board. Insurance premiums could be part of the compensation package for directors.

"We know there is more exposure and more risk with a large national company so the premiums are larger," Smith said.

Protection from liability, whether provided by state law for non-profits or through insurance in the case of for-profits, does not extend to willful or malicious acts. That means if you happen to overlook something, you may not be held liable for this negligence. But if you know something illegal is going on and ignore it, you could have some responsibility.

"It's like with homeowners insurance; you are covered if someone trips on your sidewalk because you didn't shovel your walk," Smith said, "but not if you hit someone across the head because you didn't like him."

For more information about insurance, contact Brent Smith at 608-784-5678.

by Michael L. Stoker, Attorney, Johns, Flaherty & Collins, SC
(Wisconsin Business Law — Intellectual Property and the Internet)

When the Internet first began to shape popular culture more than a decade ago, few could have anticipated the astounding impact it would have on commerce, education and even social relationships. Unfortunately, the Internet’s ability to foster commerce and creativity often collides with preexisting laws that are not well-suited to this new medium. As its use and applications continue picking up speed, the courts and legislators responsible for developing Internet-related law must wonder if they will ever catch up.

One area where this is readily apparent is intellectual property law, especially copyrights and trademarks. The law has been slow to adapt, many issues remain unaddressed and many of the laws out there are punitive. In this global, instantaneous network of human creativity, laws that are too restrictive or too punitive could jeopardize the intellectual wealth and dynamism that make the Internet what it is today.

As the law struggles to adapt, businesses (and individuals, for that matter) would be wise to follow the traditional tenets of intellectual property law — a field designed precisely to encourage individual entrepreneurship and creativity. Then, as the law adapts, so must Internet participants.

Essentially, intellectual property laws protect the rights one has when he or she creates something new. They can apply to the written word and visual arts, computer programs and manufacturing processes. In the United States, the laws have fostered creativity because people can make money — sometimes lots of money — from the new things they create.

Intellectual property encompasses

• copyrights (literary, musical, dramatic, choreographic, pictorial or graphic, audiovisual, or architectural work, or a sound recording);
• trademarks (words, names, symbols, devices or any combination thereof used to identify and distinguish goods or services of one company from those sold by others);
• patents (to protect new inventions, including devices, methods, processes or compositions of matter); and
• trade secrets (confidential business practices or information).

Currently, businesses that engage in online activities, whether merely promotional or fully interactive, find copyright and trademark laws to be most problematic.

Copyright infringement is perhaps the most pervasive problem on the Internet today when it comes to intellectual property. The World Wide Web is a huge engine of creativity, comprising millions of participants sharing information back and forth. Routinely, information is passed from one party to another and then another. Eventually, some 40 or 40,000 connections later, it can be difficult if not impossible to attribute the information to the original source.

To protect your company from copyright infringement, always do your best to attribute information acquired through other parties, including those on the Internet. Familiarize yourself with the protections offered by the "fair use" exception to copyright infringement.

If yours is a site that operates online bulletin boards, auctions, chat rooms and links to other Web sites, you’ll want to be familiar with the Digital Millennium Copyright Act (DMCA). Under the DMCA, your company is protected from copyright infringement on your site that stems from user-generated content so long as you inform users of your copyright-compliant policies and adhere to the notice and takedown procedures outlined in that law. (Specifics can be found at http://www.copyright.gov/legislation/dmca.pdf.)

Trademarks are especially tricky nowadays. It used to be that separate companies in Wisconsin and California could provide similar local services under similar business names or with like logos or slogans and never even know the other exists. Through the Internet, these companies can and do collide with surprising frequency. And one (or both, if a new player comes along) may be forced to change its corporate identity.

The general rule here is that whoever goes to the trouble to register the trademark first owns it. The advice to business owners: If you’re serious about your company name, logo or slogan, get it trademarked.

In addition, as tempting as it may be, business owners should resist the urge to include unrelated global or national brands in their Web site meta tags. This is a tactic many companies have used to draw traffic to their Web sites, attempting to capitalize on popular search terms — and the intellectual properties of other companies — to promote their own brand. But it’s seldom worth facing lawsuits from these deep-pocketed corporate giants. Keep in mind that if they’ve considered their brand important enough to invest millions of dollars in promoting it, they won’t hesitate to invest what’s needed to protect it.

Today, we know the Internet allows businesses to find information, get and share ideas, sell products, bond with other sellers and find good vendors. It’s an important, if not essential, place to be.

What we don’t know, however, is how social media will affect intellectual property law (and vice versa) or what new legal challenges await. In the meantime, all we have is traditional law, good legal advice and our own ethical sense to keep us on a somewhat safe footing.

Reprinted with permission from The Business News, July 2009.

by Gregory S. Bonney, Attorney, Johns, Flaherty & Collins, SC
(Wisconsin Business Law — Intellectual Property Rights)

Virtually every business deals in some way with intellectual property. Whether it's a restaurant wanting to protect its secret recipes, a computer firm laying claim to newly developed software or a car wash seeking exclusive use of an advertising slogan, most at some point will want to keep their ideas from being used by others.

Generally, the law allows a business to protect its unique ideas through the use of three avenues: copyrights, patents and trademarks. A copyright is the easiest to obtain. Copyright laws protect an "expression fixed in a tangible form" through which the work "can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device."

Copyrights apply to both published and unpublished materials, including literary, musical, dramatic, choreographic, pictorial, graphic, sculptural, audiovisual and architectural works, as well as motion pictures and sound recordings. That means the copyright laws allow you to protect everything from your technical, training and employee manuals to your website, company videos and PowerPoint presentations. To be protected, works must be original. In other words, they must be independently created by an author and have some element of creativity. A copyright is not available for inventions since copyright laws protect expressive (artistic/creative) matter rather than useful or functional matter.

A copyright exists as soon as an original expression is fixed in tangible form, and you can use the symbol (©) to designate the copyright. However, it is generally not enforceable until registered. Registration protects your work against a direct copy and allows for a lawsuit to prevent infringement. Keep in mind that if works are registered within three months of publication, registration also allows for certain costs and attorney's fees upon enforcement.

The application fee for most copyright applications is only $30, and registration can occur rather quickly. To obtain an application, visit www.copyright.gov.

Trademark registrations are more involved. They cover words, symbols, packaging or other matters used in commerce to identify goods or services and distinguish them from others. Examples are logos, slogans and product or business names.

As with copyrights, federal registration is not required but makes enforcement of your trademark easier. Costs vary widely, ranging from a few hundred dollars to thousands of dollars, depending on the nature of the goods or services to which the mark would apply, as well as current government and attorneys' fees. The process can also take several months.

Trademark applications have many technical requirements. For example, in addition to a full description of the goods and services to which the trademark applies, you must include a drawing or picture of the mark and examples of how the mark is being used in commerce.

For cursory searches of registered trademarks, visit http:tess2uspto.gov. The use of a trademark attorney is advisable for a more extensive search. If you believe you have common law rights to the mark, you can use the "TM" symbol prior to registration, but the circle-R (®) cannot be used unless the trademark is registered.

Trademark registrations are valid for five years initially and in ten-year increments thereafter if additional filings are made.

Although the federal registration process provides you with the greatest protection, you may also register your mark with your state. However, state registration is primarily designed only to provide notice of a claim to a mark. In other words, a state filing proves when you started using the mark. The process and fees vary from state to state.

Patents are granted by the federal government to acknowledge certain exclusive rights to an invention for a limited period of time. A patent essentially gives you a monopoly over the use of an invention and prevents others from making, using or marketing the invention in the United States and its territories. Patent applications are extremely complicated, and you're best off beginning the process by consulting a patent attorney.

The process for registering copyrights, trademarks and patents varies greatly in expense, time and complication. But one need look no further than Arthur Agatston's The South Beach Diet©, 3M's Post-it Notes® or Pfizer's patented Viagra® to see it's a process that can make a valuable difference to your business.

Reprinted with permission from the River Valley Business Report, Winter 2004.

La Crosse International Business Lawyers | International Business

Business once was done with just a handshake, a symbol of trust. In the international market—and really any market—it is far better today to have a strong contract.

For global markets, a contract could be based on local law like those of Wisconsin, or more likely New York whose laws are most commonly used and recognized in multi-jurisdictional transactions. But most international contracts follow the United Nations Convention on Contracts for the International Sale of Goods (CISG).

Attorney Greg Bonney said Brazil, India, South Africa and the United Kingdom are some major trading partners that have not ratified the CISG. And some nations that have signed on may have indicated reservations—which mean they have rejected certain aspects of the CISG.

One of the biggest differences between law in the United States and under CISG is when the contract is considered accepted and in force. In the U.S., a modification does not typically affect the entire contract. Under the CISG, if one party makes even a small change, it is considered a counteroffer. Both parties must then specifically agree to the new terms before there is a valid contract.

La Crosse International Business Lawyer | International Business

World markets may be at your fingertips, but buying and selling across the world is much more complicated than clicking the mouse a few times.

“United States merchants need to understand local customs in different countries in order to secure supply contracts or sell their products abroad,” said Attorney Gifford Collins.

International law and cultural competence are interests of Collins, who studied in Belgium as an undergraduate at Missouri State University and in Shanghai, China, while a student at the Thomas M. Cooley Law School.

U.S. businesses with international operations, or considering them, need to be aware of their options if the supplier does not do what was promised or if there are problems with the quality of product or supplies.

“As lawyers, we attempt to provide our clients with foreseeability—the potential solutions to risks clients might encounter if they expand into another market,” Collins said. “Our job is to provide a solution that will protect our client but allow for a smooth business transaction.”

Ideally, Collins said it is best to visit prospective clients or suppliers in another country or at least to have a trusted representative on the ground there.

Other issues to consider are differences in environmental standards and anti-piracy
regulations.

“If you get raw material or labor from a different country, it is important to visit that country from a corporate responsibility perspective and understand their environmental processes or working conditions,” Collins said. “It’s important to know where the material came from and how it will be processed, manufactured and shipped.”

by Brian G. Weber, Attorney, Johns, Flaherty & Collins, SC
(La Crosse Business Lawyer — Business Lawsuits)

Few business owners begin operations expecting to be sued, but statistics from the United States Department of Justice suggest it’s a reality many will face at some point. In Wisconsin alone, more than 300,000 civil lawsuits were filed in 2002, and nearly half of those named a business as defendant. That means on average a suit is filed against a business in Wisconsin every five minutes.

Business disputes are more complicated than many other types of legal actions. The issues involved can vary greatly — from personnel matters and contractual disagreements to product liability and environmental disputes. And, regardless of how you may feel upon being served a complaint, business lawsuits can come from parties that carry prospects for ongoing or future business. It’s difficult but important to detach yourself from becoming personally involved in the argument. Not only will that help you better maintain important relationships, but it can also help you maintain focus on your core business.

Obviously, the best way to accomplish this is to hire a trusted, capable attorney. If you don’t already have an attorney, look for someone experienced in business litigation and specifically in handling the sort of dispute in which you’re involved. Fellow business owners and other business advisors, such as accountants and financial consultants, can be great referral sources.

Upon receiving notice you’re being sued, gather all your documentation related to the dispute and make a list of people who would have information relevant to it. Then call your attorney to discuss your next steps and ensure a timely response to the complaint. If you carry insurance related to the claim, your attorney can also help you present the claim to your insurance company. This is an important step because how you present the claim can affect whether it’s covered.

You may be tempted to call the other party to discuss the matter. Don’t do it. If you’ve reached the point where they have filed a suit against you, it’s a good sign they’ve moved beyond trying to resolve it directly with you. More importantly, you could worsen matters by saying something that could be used against you later.

In reviewing your options, your attorney will likely discuss alternative dispute resolution (ADR), including arbitration and mediation. And frequently, judges will order it before hearing your case. ADR is worth your attention because it can dramatically reduce costs associated with defending the suit and the time required to resolve it. On average, jury cases take about 22 months to resolve and bench cases, where decisions are rendered by judges, take about 16 months. ADR is much quicker because it operates independently of the court’s calendar, with many cases resolving in about six months.

Mediation is the more common method and effectively resolves a high percentage of cases filed, many with just one meeting. With either method, a mediator or arbitrator (usually another attorney) is assigned to the case to hear both sides. A mediator will negotiate between the parties to help them reach their own resolution, whereas an arbitrator will hear both parties and determine a resolution. Arbitration can be binding and enforced by the courts.

If your case is heard in court and you’re dissatisfied with the outcome, your first impulse may be to appeal the case. Approach this decision carefully to avoid unnecessarily spending more time and money. In general, disagreeing with the judge’s decision about what the facts are is not a good reason to appeal. But if you believe the law has been misapplied, an appeal may be in order. If you wish to proceed with an appeal, consider the amount you’re obligated to pay as a result of your loss versus the expense involved with appealing. You may find it more satisfactory simply to pay the judgment.

Most business attorneys will tell you the majority of lawsuits they handle result from small problems that go untended. The best advice is to work aggressively to resolve business problems when they first come to your attention. It’s a lot cheaper, a lot faster and a lot easier than dealing with a lawsuit. And it’s a lot better for your long-term business relationships.

Reprinted with permission from the River Valley Business Report, Fall 2004.

Whether you’re starting a new business or growing an existing one, you probably need equipment to get the job done. For many, the inclination is simply to buy new equipment when needed, but leasing may be a better alternative. Understanding the pros and cons of leasing versus buying, can help you determine which is best for your cash flow and your bottom line.

In many ways, leasing is just another form of financing. Both will depend on credit worthiness and both will include interest costs.

Leasing offers two chief advantages over buying. First, most leases will finance 100 percent of the purchase, so there’s no need for a down payment and your capital remains available for other operational needs. Second, 100 percent of the lease cost is tax deductible. When you purchase business equipment with financing, only the interest is deductible.

Another, lesser, advantage is that the company that owns the equipment is responsible for its maintenance and disposal. Being free from maintenance issues allows the lessee to focus on its core business and eliminates headaches of selling or properly (i.e., in accordance with Environmental Protection Agency rules) disposing of equipment when it’s outlived its usefulness.

The major disadvantages to leasing are that at the completion of a lease, you have nothing to show for it — unless you have a buyout option; and internal interest rates (that are already figured into the lease cost) are typically more expensive.

Buying, on the other hand, means the equipment is yours once you’ve paid for it. If the equipment is something you’ll likely be using 20 years later, that’s a significant advantage. Also, Section 179 of the Internal Revenue Code allows you to deduct the cost of some newly purchased assets in the first year. Even if the equipment doesn’t qualify for Section 179 deductions (real estate or retail inventory, for example), you can still deduct depreciation.

The primary disadvantages to buying are availability of capital and equipment obsolescence. Often, traditional financing requires a down payment of 20 percent. That may put the cost out of reach for some businesses, cause too much strain on cash flow or tie up credit lines that could be used for other opportunities.

Buying also doesn’t make sense for equipment that will soon be outdated. This is particularly true for high-tech equipment, such as computers and copiers which will have little if any resale value by the time they are paid for. Leasing such items provides a built-in schedule for updating to the latest technology.

When deciding whether to buy or lease equipment, it’s important to look at the transaction from all angles: length of financing, tax savings, other capital needs, equipment obsolescence and total costs (including employee time). Above all, look beyond the monthly payment to be sure your business can afford the overall investment.

Reprinted with permission from the The Business News, November 19, 2007.

On credit card owed, if they take a judgment, can they make me sell my property or only have a lien in case one day I do sell my property?

Once a creditor has obtained a judgment for an unpaid debt, there are several collection methods available to the creditor, said Johns, Flaherty & Collins attorney Maureen Kinney. A creditor may garnish your paycheck or attach your checking or savings account at a bank or credit union. A creditor may also execute on the judgment, which is a legal proceeding to attach and sell property, including both real estate and personal property.

If a creditor attempts to sell property, the debtor can assert rights to certain personal exemptions, much like bankruptcy. In Wisconsin, for example, a debtor is entitled to keep up to $40,000 of equity in personal residence. Each state has different limits as to what types of property are considered exempt or for how much, said Kinney.

As a practical matter, attempting to sell the property is not often beneficial because the proceeds are applied first to prior mortgages or back taxes on the property and only then are creditors paid. Frequently the creditor ends up having to purchase the property subject to all the back liens or taxes in order to realize any gain. Consequently, the creditor may get very little or nothing once those other liens are paid.

A judgment is a lien on the debtor’s property. It is often most effective for a creditor simply to have the lien continue in existence until either the debtor sells the property or the debtor wants to borrow money and needs to clean up his credit rating and pay outstanding judgments, said Kinney. Upon sale, particularly real estate, the debtor would have to pay the judgment lien from the closing proceeds.

For more information on collection law, contact Maureen Kinney at 608-784-5678.

I live in a mobile home park and the owner says he's going to kick me out if I don't make some updates to my home. I can't afford it right now, and I can't afford to move. Can I be forced to move?

Part of the answer may be found in the written lease you signed to have your mobile home positioned in the mobile home park, according to Johns, Flaherty & Collins attorney Greg Bonney.

"Mobile home parks must have a written lease agreement with attached rules and regulations," he said. "Typically, the rules and regulations contain guidelines for maintaining your mobile home and surrounding area. If the rules and regulations are violated, you could be required to leave the park."

If a mobile home presents a threat to the health or safety of its occupants or others in the park, state or local authorities could require the home be vacated. A lease could also be terminated if the physical appearance of the mobile home disrupts the rights of others to enjoy and use the park.

However, the law does not allow the owner of a mobile home park to require a new mobile home be purchased or discriminate against you solely because of the age of your mobile home or because the ownership or occupancy of the mobile home has changed.

Like any other landlord, a park owner or operator has the right to screen prospective tenants. If a mobile home is sold, the park owner could refuse to allow the mobile home to remain in the park if the prospective owner does not meet certain reasonable and lawful criteria.

For more information about landlord-tenant issues, contact Greg Bonney at 608-784-5678.

I recently accepted an invitation to join a nonprofit board. Once I got on the board, I learned the organization was in big debt and I began receiving letters from bill collectors. As a board member, am I liable for the organization’s debts?

The simple answer, according to Attorney Brent Smith, is that directors and officers of
nonprofits are immune from liability in nearly all instances.

“In most cases, you are not personally liable even if the board makes a mistake,” Smith said.

The Wisconsin Legislature passed a law in 1997 exempting board members from being personally responsible for such errors. It was meant to encourage more people to volunteer their time on these agencies. “It also saves nonprofits money because that law provides some protection should they choose not to carry errors and omissions insurance for their board members as they did in the past,” Smith said.

This issue of service is close to Smith’s heart as he is active on many boards, including
the University of Wisconsin System Board of Regents; the La Crosse Center Board
of Directors, of which he is president; the Gundersen Lutheran Health Plan Board; the
Wisconsin Technical College Board; the Great Rivers United Way Board and the Seven
Rivers Alliance Board.

What are the exemptions that could make you liable?

• If you violated criminal law in an action you took on the board, knowing what you
  did was illegal or having a reasonable expectation that it was.
• Willful failure to deal fairly with the corporation or its members on a matter in
  which you have financial conflict of interest, such as convincing the nonprofit to do business with your company.
• A transaction from which you improperly gained a personal benefit.
• Willful misconduct, which means you intentionally did something that you knew you should not have done even if it was not illegal.

“No one should be afraid to serve because of fear of personal liability,” Smith said. “Many nonprofits rely on good people to volunteer time on their boards.”

La Crosse Corporate Lawyer | Nonprofit Board

It’s well known that half of all new businesses will fail in the first five years. The outlook is even bleaker for partnerships: up to 70 percent of those don’t last, according to AssociatedContent.com.

When they work, however, partnerships offer business owners a number of advantages — drawing upon a broader range of talent and skills and increased contacts of multiple participants, resulting in greater revenue potential. Additionally, partnerships are four times more likely to succeed than sole proprietorships.

Unfortunately, those prospects often entice people to begin working together before they have formalized all the details of their partnership. Up-front due diligence is crucial to being among the 30 percent of partnerships that succeed.

The first step is identifying your potential partner(s) much like you would in hiring a key employee; it should extend well beyond friendship. Does this person have strengths that complement your weaknesses and visa versa? Do you communicate well? Do you have similar values and a shared vision for the company?

Once you’re reasonably certain you’ve found the right partner, work together and with other experts to set up the business. Meet with accountants to be sure you properly set up your books, inventory tracking and profit and loss statements. Talk with business bankers for advice about cash needs and cash flow analysis. Consult with a lawyer about the legal form for your partnership, ownership interests and management decisions. The Small Business Development Center at the University of Wisconsin – La Crosse can be another valuable resource for startup companies in assuring you have a solid business plan and have covered all the critical aspects of your business operations.

The process of setting up the business will tell you a lot about your potential partner and your long-term viability together. Much like premarital counseling, it will help you identify and preemptively address potential problem areas — such as allocating job responsibilities and establishing solid customer, billing and other policies.

If after that process, you’re still confident you want to be business partners, get it in writing. Your partnership agreement should include basics such as individual responsibilities and allocation of ownership interests. Oftentimes, partners naturally assume a 50-50 ownership interest when in fact they, and the business, would benefit more from another arrangement. Even a 51-49 split can help during times when you can’t reach consensus on an issue — helping the company move beyond paralyzing stalemates.

Exit strategies should also be detailed in writing before business operations begin. They can be included in the partnership agreement or in a separate buy-sell agreement. Exit strategies should detail what happens to the business or a partner’s interest in the event a partner (a) voluntarily leaves the partnership to pursue other interests; (b) involuntarily leaves (e.g., due to a falling out or other reason such as a need to relocate); (c) dies; or (d) becomes disabled.

Deciding these issues up front — while each partner shares the potential to fall into one of those categories — is the best way to assure fairness in the future. Otherwise, a partner may need to take legal action to dissolve the company, with a receiver being appointed by the court to take control and liquidate the assets.

For this reason, it’s wise to include mediation or arbitration clauses in any partnership or buy-sell agreement. These clauses will help you avoid costly lawsuits and help save the company you worked so hard to build.

John D. Rockefeller noted, "It's better to have a friendship based on a business partnership than a business partnership based on a friendship." If you’re starting your business as friends, a clear, equitable and comprehensive partnership agreement at the outset can be your best assurance you’ll remain friends.

Reprinted with permission from the River Valley Business Report, Winter 2007.

Is there a law that after a retail item has been sold by a business and then goes on sale for a lesser price that the business has to refund the difference? If so, is there a time limit on this refund?

We all like a bargain, even after the fact. While some stores will refund the difference if a product later goes on sale, it is to make customers happy rather than a law, according to Johns, Flaherty & Collins attorney Brian Weber.

“Many stores have a policy where they refund the difference, but that is simply for public relations purposes,” Weber said. “The analogy is that you don't have to pay the difference if the price goes up either.”

While some stores will refund the difference, check out their policy before you buy. Often the opportunity has a short window like 14 to 30 days.

For more information about laws governing retail purchases, contact Brian Weber at 608-784-5678.

by Ellen M. Frantz, Attorney, Johns, Flaherty & Collins, SC
(Wisconsin Employment Lawyer — HIPAA Compliance)

If you’ve been to a healthcare provider in the past six months, you’ve likely been handed new forms to complete — indicating you have read and understand the provider’s privacy policies. While the forms may seem unnecessary, especially after so many years without them, they represent an important step in safeguarding your privacy.

The forms are a result of a new law referred to as HIPAA, the Health Insurance Portability and Accountability Act of 1996. Despite its formal name, the law went into effect in April this year and essentially requires new safeguards to protect the security and confidentiality of health information.

HIPAA applies directly to healthcare providers, health plans, healthcare clearinghouses and pharmacies. It represents the first-ever federal privacy standards to protect patients' health information provided to health plans, doctors, hospitals and other healthcare providers, especially as electronic exchanges and transactions become more common.

Specifying rules about everything from sending faxes regarding a patient to posting medical charts outside exam room doors, the law aims to:

• Increase patient access to medical records.
• Provide patients with a notice of privacy practices (hence, all the new forms).
• Limit the non-consensual use and release of personal medical information.
• Restrict the use of patient information for marketing purposes.
• Ensure patient privacy while not impeding medical research.
• Require doctors, health plans and other covered entities to take reasonable steps to ensure patient communications are confidential.
• Establish new criminal and civil sanctions for improper use or disclosure, including civil penalties of $100 per violation and up to $25,000 for multiple violations; and criminal penalties up to $250,000 and/or 10 years in prison.

Obviously, the law impacts you as an individual, but it may also impact your business — even if you work outside the healthcare industry. If your business comes into contact with confidential medical information due to relationships you have with covered entities, you are considered a "Business Associate" and have obligations under the new law as well.

Business associates are bound to the same enforcement mechanisms as covered entities, and a business associate agreement formalizes that understanding. For a sample business associate agreement, visit the Department of Health and Human Services Web site at http://www.hhs.gov/ocr/hipaa/contractprov.html. Keep in mind that you should never rely completely on a model document or one drafted by others. Make sure your agreement is tailored to your particular situation.

Examples of business associates include billing and collection companies; transcription services; answering services; medical record storage companies; billing and practice management software vendors; outside legal services; record copying service vendors; temporary staffing agencies; transcription vendors; consultants and accountants who have access to protected healthcare information.

While the responsibility for obtaining the signed agreements belongs with the covered entity, corporate responsibility suggests that all entities working with individual medical information proactively pursue compliance with the new law.

Without doubt, HIPAA has required a lot of retooling and new paperwork, but with the transition nearly complete, the privacy law will bring peace of mind to many — including the covered entities who have successfully completed the transition and those protected by it.

Reprinted with permission from the River Valley Business Report, Fall 2003.

Perhaps Renaissance painter/sculptor Leonardo Da Vinci anticipated this question when he said long ago, "Art is never finished, only abandoned."

Does that statement mean he has abandoned all rights to the Mona Lisa, The Last Supper or another of his works so you can use it in your advertising?

Whenever possible, said attorney Joe Veenstra, “You should always seek permission from the source of the material you intend to use.”

However, Da Vinci, who lived from 1452 to 1519, is not around to give his approval. If you are using a version of Da Vinci’s art from the Internet or some other source, you should seek permission from the producer of the copied artwork if possible.

Although there was no copyright law at the time he painted the Mona Lisa, if he had produced the Mona Lisa today, the copyright protection would expire 70 years after the artist’s death. It then is in the public domain. Veenstra also notes that when a painting is created in another country, the law may be different, though the U.S. does have agreements providing reciprocal protections with many countries.

There can also be complications when you are working with reproductions. That was true in one interesting court case that occurred in 1999. Bridgeman Art Library, a British company, sued Corel Corp. for selling a CD compilation of fine art in the public domain. The library, which sells color transparencies of “museum-quality reproductions” of the same artwork, claimed it held the copyright. The U.S. court held that the library was not entitled to copyright protection because it had made “slavish” copies. It could not hold a copyright for exact reproductions.

What might have made the British art library’s transparencies copyrightable? If the reproductions had not been slavish, but instead were modified to create new takes on the old masters, the library’s transparencies might be protected.

Somewhat ironically, a minor, yet arguably creative modification can provide copyright protection to the person modifying the original artwork.

For more information on copyright law, contact Joe Veenstra at 608-784-5678.

How do we put my mother's real estate in mine and my siblings’ names in a way that keeps it in the immediate family? We do not want spouses to gain ownership if one of us dies. Also, how can we legally make sure one of us won't force the other to buy out for at least 15 years?

According to litigation attorney Terence Collins, a simple two-step process can resolve both ownership issues. The first step is to name the children as tenants in common, so each is an owner of the property.

The second step is to develop and enter a buy-sell agreement between the property owners, or siblings in this case, that dictates what happens to the property upon any one owner’s death. The buy-sell agreement then will control what happens to the property against the claim of a spouse who may assert ownership.

Although it is very difficult to force anyone to sell his or her interest, that potential problem could also be covered in the buy-sell agreement.

I have a backyard trampoline and I’m concerned about my children’s friends falling off and getting hurt. Am I responsible if they are injured?

Wisconsin's "recreational immunity" statute should provide protection if someone is hurt while participating in recreational activities on your property, according to Michael Stoker, an attorney with Johns, Flaherty & Collins.

The law, passed in 1963, protects property owners from lawsuits for outdoor activities for "exercise, relaxation or pleasure, including practice or instruction."

"This statute means people on your property engaged in a recreational activity can't sue you for the injury or damages they sustain," Stoker said.

The law, which applies to government and nonprofit or private landowners, does not provide immunity:

• To owners who receive more than $2,000 a year from admissions or other fees.
• For malicious acts or maliciously failing to warn others of dangerous conditions.

The law does not apply in all cases. Consider a recent, local example. Two lawsuits arose from a tragic death in 1997 of an 11-year-old boy in a Paper Recycling warehouse fire in La Crosse. His two friends escaped.

The insurance company of the warehouse owners sued Paper Recycling, as did the boy's mother in a separate lawsuit. Paper Recycling claimed recreational immunity. Two lower court judges disagreed about whether the boys' activities fit the definition of recreation. They did not have permission to be in the warehouse and one of the boys was later found to be delinquent for playing with matches.

In June 2001, the Wisconsin Supreme Court ruled that Paper Recycling was not entitled to recreational immunity in either lawsuit. In a 5 to 2 vote, the justices said the boys were not involved in a recreational activity when they lit the fires.

Wisconsin also has a "recreational activities" statute limiting the right of a participant in organized sports to sue for injury. This law holds that individuals accept inherent dangers when they participate in public recreational activities.

"When you play softball or flag football in a city league, the law holds that you know, and have accepted, the risks involved in the activity and that you know the rules," Stoker said.

For more information on liability issues in Wisconsin, contact Michael Stoker at 608-784-5678.

Pundits have long discussed the life cycles of businesses, often reducing them to tidy four- or five-phase sequences. For business owners, however, the stages are not so clear and can be fogged by their own personal life cycles.

One of the biggest risks in this haze is for owners to sell their businesses when they aren’t ready, leading to seller’s remorse.

If you’re wondering whether it’s time to sell your business, it’s critical not only to examine your business but also yourself. Answering these ten questions can help you whether and when to sell your business.

• Why do you want to sell your business? There are many good reasons to sell a business, ranging from age and health to burnout and the desire to do something different. Identifying your reason for selling can help determine whether the time is right.
• What will you do after you sell your business? This is one of the most important questions to answer. It’s critical to have a solid plan for your time following the sale, whether it’s to start another company, work for another company or retire to pursue personal interests. This is especially true if your business has become an extension of yourself.
• Do you want to maintain a formal relationship with the business after the sale? Some business owners desire to continue with the company they built but with less responsibility and fewer decisions to make and may become consultants or employees after the sale. Some may find the prospect too difficult if owners decide to take the business a new direction. These are important scenarios to explore before selling and may impact sale agreements.
• Is the timing right? Timing the sale of a business is often tantamount to a crap roll, but as a general rule, it’s best to sell when the economy is healthy. As with real estate, recessions tend to result in buyers’ markets while level markets equalize negotiating positions and assure the fairest price. Consider also interest rates, industry trends and real property values.
• Is the business saleable? Though profitability is the most important factor in determining whether your business is saleable, current profit and loss statements do not necessarily reveal all. If the company, for example, is completing development of a promising new product, potential buyers may view the company as worth more than the balance sheet may indicate.
• How much is the business worth? Conducting a business valuation can help you see the true worth of your company in the current marketplace. It’s an important step that will help you see whether you really want to sell the business and when.
• How can you make the business attractive to prospective buyers? A business valuation can also help you discover any steps you can or should take to increase the value of your business. A valuation may show, for example, that decreasing your own salary or cutting expenses for a period of time before selling may dramatically increase its market value.
• Are you comfortable with the potential buyer? Business owners often have a great sense of pride that remains long after selling their enterprises. If you anticipate that may be the case for you, the decision to sale may be largely based on finding a buyer you can trust to continue the good will you developed.
• How will the sale affect your income? This answer may be largely determined by your plans following the sale (e.g., retirement, consulting, starting a new business). The answer may not only impact your decision to sale but also the form of the sale.
• How will the sale affect your taxes? Tax considerations, for both the buyer and the seller, may ultimately drive the price of the business.

Many of these questions can be answered with careful introspection. Others, such as the value, timing and tax impact, can be answered more definitively with the help of experts. As with any major business decision, it’s wise to consult your accountant, attorney, banker and insurance agent. They can help you determine whether the time is right and assure the best deal for you. When it comes to selling your business, the last thing you want to do is turn it over to someone else before its cycle in your life is complete.

Reprinted with permission from The Business News, August 2009.

If you thought the blogs were out of control during the elections, you are not alone. There were certainly many attacks against candidates in those online journals, according to Joe Veenstra, a Johns, Flaherty & Collins attorney.

Were they libelous, meaning did they defame candidates? Not necessarily. To have a claim for defamation, the statement must have been published to another person, the information must be false, and, in most cases, it must have lowered the reputation of the person about whom it was said.

If you write something defamatory about your neighbor, you could be sued for libel under the negligence or "reasonable person" standard, meaning most reasonable people would not have made the statement. But if a person is a public figure, which applies to anyone running for office, then actual malice must be proven by clear and convincing evidence. Actual malice is a higher standard which means a statement was published knowing it was false or with reckless disregard for whether it was true or not.

Calling a politician ugly is a protected opinion, but suggesting he or she is a murderer without any charges being filed would be libelous.

Also, what is considered defamatory may change depending on the context in which the statement is made. For example, calling someone a communist in the 1950's might be defamatory, while calling someone a terrorist today could be libelous. "Defamation law is changing all the time," he said.

For more information about libel and slander laws, contact Joe Veenstra at 608-784-5678.

It is always a good idea to plan ahead when starting or expanding a business.

“As a contractor working on your own, there are many requirements and risks that you need to be aware of,” said Attorney Greg Bonney. “It is good to think ahead.”

Generally, a sales tax is due in Wisconsin on the sale, lease or rental of personal property or on taxable services at retail in the state. It is assumed that any sale of personal property is sold at retail; it is not taxable if sold for resale.

While improvements to real estate are generally not subject to tax on the final product or labor, sales tax is paid when materials are purchased for the project. Sales taxes are generally passed on to customers as part of the cost of materials. If sales tax is incorporated into materials’ charges, sales tax is not added to the total bill.

You will need a seller’s permit to sell personal property or taxable services in Wisconsin.

Also, if you have workers in your business, you need to make sure you have the appropriate employer numbers from the Internal Revenue Service and from the Wisconsin Department of Revenue to withhold taxes. You also must meet the requirements of workers’ compensation and unemployment compensation laws.

“Finally, before you can work in a city, village or town, check with local officials concerning necessary permits and licenses, including building permits,” Bonney said.

More information is available from Bonney at 608-784-5678. The Wisconsin Department of Revenue Web site, http://www.revenue.wi.gov/html/business.html, also offers further information about sales tax and permits; an accountant is also a good resource in determining the various requirements.

• Is your business valuable even if you are not involved?
• Are you considering transferring ownership and/or control of the business during your
  lifetime?
• Do you want an orderly transition?
• Is there a logical successor to manage your business?
• Should ownership be given only to those who are active in it?
• Would key employees stay on with someone else heading it?
• Will you and/or your spouse need cash flow from the business for your
  retirement?
• Do you have alternatives for equalizing the distribution of estate assets among
  your children?
• What impact would estate taxes have on the future of the business and your
  family's needs?

Your business is going well and even includes two of your six kids in its management. What will
happen when you decide to retire or die? 

It can be quite tricky if you don't have a business succession plan, according to Johns, Flaherty
& Collins attorney Bob Smyth. Depending on the type of business you have, this can be
important both financially and, frankly, to keep peace in the family.

If not done properly, "business succession can cause extremely hard feelings, both for the
children involved and the children not involved in the business," Smyth said. "You can create all
kinds of problems."

A succession plan is less important if you have just started a new company or if it is the kind of
service business like a lawyer or dentist that is dependent on you personally for its success.
Unless your children have that same kind of training, passing your business on to them might
not be possible.

A significant issue in a business succession plan is whether you divide it in equal parts even if
only some of the children work for the company today. If you do, you might find some of your
kids without specific knowledge or interest in the company taking control. This could lead
to sibling infighting which could affect the long-term future of what you created.

If you decide to leave it to the children who have been active in its management, you could
cause hard feelings unless you equalize for the others in other ways, such as with cash or
other assets in your estate.

And then there is the issue of a loyal employee whom you may want to include in the future
management of the company. Finally, depending on your situation, you might be concerned
about estate taxes.

"Don't wait until you are ready to retire," Smyth said. "It is better to have a plan well in
advance."

As you pour over holiday sale circulars and store coupons, keep in mind this is a good time of year to save money in other ways, particularly as another tax year comes to a close. Now is a good time to act on lowering your 2003 income taxes, and of course, it’s never too early to plan for 2004.

One of the most effective ways to save taxes is to time your income and deductions to maximize their benefit. The objective in such timing is to keep your taxable income as consistently low as possible — working to avoid a jump to a higher tax bracket in any given year.

There are many ways to accomplish this, ranging from actions as simple as deferring a bonus for a couple weeks or paying a property tax bill early to more complex use of expense rules for equipment used in a business. Here are a few suggestions:

• Time bonuses, if possible, to be paid in the year in which you expect lower income.
• Time your collection of debts or other amounts owed to correspond with lower income years.
• Consider deferred compensation agreements to delay income to a time when your overall income may be lower.
• If you expect too much interest income from investments, transfer assets to T-bills or bank certificates with a maturity of one year or less since the interest is not taxable as income until it is received.
• Use an annuity to spread out income over a number of years.
• Maximize retirement contributions. If you are 50 or older, you can make additional "catch-up" contributions of $500 to a traditional or Roth IRA through 2005. Contributions made by April 15, 2004, can still be treated as deposits for 2003.
• Delay recognition of a capital gain by rolling it over to another like-kind investment property.
• Accelerate property depreciation. For certain property, a taxpayer can claim an additional "bonus" first-year depreciation allowance of 50 percent for property acquired after May 5, 2003, and before January 1, 2005, and if the recovery is 20 years or less.
• Sell an asset on an installment method so you only recognize part of the gain each year of the contract.
• Maximize your use of itemized deductions. Review the standard deduction and determine in which year you may benefit more from using the standard deduction or using the itemized deductions. For example, the standard deduction increases in 2003 and 2004 for married couples filing jointly to double the standard deduction for single filers, and goes back to 174 percent of the standard deduction for single filers in 2005. By timing the payment of mortgage interest, medical expenses, real estate taxes, charitable contributions, business expenses, etc., around that change, you can take advantage of the situation that benefits you most.

Remember, the Jobs and Growth Tax Relief Reconciliation Act of 2003 brings important changes to tax filings this year. The act lowered general capital gains tax rates for sales or exchanges of most capital assets occurring on or after May 6, 2003, from 20 to 15 percent and from 10 to five percent. It also taxes most stock dividend income at the same rates as the capital gains rates for 2003 through 2008. Previously, they were taxed at ordinary income rates.

This means that while short-term capital gains and ordinary income may be taxed at a rate as high as 35 percent, most long-term capital gains will not be taxed at a rate higher than 15 percent. So it may be in your best interest to classify as much of your income as long-term capital gain as possible

Also, it’s always a good idea to check whether the Alternative Minimum Tax applies to you. The AMT will affect many more taxpayers now because its application has not been adjusted to keep up with other tax law changes.

Other rules that may affect your tax planning include:

• Upon the sale of a residence, a gain is excluded up to $250,000 per person, $500,000 per couple.
• If you rent out a vacation home for fewer than 15 days per year, the rental income is tax free, but you can only deduct real estate taxes, mortgage interest and casualty losses. Deductions for maintenance and repairs are not allowed.
• The dollar limitation for a "Section 179" deduction (the cost of depreciable personal property placed in service during the year) increased from $25,000 to $100,000, and the annual investment limitation increased from $200,000 to $400,000 for 2003-2005.
• The new estate tax exclusion amount for deaths occurring in 2004 is $1.5 million, up from $1 million in 2003. The exclusion is scheduled to remain at $1.5 million through 2005 and increase thereafter to $2 million in 2006-2008, $3.5 million in 2009 and be unlimited in 2010. The exclusion is scheduled to return to $1 million in 2011.

As if determining the timing for income and deductions weren’t complex enough, the tax code fills 19 volumes. A professional tax attorney, advisor or accountant can help you make sense of it and analyze the many decisions to be made.

In any event, as with your holiday shopping, a little planning and budgeting now can save a lot of money later.

Reprinted with permission from the River Valley Business Report, Winter 2003.

When it comes to paying taxes, it’s perfectly natural — even wise — to look for every possible deduction. No one wants to pay more than they absolutely must.

But there’s one area that can be fraught with misconceptions for those writing off business-related expenses, and that’s vehicles used for business.

If a business buys and owns the vehicle, it is deductible. You’ll deduct initial costs and keep a depreciation schedule. You can write off gas, tolls, parking, registration, repairs and other related expenses. However, if you use the vehicle at all for personal purposes, you must be sure it’s minimal when compared with business use, keep good records and track personal mileage. (Keep in mind that traveling to and from work is not considered business use of a vehicle.) Costs related to personal use are not deductible.

Generally, the IRS considers traveling: (1) from one workplace to another, (2) to visit clients or customers, (3) to attend a meeting away from your regular workplace and (4) from home to a temporary workplace when you have one or more regular workplaces to be legitimate business uses.

Conversely, if you have a personal vehicle that you use for your business, keep records of its use for business. The IRS has a standard mileage rate deduction to cover expenses such as gas, maintenance, etc. Alternatively, you can deduct actual expenses, including depreciation, licenses, lease payments, registration fees, gas, insurance, repairs, oil, garage rent, tires, tolls and parking fees. Choose whichever method gives you the bigger deduction, but remember that in all cases, the IRS will want to see records if it audits.

Another common misconception involves using vehicles for advertising. Several small business owners believe that if the business’s logo is on the vehicle, that vehicle then is in constant business use as a sort of traveling billboard.

While that can be a smart marketing idea, especially for people in sales, trades and transportation, it will be a tough sell with the IRS. Here’s what the IRS says about vehicle signage: “Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses.”

Whether talking business or personal tax returns, the more deductions you can legitimately take, the more money you’ll have for your wallet. To be sure you’re taking all the vehicle deductions you can — and doing so legally — see IRS Publication 463, a guide to travel, entertainment, gift, and car expenses.

The economy may be improving but unemployment rates show no signs of declining. If you’re an employer looking at potential layoffs, you’ll need to understand your obligations related to unemployment insurance (”UI”).

• How it works: In its most basic form, unemployment insurance works much the same way as other private insurance policies. Employers pay the premiums, and out-of-work employees file claims. Each employer has its own account, and payment of UI taxes are credited to that account within a general fund. The balance of the account increases with each unemployment tax payment made by the employer and decreases with every unemployment payment made to laid-off employees. Unlike private insurance, unemployment insurance is actually a tax, and an employer who is subject to the tax is required to pay it. If an account has insufficient funds to cover claims by employees, the employer will need to pay additional charges to the state.
• Employer's UI tax liability: Private employers are subject to unemployment tax liability if: (1) an employee, either part-time or full-time, worked for the employer for 20 weeks or more in a calendar year, or (2) the employee was paid wages of $1,500 or more in a calendar quarter by the employer (“wages” include salaries, bonuses, tips, and any other similar benefits an employee receives from an employer).If either of the above conditions is met, the employer is required to pay unemployment taxes up to the taxable wage base on each employee’s wages in a calendar year. The taxable wage base for 2010 is $12,000. So, for example, if an employee is paid $15,000 in 2010, only the first $12,000 is taxable to the employer. The remaining $3,000 in wages is excluded from UI tax. Employers should keep track of employees’ wages for the calendar year to ensure they are not taxed beyond the taxable wage base limit.
• Employees eligible for unemployment benefits: In order for an employee to collect unemployment benefits, the work conducted by the employee must be subject to UI taxes for the employer (“covered employment”). Only the wages earned in covered employment can be used to compute an out-of-work employee’s unemployment benefits. Some wages paid to employees performing certain services for an employer are excluded from unemployment taxes, and employees are unable to receive unemployment benefits. Examples include real estate and insurance salespersons paid by commission only and certain corporate officers if elected to be excluded by the employer.
  In addition, employees must be able to work and not terminated for cause (underscoring the need for thorough documentation when firing for cause). Employees must also be looking for work, unless they meet specific requirements from the Wisconsin Department of Workforce Development. Two instances, in which the job search requirement may be waived, are when there is a reasonable expectation the worker will return to the same employer’s work force or the employee will start a new job within four weeks of the initial claim for benefits.
• Recent changes in Wisconsin law: In 2009, changes in Wisconsin law extended the maximum benefits allowed to out-of-work employees, and made eligible for benefits employees who leave employment for “compelling family reasons.” Allowable reasons include leaving (1) due to domestic abuse and concerns about personal safety; (2) due to a verified illness or disability of a family member that necessitates the care of the family member; and (3) in order to move with a spouse to a new job.
• Costly penalties: The federal government assesses penalties for late payments, ranging from 2 percent for a payment that’s up to five days late all the way up to 15 percent for payments not made within ten days of receiving notice from the IRS.
  Employers may also be required to pay additional state penalties for making the deposits at unauthorized financial institutions, failing to file returns or failing to withhold or pay the unemployment insurance tax (this penalty can be as high as 100 percent).
  Of course, willful refusal to collect and/or pay unemployment taxes could lead to heftier penalties, liens, and potential seizure of the employers real and personal property by the state and/or federal government.
• Best advice: Unlike other taxes companies pay, there’s not much employers can do to minimize their obligations — aside from making timely payments in full. But employers can take steps to assure employees don’t make false or errant claims against the account.
  Review each claim filed by each employee dismissed or laid off. Watch closely for misrepresentations about wages or hours worked. If the company has many employees, an employer may be tempted to pay less attention to individual claims, but doing so is essential to protect yourself from unnecessary additional state and federal fees and penalties.

Is it unlawful for me not to state the warranty period for my work when I quote a job for a customer?

It doesn’t matter whether the warranty period is stated in the quote, so long as it is stated in writing before the services are provided, according to attorney Michael Stoker. Without stating the warranty coverage in a written contract, the assumption is there is no warranty and the court will be left to determine what is appropriate."

In order to warranty labor for home improvement, for example, the seller must do all of the following:

• Document the warranty in writing.
• Give the buyer a copy when the buyer contracts for the home improvements.
• Disclose all warranty terms and conditions.

If the seller installs a product that is covered by a manufacturer’s product warranty, the seller must give the buyer a copy of that warranty when the seller installs the product.

For more information about warranties, contact Michael Stoker at 608-784-5678.