Buzz On Biz

If an employee is perpetually unhappy with their job you should give them the opportunity to be happy by terminating them.

That philosophy comes from personal experience. I had an employee who did a great job for me. Unfortunately, she did not get along with most of the other staff in our firm. I ignored it because the hostility was not directed at me. Finally, the atmosphere got so ugly that one of the other attorneys in the office insisted I fire her. Guess what, she found a job she really loves and has been there at least ten years. She is happy as a clam.

Now, everyone dreams of being the boss, of telling everyone else what to do. But I can attest from personal experience it is no fun to fire someone, no matter what Donald Trump says. My observation of business clients is they generally wait too long to let someone go. Frequently, they wait too long to even start trying to correct an employee’s problem behavior, and the employee becomes unmanageable.

Small business owners frequently put up with bad employees for one or both of two reasons: i) fear of a lawsuit and/or ii) avoidance of conflict. No one can promise you will not get sued. However, taking the right steps and documenting them before firing can almost guarantee a favorable outcome on any claim against the termination.

The best way to avoid conflict is to nip it in the bud. No matter what the infraction—tardiness, attendance, appearance, work product—it will not get better on its own. All too often business owners try to wish away the problem instead of addressing it head-on. Then when the problem does not resolve itself, they tolerate it until they cannot stand it any longer and they fire the person. This is not constructive for anyone. The employee is not prepared for the termination because they were never counseled, and the business suffers both while the destructive behavior is tolerated and from the turnover.

So, while it is true sometimes you just have to set an employee free to find a job where they can be happy, that step should be a last resort after giving them the opportunity to get happy where they are.

J. Edward (ed) enoch This is a sponsored Law Talk article. His practice focuses on business, employment, and real estate law. He is a 1992 Magna Cum Laude law school grad from Washington and Lee School of Law. He’s served in many leadership roles for SHRM, Rotary, the Family Y and the United Way. Reach him at (706) 738.4141 or jenoch@enochlaw.com

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Thank you to everyone for the positive feedback received on last month’s column. If you did not read it, I encourage you to locate the article on www.buzzon.biz

I am not a fan of New Year’s resolutions. They are too easily made and too easily broken. Mark Twain said, “Giving up smoking is the easiest thing in the world. I know because I have done it thousands of times.” Sound familiar? Those of us in business make New Year’s resolutions about our business. They are inevitable as we review year-end financial statements and measure our business against the goals we set twelve months ago.

One frequent cause of resolution failure is the attempt to do too much all at once. Like the overweight, diabetic smoker, we resolve to change all things at once and end up changing nothing.

So here is a singular resolution that applies to all businesses and can be easily implemented: Review Your Employee Handbook And Eliminate Or Modify Any Policies That You Do Not Actually Follow. It is better to have no policy than to have a policy and ignore it.

When employee handbooks are created, they tend to incorporate the aspirational goals of management, such as quarterly performance reviews. January is a good time to take a look at those policies and decide whether they will ever actually be implemented. If not, eliminate or modify.

If the policy has legal consequences, such as an harassment and discrimination reporting policy or a military leave policy, it may need to be updated or revamped to stay in compliance. Certainly, do not delete such policies without consulting your attorney.

This resolution can be summed up in its simplest terms and applied to many things in addition to employee handbooks:

Do Not Say It, If You Are Not Going to Do It!

J. Edward (ed) Enoch This is a sponsored Law Talk article. His practice focuses on business, employment, and real estate law. He is a 1992 Magna Cum Laude law school grad from Washington and Lee School of Law. He’s served in many leadership roles for SHRM, Rotary, the Family Y and the United Way. Reach him at (706) 738.4141 or jenoch@enochlaw.com

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How do lenders determine who is approved for a credit card, mortgage, or car loan? Why are some individuals flooded with credit card offers while others get turned down routinely?

Because creditors keep their evaluation standards secret, it is difficult to know just how to improve your credit rating. It is important, however, to understand the factors and to review your credit report periodically for any irregularities, omissions, or errors. Reviewing your credit report annually can help you protect your credit rating from fraud and ensure its accuracy.

Credit Evaluation Factors

Many factors determine your credit. Here are some of the major factors considered:

• Age

• Residence

• “Authorized user” payment history

• Checking and savings accounts

• Bankruptcy

• Charge-offs (Forgiven debt)

• Child support

• Jobs

• Payment history

• Collection accounts and charge-offs

• Cosigning an account

• Credit limits

• Payment history/late payments

• Finance company credit cards

• Income/income per dependent

• Mortgages

• Number of credit accounts

• Fraud

• Inquiries

These factors may be used, and weighted, in determining credit decisions. Credit reports contain much of this information.

Obtaining Your Credit Reports

Credit reports are records of consumers’ bill-paying habits. Credit reports are also called credit records, credit files, and credit histories and are collected, stored, and sold by three credit bureaus, Experian, Equifax, and TransUnion.

Recent changes to the Fair Credit Reporting Act (FCRA) require that each of the three credit bureaus provide you with a free copy of your credit report, at your request, every 12 months.

If you have been denied credit, or believe you’ve been denied employment or insurance because of your credit report, you can request that the credit bureau involved provide you with a free copy of your credit report – but you must request it within 60 days of receiving the notification.

Understanding Your Credit Report

Read your report carefully, making a note of anything you do not understand. The credit bureau is required by law to provide trained personnel to explain it to you. If accounts are identified by code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau to supply you with the name and location of the creditor so you can ascertain if you do indeed hold an account with that creditor.

If the report includes accounts that you do not believe are yours, it is extremely important to find out why they are listed on your report. It is possible they are the accounts of a relative or someone with a name similar to yours. Less likely, but more importantly, someone may have used your credit information to apply for credit in your name. This type of fraud can cause a great deal of damage to your credit report, so investigate the unknown account as thoroughly as possible.

We recommend an annual review of your credit report. It is vital that you understand every piece of information on your credit report so that you can identify possible errors or omissions.

Mike and Christine Hall This is a sponsored accounting article. Hall, Hall, & Associates, P.C is a full-service public accounting firm established in 1979. In addition to providing traditional accounting services they are forensic accounting experts offering assistance in fraud risk assessments, divorce cases and business disputes. For a complimentary consultation, call 706.855.7733 or visit

www.hallassociatescpa.com

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I’ve been writing this column for the Buzz on Biz a couple of years now. So I hope my editor (and you readers) will indulge me as I stray off topic. My wish this holiday season is that our world be more like the YMCA.

Specifically I wish for our world to be more like my experience at the Wilson Family Y. For many years now I have been working out very early in the morning at our Y.

Here is my observation. At our Y there are people from all different demographics of age, race, and national origin. Some are blessed with earthly riches, others are on scholarship to afford to be there. There are elected officials, stay-at-home parents, business owners, teachers, preachers, firemen, pharmacists and doctors.

But it is not the diversity of demographics that impresses me about this group. It is their spirit. People speak to each other. If you come a few times regular attendees will introduce themselves to you. The front desk staff greets each person, not with a mandated corporate greeting, but personally as an individual. Casual acquaintances become close friends who pray for you when you need it.

The Y is not utopia. There are disagreements and hurt feelings. But in my experience disputes are quickly resolved and forgiveness freely given. Only the best of intentions are assumed.

All too often our society is about dividing people into groups and then telling those groups why they should not get along with each other or work together My friends at the Y only have one thing in common–a desire to live a healthy life. With nothing more than this and the resolve to get up and do it while other are still snug in their beds, they have formed a community that proves the pundits wrong and flies in the face of the naysayers and dividers.

So my prayer for this holiday season is that our world, and specifically our community, be more like the Y.

DISCLAIMER: In the interest of full disclosure I must inform our readers I serve on the Wilson Family Y board of directors, teach classes there and represent the Family Y as their attorney.

J. Edward (ed) enoch This is a sponsored Law Talk article. His practice focuses on business, employment, and real estate law. He is a 1992 Magna Cum Laude law school grad from Washington and Lee School of Law. He’s served in many leadership roles for SHRM, Rotary, the Family Y and the United Way. Reach him at (706) 738.4141 or jenoch@enochlaw.com

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Section 179 Expensing. Businesses should take advantage of Section 179 expensing in 2011 for a couple of reasons. There is still one month remaining on the expense deduction for equipment purchases up to $500,000 and the bonus depreciation increased to 100% for qualified property. However, beginning in tax year 2012 the Section 179 deduction is scheduled to drop to $125,000 and the bonus depreciation will be reduced to 50 percent and then be phased out completely.

In other words, in 2011 businesses can elect to expense the entire cost of most new equipment up to $500,000 (subject to a dollar-for-dollar reduction in that $500,000 for property placed in service that exceeds the maximum amount of $2,000,000).

Qualified property is property that you placed in service during the tax year and used predominantly in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired.

Conventions. The tax rules for depreciation include “conventions” or rules for figuring out how many months of depreciation you can claim. There are three types of conventions. To select the correct convention, you must know the type of property and when you placed the property in service.

1. The half-year convention: This convention applies to all property except residential rental property, nonresidential real property, and railroad gradings and tunnel bores unless the mid-quarter convention applies. All property that you begin using during the year is treated as “placed in service” at the midpoint of the year. This means that no matter when you begin using (or dispose of) the property, you treat it as if you began using it in the middle of the year.

Example: You buy a $40,000 piece of machinery on December 15. If the half-year convention applies, you get one-half year of depreciation on that machine.

2. The mid-quarter convention: The mid-quarter convention must be used if the cost of equipment placed in service during the last three months of the tax year is more than 40% of the total cost of all property placed in service for the entire year. If the mid-quarter convention applies, the half-year rule does not apply, and you treat all equipment placed in service during the year as if it were placed in service at the midpoint of the quarter in which you began using it.

3. The mid-month convention: This convention applies only to residential rental property, nonresidential real property, and railroad gradings and tunnel bores. It treats all property placed in service (or disposed of) during any month as placed in service (or disposed of) on the midpoint of that month.

If you’re planning on buying equipment for your business, call us first. We’ll help you figure out the best time to buy it to take full advantage of these tax rules.

Mike and Christine Hall This is a sponsored accounting article. Hall, Hall, & Associates, P.C is a full-service public accounting firm established in 1979. In addition to providing traditional accounting services they are forensic accounting experts offering assistance in fraud risk assessments, divorce cases and business disputes. For a complimentary consultation, call 706.855.7733 or visit

www.hallassociatescpa.com

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If you’re not sure whether you’re running a business or simply enjoying a hobby, here are some of the factors you should consider:

• Does the time and effort put into the activity indicate an intention to make a profit?

• Do you depend on income from the activity?

• If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?

• Have you changed methods of operation to improve profitability?

• Do you have the knowledge needed to carry on the activity as a successful business?

• Have you made a profit in similar activities in the past?

• Does the activity make a profit in some years?

• Do you expect to make a profit in the future from the appreciation of assets used in the activity?

An activity is presumed to be for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training, or racing horses).

The IRS says that it looks at all facts when determining whether a hobby is for pleasure or business, but the profit test is the primary one. If the activity earned income in three out of the last five years, it is for profit. If the activity does not meet the profit test, the IRS will take an individualized look at the facts of your activity using the list of questions above to determine whether it’s a business or a hobby.

Business Activity: If the activity is determined to be a business, you can deduct ordinary and necessary expenses for the operation of the business on a Schedule C or C-EZ on your Form 1040 without considerations for percentage limitations. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.

Hobby: If an activity is a hobby, losses from that activity may not be used to offset other income. You can only deduct expenses up to the amount of income earned from the hobby. These expenses are itemized on Schedule A and must also meet the 2 percent limitation of your adjusted gross income in order to be deducted.

Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:

• Deductions that a taxpayer may claim for certain personal expenses.

• Deductions that don’t result in an adjustment to the basis of property.

• Deductions that reduce the basis of property but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

Give us a call if you’re not sure whether your hobby is actually a business and we’ll help you figure it out.

Mike and Christine Hall This is a sponsored accounting article. Hall, Hall, & Associates, P.C is a full-service public accounting firm established in 1979. In addition to providing traditional accounting services they are forensic accounting experts offering assistance in fraud risk assessments, divorce cases and business disputes. For a complimentary consultation, call 706.855.7733 or visit

www.hallassociatescpa.com

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The time has come for those of us in management to provide a party for our staff to show our appreciation for their work and celebrate another year. In my experience holiday parties are fraught with as much opportunity to damage morale as to improve it. So here are some thoughts from a war-scarred veteran of many year-end parties.

First, let your employees help you plan the party. It is not really a party unless the people you plan to honor and entertain actually want to come. Years ago I worked for a company who hosted their holiday party at a fancy downtown Augusta restaurant that required men to wear a jacket. Many of us in management frequented this restaurant and considered it a big perk to invite the rank-and-file members of the company to a party there. However, almost none of the staff (primarily female) attended the party. After a couple of years of this trend, someone in management had the bright idea to ask the staff why the party was not well attended. Turns out, most of the staff’s husbands hated to wear a sports coat or jacket, so they did not attend. The moral of the story is, let your people help plan the party.

As an attorney, I cannot discuss holiday parties without discussing the issue of alcohol. What more need I say that to paraphrase the Las Vegas commercial, “What happens at the holiday party does not stay at the holiday party.” Behavior at any office party comes back to work. The party is not a free pass for adolescent behavior and there is no law against discharge or discipline for actions taken at the party. Don’t punch out the boss. “Innocent flirting” with the intern at the party can become sexual harassment the next day.

From the company’s perspective, alcohol includes the possibility of “social host liability” for serving alcohol. In Georgia, social hosts can be held liable for the damage caused by someone to whom they serve alcohol if the person was noticeably intoxicated at the time and the host knows the person will soon be driving a motor vehicle. In South Carolina social host liability is limited to hosts who serve alcohol to minors (including providing open access, such as a keg).

As the party planner, you can always play it safe. You can have a risk-free party and not offend anyone. Authorize a 15 minute break during the workday, pass out cupcakes and sing Jingle Bells. On the other end of the spectrum is the off-site, open bar, employees only throw-down. Remember, all things in moderation. Here are some tips to help keep the party in check and still have a good time:

1. Invite spouses if the party is after business hours;

2. Do not serve unlimited free alcohol. If the party is a dinner, have an open bar for 45 minutes or an hour before dinner and then go to a cash bar. Hand out two free drink tickets to each person;

3. Serve protein rich foods as they slow alcohol absorption;

4. Do not serve unattended alcohol (e.g. a keg) particularly if there are minors attending the party;

5. Hire a professional bartender.

Happy Holidays!

J. Edward (ed) enoch This is a sponsored Law Talk article. His practice focuses on business, employment, and real estate law. He is a 1992 Magna Cum Laude law school grad from Washington and Lee School of Law. He’s served in many leadership roles for SHRM, Rotary, the Family Y and the United Way. Reach him at (706) 738.4141 or jenoch@enochlaw.com

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Last week a client called all in a tizzy (as my mother would say). An employee went to a seminar and came back to inform the CEO (my client) that all the employees were being paid incorrectly according to federal law. After some discussion with my client and a review of job descriptions, policies and procedures, the situation is not as bad as my client feared.

This client is an ardent rule-follower who thought he knew the rules. Problem is, the law does not always act as everyone assumes. Sometimes the actual rules can appear, on their face, to be counterintuitive. Those of us who own and operate small businesses have to wear many hats. The successful small business owner is truly a “jack of all trades and master of none.” When it comes to the law, an educated guess is not good enough.

The most important attribute for a business owner or a manager (truly for any supervisor) is to know the limits of their knowledge and information. To know what they don’t know. I expect we have all suffered the experience of working for someone who thought they knew more than they actually did. For the business owner, there is more on the line than just suffering a fool. We have all learned from police television shows that ignorance of the law is no excuse. That’s one rule they get right on those shows. Ignorance of the law can lead to serious fines or even imprisonment.

Once you realize there is something you do not know and you need more information, where should you turn? Not Wikipedia. The Internet holds as much misinformation as information. Start with websites of the agency that interprets or enforces the law in question. For instance, if the issue is employment law, that is generally the federal Department of Labor or the EEOC. For general corporate questions, the Secretary of State website has great basic information and links for small businesses.

But ultimately the key is to have a team of advisors – – attorney, accountant and financier – – on whom you can rely to steer you in the right direction. Use them early and use them often. The little money you spend up front will be more than saved in the consequences you avoid.

J. Edward (ed) enoch This is a sponsored Law Talk article. His practice focuses on business, employment, and real estate law. He is a 1992 Magna Cum Laude law school grad from Washington and Lee School of Law. He’s served in many leadership roles for SHRM, Rotary, the Family Y and the United Way. Reach him at (706) 738.4141 or jenoch@enochlaw.com

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There are not many things as scary to a business owner as being sued. Someone at your front desk, counter, etc. buzzes you and tells you there is a uniformed officer here to give you some papers. Well, at that point you would prefer to see Jason or Freddie Kruger. At least with them you know what you are in for.

The officer, in no-nonsense fashion, delivers the “Complaint” and an order from the court (called a subpoena) commanding you to respond to this document within a limited time, typically 20-30 days. If you miss the deadline you will be in “default.” Default is like not showing up for the game. You lose no matter how bogus the allegations are in the lawsuit.

You get past the summons and begin reading the accusations against you. This is like listening to your little sister tell your mom how you knocked her down, skinned her knee and took her candy . . . and you cannot say a word in rebuttal.

So what are you to do? CALL YOUR LAWYER IMMEDIATELY. Get the complaint into your attorney’s hands as quickly as possible. There are several critical things that must happen at the beginning of the suit. Is there insurance for this particular type of claim? The insurance company needs to be notified because they typically provide the attorney to defend you on the case. Next, you or someone on your behalf must file an answer and, if warranted, a claim back against the plaintiff, called a counter-claim.

You think, finally, my turn to tell my side of the story. Instead, your attorney writes this response that just says, “The Defendant denies (admits) the allegations contained in paragraph ___. Sorry, no satisfaction for your wounded pride, it is not time to tell your story yet.

…TO BE CONTINUED Next month, Discovery–Or Is That A Monster Hiding Under Your Bed?

J. Edward (ed) enoch This is a sponsored Law Talk article. His practice focuses on business, employment, and real estate law. He is a 1992 Magna Cum Laude law school grad from Washington and Lee School of Law. He’s served in many leadership roles for SHRM, Rotary, the Family Y and the United Way. Reach him at (706) 738.4141 or jenoch@enochlaw.com

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My law practice frequently involves buying and selling CSRA businesses.  Over the years, I have spent many hours reviewing contracts, financial statements and various other documents on behalf of buyers evaluating the purchase of a business.

Everyone knows you fix up a car or house before you put it on the market.  I have done this many times myself.  When I am done fixing up the car or the house I frequently I wish I had maintained the property in such good condition before I decided to sell.  It almost makes me not want to sell.

The same is true for businesses.  When my clients come to me with the desire to sell their business, we first examine what we need to clean up.  Are their contracts that need to be renewed or tightened up?  Are their key employees who should have non-compete agreements?  Are all licenses and fees paid up?

That part of the cleanup is relatively simple.  The more difficult issues involve cleaning up financial statements, policies and procedures, and old bad habits.  For example, small business owners have a tendency to be very generous with their own expense accounts.  Typically the incentive in a small business is to show as little profit as possible while maintaining the highest standard of living for the owners.  However, potential buyers want to see a healthy bottom line to justify a price.

So the moral of the story is to run your business every day as if you are ready to sell it.  Do the hard work of planning and running your business properly now.  I promise you it will pay off in the end.

J. Edward (ed) Enoch’s practice focuses on business, employment, and real estate law. He is a 1992 Magna Cum Laude law school grad from Washington and Lee School of Law. He’s served in many leadership roles for SHRM, Rotary, the Family Y and the United Way. Tune in to Law Talk Wednesdays at 12:45pm on 1630 AM. Reach him at (706) 738.4141 or jenoch@enochlaw.com

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