INC-centricity

Entrepreneurs Tale of the Tape

The numbers are compelling, but perhaps not surprising: entrepreneurs make our economy - period.  Our economy isn't driven by social programs, or by AIG/Lehman Bros/Morgan Stanley/General Motors or any other combination of banks or big business.  The concept that "What's good for GM is good for America" has been turned on it's head:  "What's good for America is good for GM"!  And, what IS good for America?  NEW BUSINESS CREATION!

The Kauffman Foundation compiled statistics that make this irrefutable. Among them:

• All net job growth in America from 1980 to 2005 came from companies less than 5 years old.
• One-third of all new jobs come from the creation of new businesses.  That doesn't factor in the job creation from companies that are just a few years old. 
• In 2007 - which wasn't a "great" year economically speaking - 495,000 new businesses were created every month.  During that year one-third of 1% of adults created a business per month. 
• 40% of young people between the ages of 8 and 21 would like to start a business someday - or already have. 
• New businesses are 3% more productive than mature businesses.  And, 5-year old companies are 5% more productive than mature businesses. 
• On average, 75% of startup capital comes from equal parts owners equity and debt, including credit cards. 
• Angel investors average 27% return on startup investment. 
• Twice as many high-tech startups have founders over the age of 50 than younger than 25. 

If we are serious about economic recovery, we better get serious about helping entrepreneurs and would-be entrepreneurs start new businesses.  Need a job?  Start a business!

We Believe in Entrepreneurism

Zogby Interactive conducted an interesting poll of Americans to see where the nation is placing its faith in a better future. "Who will lead us to a better future?"  Here are the results:

• 63% - Small business and entrepreneurs
• 52% - Science and technology leaders 
• 38% - Family and friends  
• 36% - Ourselves 
• 32% - Non profit groups 
• 31% - The government 
• 21% - Big business 
• 13% - The media  

These findings shouldn't surprise us.  Capitalism provides inherent economic freedom and opportunity.   Because of that economic freedom and opportunity, capitalism connects us to our hopes and dreams. 

If we are to hope for a better economic future, it will be through our fundamental belief in economic freedom and opportunity that is manifest in this poll as faith in entrepreneurism and small business.

Swiss bank UBS problems show why privacy fails

Last week, the IRS asked U.S. District Judge Alan S. Gold to enforce "John Doe summonses" on 52,000 Swiss bank accounts holding almost $15 billion in assets.  This action demonstrates the folly behind using privacy and secrecy as the basis for asset protection or tax planning.  History has shown than any strategy that is based on privacy or secrecy is destined for failure.  Right or wrong, in our current global economy the nations of the world - and the financial institutions of those nations - provide the U.S. government with tremendous political power and financial influence in shaping privacy policies and standards throughout the world. 

I don't know how many times we have seen this sort of thing.  Years ago, it was the Cayman Islands, and the Isle of Man.  Before that, Panama.  Remember the crackdown on anonymous Visa debit cards?  A lot of people paid a lot of fines and served a lot prison time over those privacy scams.  Eventually, this Swiss banking fiasco will produce the same results.  It is just a matter of time.

It reminds me of tonight's episode of "24", where the bad guy had a surgically implanted chip containing the list of all the government conspirators and bad-guy financial records.  Jack Bauer had to literally carve it out of him.    The data was very private, but it wasn't very accessible - at least not without considerable blood and pain.  (I asked my wife how the bad guy was supposed to keep the files on the chip updated.  She laughed at me because I always over-think things.)

But the point is that relying on privacy is a losing proposition.  Laws and loopholes that allow for privacy benefits not only can be changed - they probably will be changed.  It is only a matter of time.  And, when that time comes, things will get ugly for everyone with their name on that list.  And, like the data chip implanted in the bad guy, relying on privacy makes it impractical - if no impossible - to actually have use of the hidden assets.

Plan your asset protection and/or tax strategy as though the day will come that you will have to lay all your cards on the table.  That way, at least you'll be able to sleep at night - which may be more than 52,000 Swiss bank account holders are doing these days.

How are small business owners dealing with landlords in today's economy?

Almost every small business owner that I know is either 1) currently renegotiating their lease with their landlord, or 2) getting ready to renegotiate their lease.  From business owners I have talked to, they are experiencing a wide range of reactions, communication and negotiations.  Some landlords are working with tenants to try to keep them, others have drawn a line that they don't renegotiate with tenants. I know one strip mall that has lost half their tenants solely because the landlord won't renegotiate with clients.  What are you experiencing?  Are you trying to renegotiate your lease?  Is your landlord open to talks?  DId you find a win/win resolution?  Share your experiences!

10 Keys to business survival in a recession

It seems to be the consensus among business and political leaders that our economy is worse than it has been in generations.  Statistics, for what they are worth, prove it.  In other words, most of us have never seen anything like today’s economic crisis, and there isn’t much in our own experience that gives us guidance in our business decisions.  A recession such as this requires a shift in our thinking, our planning, and our decision-making in order for our business to see the light of day at the other end of this economic cycle.

Economic cycles, by the way, are usually long.  The common chatter heard from talking heads and prognosticators is that we should see the beginnings of a recovery in 6 months - or 9 months - or 12 months - or 18 months, etc.  The truth may be that we are in for a longer ride than we optimistically expect. (For example, economists generally agree that we were in a bear market cycle from 1966 to 1982 - a period lasting 16 years; and that we experienced a bull market from 1983 to 2000 - a period of 17 years.) If history is our guide, the recovery might not come quickly.  Fixing the global mess will probably take years.

So, as small business owners and entrepreneurs, what do we do and how do we survive?  For what it’s worth, here are my Keys to Survival in today’s economy:

Nevada or Wyoming incorporation? No Contest.

Promoters of Wyoming incorporation have started to make brazen claims that Wyoming offers better asset protection benefits than Nevada.  This is a fair comparison for analysis, since the claim can be measured against the standards set by Nevada in three  specific areas of corporate asset protection.  

Corporate protection consists of three separate factors.  The relative asset protection strengths or weaknesses of state corporate law result from how state statutes or case law addresses each of these factors.:

Legal Tax Upstreaming

Blogger Diane Kennedy, a CPA who graduated from the University of Nevada, Reno wrote a recent post on her website, TaxLoopholes.com, about legally upstreaming income.  Diane points out several legitimate strategic uses of upstreaming strategies.  I will use her four stated uses, and add my own commentary:

1.    To upstream the income of a C corporation in your home state for the purpose of reducing state income tax.  For this have any benefit, the corporation must be generating sufficient “upstreamable” profits that justify the costs associated with making the strategy work.  It has to make sense financially.  We use a rule-of-thumb of 12:1 – for every $1 that the strategy costs you, you need to be able to upstream $12 to a state-tax-free jurisdiction to justify the expense.

2.     To divide out multiple streams of income within a company to separate active income from passive income.  This is particularly effective if your company has some active income that would be taxed at a lower rate, but where the more than 60% of income is passive, subjecting it to Personal Holding Company taxation on all income.

3.     To legitimize an asset protection plan.  In this scenario, the amount of “upstreamable” profits that exist are not really the deciding factor.  What DOES matter, is the value of the assets you are trying to protect.  When upstreaming to legitimize an asset protection plan, it is critical that the goods, services, or financing that is the basis of the commercial relationship between the two companies is REAL.  In other words, everything needs to be arm’s-length, and the services need to be provided; the products need to be real; or the loan must actually be funded – and repaid according to the terms of the agreement.

4.     To flunk controlled group issues for the purpose of implementing nondiscriminatory benefits.  This can be a sticky issue, and probably needs an attorney’s review before you run with it.

 

No matter what the strategy is, it won’t hold up unless it is completely verifiable, legitimate and documented.  And, the company that receives upstreamed funds must have a defensible nexus of operations in the target state.  Upstreaming demands crossing all your “t’s”.

11 Ways to Protect Yourself in Business

Business is riskier than ever these days.  The economy is a mess, credit markets are tight, taxes are high - and likely to go higher, the courts are clogged with frivolous lawsuits, and attorneys seem to rule the world.  What can you and I do about it?  Fortunately, we can do quite a bit to protect ourselves in this business environment.  Here are 11 ways: