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I D E A S T O H E L P G R O W Y O U R B U S I N E S S
S T R A T E G I E S
I S S U E 71 • S P R I N G 2 0 17
Our business is growing yours
Defer Income Tax Using Like-Kind Exchanges
Driving Organizational
Change through Internal Coaching
4 Qualities of Best-in-Class Wellbeing Providers
Building & Maintaining a
Solid Family Business
Life Insurance:A Multi-Purpose Financial Tool
In This Issue…
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You can also call us at 1-800-ASK-CBIZ (1-800-275-2249).
@cbz CBIZ BIZ Tips Videos
Tax & Accounting ..................... 2How to Defer Income Tax Using Like-Kind Exchanges
Management & Performance ... 4Building & Maintaining a Solid Family Business
Employee Benefits .................... 5Four Qualities of Best-in-Class Wellbeing Providers
Insurance Strategies ................. 6Life Insurance: A Multi-Purpose Financial Tool
Human Resources ..................... 7Driving Organizational Change through Internal Coaching
CBIZ in the News
For complete articles, visit cbiz.com/news/in-the-news.
2 | BIZGROWTH STRATEGIES – SPRING 2017 CBIZ, INC.
Election Special
BY BENNETT BERG
If you own appreciated real estate that is held for investment, rental income or used in your business and you are thinking of reinvesting its value into a similar type of property, consider using
a Section 1031 like-kind exchange. A successful like-kind exchange will defer federal and state income taxes on the taxable gain until the replacement property is sold.
Individuals, C corporations, S corporations, partnerships, limited liability companies and entities that pay taxes can participate in a like-kind exchange, so long as the real or personal property being exchanged is of the same nature, character and class as the relinquished property:
n Real property is like-kind with all real property, but it is not like-kind with any personal property.
n U.S. real property is not like-kind with non-U.S. real property. n Personal property is like-kind with personal property, so long as both
are in the same asset class for depreciation purposes.
How to Defer Income Tax Using Like-Kind Exchanges
CFO MagazineSpecial Report: Preventing cybersecurity lossesFebruary 9, 2017
The Associated PressPay the IRS late? At some companies, it’s a strategic moveJanuary 17, 2017
Property Casualty 360What you need to know about insuring extreme winter sportsDecember 21, 2016
Tax & Accounting
Like-kind exchanges must be set up as a swap.
How the Exchange Works
Like-kind exchanges must be set up as a swap. Most use an independent qualified intermediary (QI) to facilitate the exchange. The QI receives the relinquished property title prior to the close of the “sale” along with the assumption of debts that will be paid on closing. Within 45 days of the property transferring to the QI, you must identify, in writing, up to three replacement properties to be purchased with the sale proceeds (less debts paid). The QI must acquire and deed you at least one identified property within 180 days of the property transfer.
CBIZ, INC. BIZGROWTH STRATEGIES – SPRING 2017 | 3
Taxable Gain Considerations
Although some taxable gain is deferred in a like-kind exchange, you may owe taxes on gains in certain scenarios. Reinvesting less than 100 percent of the relinquished property sale proceeds may trigger taxable gain. For example, if certain income or expenses such as rent or property taxes are paid from the sale proceeds, your taxable gain will be the lesser of the total realized gain from the relinquished property or the shorted reinvestment amount.
If you die with a deferred gain, your deferred gain is eliminated. A gift of property during your life, with a deferred gain, simply transfers the deferred gain to the transferee.
In some cases, an exchange with a related party will cause a like-kind exchange to fail. If your debts assumed by the QI are greater than the debt you assume from the QI, that difference (less any additional equity you pay) creates “boot” and causes taxable gain to the extent such gain is less than the total gain realized upon the property “sale.” Any cash received at the closing of your property is also taxable “boot” to you.
Reverse exchanges, where the QI acquires the replacement property before disposing of the relinquished property, may also trigger taxable gain. Acquiring newly constructed property as replacement
BENNETT BERGCBIZ MHM, LLCChicago, IL • 312.602.6820 [email protected]
property in an exchange is complex. Both have IRS safe harbor procedures and should be discussed and understood prior to undertaking the exchange.
Other scenarios with unique considerations include exchanges or acquisitions involving:
n installment sales;n fractional tenancy in common interest;n multimember partnerships or LLCs where not all
partners want to pursue a like-kind exchange;n foreclosures or deed-in-lieu of foreclosures;n partnerships or LLCs that want an exchange to
take place over two tax years; andn rental vacation homes used for minimal personal
purposes.
Like-kind exchanges may involve unique IRS considerations and safe harbor procedures, which makes planning essential to maximizing their benefit. An experienced tax advisor can assist in navigating taxable gain issues and making sure your like-kind exchange meets compliance requirements.
4 | BIZGROWTH STRATEGIES – SPRING 2017 CBIZ, INC.
Management & Performance
BY MARC J. MINKER
Family businesses are an often overlooked form of ownership, yet it is estimated that 90 percent of all U.S. businesses are family-owned, and one-third of
all companies in the S&P 500 index started as a family business.
Family-based business culture and shared values can provide strategic direction, continuity and customer appeal. On the flip side, these businesses may face unique challenges when family members are active. Varying goals, personalities and family politics all can be in the mix. However, if a family-owned company is built on an organized and solid foundation, it will be ready for the potential challenges. Several key aspects of business structure are therefore important:
Communication is fundamental.
Small differences among related employees can escalate into family feuds, affecting the company’s longevity.
Family members may find it hard to express their disagreements. For example, a son, fearing rejection, may not tell his father, the founder of a successful company, that he sees a different business direction. Scenarios like this are common. They can be detrimental to the company’s future and disrupt family harmony.
A “family office approach” led by a trusted advisor who aids in strategic planning and facilitates family meetings can establish a productive communication structure that not only helps resolve differences in management styles but also fosters a culture of inclusion and responsibility. For many families, particularly when elaborate tax and estate plans are involved, communication regarding financial affairs will also be important. For the benefit of younger generations, these discussions can include information on the origins of the family’s wealth and creation of a vision for its future stewardship, as well as the current state of the family’s finances.
Who’s in? Who’s not?
Problems can arise when family business owners are tempted or pressured to promote family members who lack adequate skills. In addition, offspring may be reluctant to join the business in spite of the founder’s plans. These issues need to be considered delicately, honestly and often.
Every business needs a good mix of people to help it operate and grow. Many founders initially intend
Building & Maintaining a Solid Family Business
to restrict outsiders from high-level positions, yet success may depend on a quality or skill not present in the family. Non-family employees add balance to the organization because they view the business from an unemotional position.
Succession Planning
If you take only one thing away from this discussion, it is this: If you want your business to transition from generation to generation, you absolutely must have a succession plan in place.
Without one, the company can close faster than it was built. According to Nancy Bowman-Upton in the Small Business Administration publication Transferring Management in the Family-Owned Business, only 30 percent of privately owned businesses make it past the first generation. Yet, at any given time, 40 percent of U.S. businesses are facing a transfer of ownership issue. Sometimes this is due to succeeding family members not having interest in running the business, but in most cases it is due to the absence of a succession plan.
Developing a structured plan is best constructed with the assistance of a business advisor. Succession and estate planning need to start early. This will help children and other family members find their place, create financial structures that work for all and maintain open communication during periods of transition.
Founders may not want to let go of the company because they are afraid the successors are not prepared or that they will be left without a formal business role. It
(Continued on page 8)
CBIZ, INC. BIZGROWTH STRATEGIES – SPRING 2017 | 5
Employee Benefits
BY EMILY NOLL & ABBY BANKS
There are thousands of vendors offering employer solutions designed to improve workers’ health and wellbeing. According to the Kaiser Family
Foundation, the wellness industry1 is an intensely competitive, fragmented, $8 billion dollar industry. With so many providers and new technologies in the marketplace, it can be challenging for employers to select one, and, frankly, it often takes more than one vendor to provide a range of services that suits the needs and interests of a diverse workforce, as well as the goals of the employer.
Finding wellbeing vendors that are aligned with your company culture takes time. A typical search for a wellbeing vendor, starting with a request for proposal (RFP), takes 90 to 120 days to complete, although a six-month lead time is recommended to ensure that selection, contracting and implementation goes smoothly. While a new program can be launched quickly with all hands on deck, advanced planning is ideal for an employer to create a thoughtful plan with smart communications to maximize employee engagement.
There are several qualities that best-in-class vendors have in common:
Wellbeing Focus
A program that focuses on physical health alone won’t draw in the majority of your workforce. One employee may be in marathon shape yet have overwhelming debt, while another employee may be excelling in their career yet losing sleep over stressful family issues. Neither is apt to prioritize a “biggest loser” contest over these more pressing wellbeing needs. Wellbeing vendors with a holistic approach and variety of solutions will have the greatest positive impact.
Personalized Experience
A shiny new wellbeing website may prompt employees to register, but employees need personalized support and encouragement to keep coming back. The more innovative wellbeing vendors provide this experience by using data about the individual’s goals, interests and preferences to provide a portal experience and communication approach tailor-made for them.
Proactive Account Management
A great wellbeing partner will assign a dedicated team to manage your program, including a hands-on approach to initial implementation, troubleshooting employee issues or concerns in a timely manner, and regularly bringing you data and fresh ideas to promote your program. The vendor should have a reasonable account manager to client ratio, depending on the size and revenue of the accounts being managed, and thoughtfully match an account manager with the right experience and skill set to support your company. And, just as you would do in interviewing a job candidate, check references. Ask referring companies about their experience and the strength of their account manager.
Actionable Data
As vendors vie for employers’ business, they are becoming better at capturing and analyzing data to demonstrate their value. A quality vendor will provide robust reporting on participation, engagement and health outcomes and take the time for meetings at least annually to discuss and strategize based on these results. Some vendors may go the extra mile and seek certification from third-party organizations, such as NCQA, to validate the quality of their services, products and data.
With enough time and proper guidance, it’s possible to find a wellbeing partner that will collaborate with your team to achieve your company’s goals and engage your employees. If you already have vendors in place, be sure to set aside time to evaluate their services and identify ways to optimize your partnership to yield the best results for your workforce. 1http://kff.org/private-insurance/issue-brief/workplace-wellness-programs-characteristics-and-requirements/
EMILY NOLLCBIZ ESO Wellbeing SolutionsColumbia, MD443.259.3287 • [email protected] • @thrivexpert
ABBY BANKSCBIZ ESO Wellbeing SolutionsKansas City, MO816.945.5461 • [email protected]
4 Qualities of Best-in-Class Wellbeing Providers
6 | BIZGROWTH STRATEGIES – SPRING 2017 CBIZ, INC.
BY DON KIM
For most privately owned businesses, the death, disability or retirement of a co-owner or key employee can directly impact the sustainability of
the business. Such a loss not only impacts short-term operations, it also can have a dramatic impact on the viability of the company long term.
Life insurance is a multi-purpose financial tool well suited to managing these and other key business issues of importance to business owners and other stakeholders.
Planning for the Future
Life and business are both full of the unexpected; however, wise business owners will make every effort to be as well-prepared as possible. Companies that have instituted succession plans ensure the stability of the business and bolster the confidence of business partners, vendors and bankers alike. The challenge is to develop a succession plan that satisfies each business owner’s desires to pass along assets to his/her heirs, while making sure the business is not negatively impacted.
Life insurance can play an important role in ensuring continued success by both funding a succession plan and reducing the risk represented by the loss of an owner or key employee. It can be integrated with strategies commonly used in succession planning, such as:
n Funded buy-sell agreements provide an orderly means of transferring a business interest upon the death, disability or retirement of an owner.
n Key person insurance provides the liquidity needed to handle the loss of a key employee and recruit and train a replacement. It may also help replace any associated lost profits.
n Estate equalization allows business owners to distribute assets fairly and equitably to each heir. In many closely held businesses, not all heirs will be suited to take ownership of the business. The life insurance proceeds will provide an inheritance equivalent to a portion of the business value instead of a share in the actual business.
Life Insurance: A Multi-Purpose Financial Tool
Insurance Strategies n Estate liquidity ensures the ability to pay estate taxes due at the business owner’s death without having to close or liquidate the business. Life insurance provides an immediate source of income to the owner’s estate.
Tax Minimization
The tax-free growth of life insurance cash value is an attractive benefit to most companies and one reason why corporations fund permanent insurance policies. Cash value accounts grow tax-free while within the policy.
Cash Flow Management
Life insurance can improve the credit-worthiness of a business owner or the corporation itself. The policy owner (an individual or a corporation) can always borrow against the cash value directly from the life insurance company. Additionally, a policy’s cash value can be considered an asset when applying for bank loan preferred rates to finance capital expenditures or when emergencies arise.
Employee Benefit
Finding and keeping the right employees is a key challenge in any business. Life insurance can be used to fund employee benefits in various ways, thus helping business owners attract and retain high-quality employees.
Loan Collateral
Another benefit of using life insurance to fund business succession plans is the ability to use the proceeds as loan collateral. A life insurance policy can be structured to avoid defaulting on a business loan should a death, disability or retirement occur. In this case, the collateral assignment is signed by the owner of the policy and often by the lender, as assignee. If an unfortunate event occurs, the policy proceeds are used to reimburse the lender. Once the lender is paid in full, the beneficiaries under the life insurance policy receive the remaining proceeds.
Bottom Line
Proper planning using life insurance as a financial tool can provide privately owned businesses with stability and protection, as well as operational advantages. Its most familiar role is as a key feature of a succession plan, offering liquidity upon the death, disability or retirement of an owner or vital employee. However, life insurance can play an even broader role in strategic planning, assisting with cash management and loan collateralization, offering tax-free growth, and recruiting top-quality employees with benefit funding.
DON KIMCBIZ Life Insurance Solutions, Inc. San Diego, CA858.444.3111 • [email protected]
CBIZ, INC. BIZGROWTH STRATEGIES – SPRING 2017 | 7
DISCLAIMER: This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. This information is general in nature and may be affected by changes in law or in the interpretation of such laws. The reader is advised to contact a professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.
the coach will be twofold – keeping confidence of those they coach and remaining differentiated so as to bring a ‘third-party’ perspective to the session.
Why is coaching impactful for an organization?
First, before the role is the soul. No matter the organizational issue brought to a coaching session it will always distill down to something very personal. Today’s leaders need a broad skill set to maintain a competitive edge – accentuating strengths and filling in flat spots. An executive coach can evoke insight, open blind spots, challenge assumptions and cultivate greater clarity while concurrently addressing predetermined goals that align with organizational priorities.
Investing in talent is the new coin for organizational rewards. Coaching cultures are on the rise and for good
Human Resources
Driving Organizational Change through Internal CoachingBY LESLIE ANDERSON
W e are first human. How does this impact the work environment? With each life there is a history. This history
is not checked at the door but walks into the meeting and through the building, interfaces with the client, and participates in every facet of the work day.
Why does this matter?
High-performing organizations are by design, not default, and begin with high-performing individuals. A growing number of organizations are turning to a framework of internal coaches who can assist in creating a pipeline of leaders and develop managers who can coach their teams. An internal coach knows the culture and the natural flow of an organization. The biggest challenge for (Continued on page 8)
MARC J. MINKERCBIZ MHM, LLC New York, NY • [email protected] • @CBIZNewYork
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8 | BIZGROWTH STRATEGIES – SPRING 2017 CBIZ, INC.
Our business is growing yours
Management & Performance (Continued from page 4) Human Resources (Continued from page 7)
can be helpful to start planning with the end in mind by determining when and how the founder or other family members in key roles will retire or leave the company. A realistic timetable includes training and mentoring the next generation, involving non-family members in the business operation when appropriate, and establishing a predictable and orderly succession of authority and ownership.
In the end, it’s a business.
Like any business, a family business must have a solid business model. Injecting family ties can provide both strength and challenges. Research has established that generational transition is the highest risk for continuity and that the vast majority of family businesses fail to deal with it effectively.
The good news is that failures can be prevented with appropriate and comprehensive preparation. A concrete succession plan along with mechanisms for communication and guidelines for leadership and management positions form a strong foundation for success.
LESLIE ANDERSONCBIZ Talent & Compensation SolutionsKansas City, MO • 816.945.5404 [email protected] • @cbiz_tcs
reason; the Socratic Method is a time-tested way of communicating, which moves objectives forward and creates personal accountability. This is the foundation of an individualized development program.
The same competencies which contributed to a promotion will not sustain the leader in a new role. A coach can assist in bridging the gap by facilitating a ‘transcend and include’ process. This is where prior competencies and new ones are melded together to create a foundation which will sustain the leader in their new role.
An organization that has interest in housing an internal coach function must employ a deliberate and thoughtful process. Relying on industry standards from the International Coach Foundation will ensure the coaches are credentialed and working from a sound methodology foundation. Funneling the process through human recourses is essential, as well as getting buy-in from the executive suite.
