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Trials & Tribulations - The drama of running a business and of life. It's not as easy as it looks. Running a business is full of drama. Customers, employees, money, family, time. You name it, it's a problem. Share with us your drama and how you handled it.

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Trials & Tribulations - The drama of running a business and of life.

It's not as easy as it looks. Running a business is full of drama. Customers, employees, money, family, time. You name it, it's a problem. Share with us your drama and how you handled it.
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  #21  
Old 06-20-2009, 08:45 PM
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In this case, I need someone other than University students, if this person works out I will give them part ownership after say a 6 month probation
This is very fascinating too. I have always wondered what works best in giving someone a vested interest in a business.

Do you have any thoughts on how best to make a situation like this work? How much % of a business should a manager get? Or should they be given a % of the profits instead?

What happens if they work for a year or so and then take off, they will still have a % of the business. Is that a potential problem?
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  #22  
Old 06-21-2009, 05:17 AM
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Originally Posted by Steve View Post
This is very fascinating too. I have always wondered what works best in giving someone a vested interest in a business.

Do you have any thoughts on how best to make a situation like this work? How much % of a business should a manager get? Or should they be given a % of the profits instead?

What happens if they work for a year or so and then take off, they will still have a % of the business. Is that a potential problem?
There are many ways to reward employees for performance and staying with you. When in banking we offered a host of services and consultation, on of these services was the management of what is called employee share purchase plans, most of the big public companies have them as they offer tremendous bang for the buck.

You can set up a phantom share plan, totally legal, let's say you want your company to issue 10,000 shares and the value of your company (based on your balance sheet) is 100,000 today, that means each share is worth $10.00, as the company makes money the balance sheet changes and the shares go up.

One big advantage is you can say to staff for every dollar of your pay you invest in the company, the company will match by 25%, you need to cap your max bi weekly contribution for control, I suggest 10% of the salary or income, so if an employee wants to put in $100.00 per pay the company would put in $25.00, in this case they would get 12.5 shares, the advantage to the company among other things is your working capital just increased $100.00.

If an employee wants to leave, have it written in the plan that the shares would be returned to treasury and the shareholder would be paid based on the previous quarters balance sheet share value.

The way things are set up now is employees receive a percentage of profits in the fall of each year, based on a formula I wrote and they must stay with the company until August 31st annually, I had to pick this date as University starts up again, it is capped at $3,500.00

Shares are paid from what is called retained earnings, retained earnings are in short the profit of the company from a previous year end. If your company made an annual profit of $10,000 and you did not pay it out as a dividend, it is considered capital for the new year.

If I lost anyone, ask away, I designed over 200 of these plans for companies that had as little as 10 employees to large power corporations and telco's with thousands of employees.

You can sell shares in your company to employees as well, this is a very cheap way to raise capital.

My lawyer friend whom I spoke about in another post and has a three month job for us wanted to by a 25% ownership in my company however for now I am not going that route, I don't want to let go of that much ownership and the company does not need a capital infusion, if it did I would put the cash in however it is doing very well bottom line wise.
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  #23  
Old 06-22-2009, 10:47 PM
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You can set up a phantom share plan, totally legal, let's say you want your company to issue 10,000 shares and the value of your company (based on your balance sheet) is 100,000 today, that means each share is worth $10.00,
I got a couple of questions.

First, how should you create a value for you company when it comes to this? Maybe add the value of all the equipment plus one month's revenue? Or should you do something different?

Quote:
as the company makes money the balance sheet changes and the shares go up.
How do you figure what the company is making for this situation? Is it before expenses? After expenses?

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The way things are set up now is employees receive a percentage of profits in the fall of each year, based on a formula I wrote and they must stay with the company until August 31st annually, I had to pick this date as University starts up again, it is capped at $3,500.00
So would this be another kind of compensation plan then or is this the same as you mentioned above? What percentage of profits would you suggest a lawn care business owner use? Also, what is to stop a lawn care business owner from taking the profits and instead of paying them out in the compensation plan, to putting that money to more equipment and then telling the employees, oh well, we didn't make any profits. ?
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  #24  
Old 06-22-2009, 11:27 PM
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I have a few questions also. Andy, you are in Canada, I'm sure the tax and corporation laws and regulations are different. I know that bonuses here in the states are taxed on the highest tax rates, the capital gains tax rate. I received a $2,000.00 bonus when working for Homeland Security. I actually received less than $1,000.00 in the check. Granted, I got most of it back when I filed may taxes, but about 16 months later.

As a company, you would have to pay the additional 7.65% social security tax, the supplemental security tax, workman's compensation taxes and whatever other matching taxes the IRS comes up with.

Would it not be better to use the bonus structure to pay more of such benefits as hospitalization, education, or retirement expenses? With these, you could at least get tax deductions or credits. You could save money and your employees would be taxed at the lower tax rates.

Maybe the Tax lady could shed some light on this?

Steve
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Old 06-23-2009, 12:17 AM
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Would it not be better to use the bonus structure to pay more of such benefits as hospitalization, education, or retirement expenses? With these, you could at least get tax deductions or credits. You could save money and your employees would be taxed at the lower tax rates.

Maybe the Tax lady could shed some light on this?

Steve
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How about a employer contribution to a 401k.
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  #26  
Old 06-23-2009, 04:27 AM
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I got a couple of questions.

First, how should you create a value for you company when it comes to this? Maybe add the value of all the equipment plus one month's revenue? Or should you do something different?

You use the book value which is assets that you have on your balance sheet less liabilities



How do you figure what the company is making for this situation? Is it before expenses? After expenses?

To figure what you are making simply run an income statement, one has to be careful to not mix income with capital, they are different in accounting. Also the value is not calculated the same for example as if you were selling the company.

So would this be another kind of compensation plan then or is this the same as you mentioned above? What percentage of profits would you suggest a lawn care business owner use? Also, what is to stop a lawn care business owner from taking the profits and instead of paying them out in the compensation plan, to putting that money to more equipment and then telling the employees, oh well, we didn't make any profits. ?
There are many compensation plans one can do, this is only one, you could contribute to an employees retirement savings plan, when calculating any bonus in my case it is net income that is income after all expenses and tax, I then plan to pay out 20% of the net as it is a tax deduction for the company, at least here.

If you take all the profits and buy equipment, equipment is a capital asset and has no bearing on the income statement other than year end when you calculate deprecation, however one takes this out prior to calculating your net cash income.

If a small business is going to offer anything to an employee I strongly encourage you to write bi-laws for your company which cover this among other things, also include it in an employee handbook, it will cover your butt.
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  #27  
Old 06-23-2009, 04:34 AM
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I have a few questions also. Andy, you are in Canada, I'm sure the tax and corporation laws and regulations are different. I know that bonuses here in the states are taxed on the highest tax rates, the capital gains tax rate. I received a $2,000.00 bonus when working for Homeland Security. I actually received less than $1,000.00 in the check. Granted, I got most of it back when I filed may taxes, but about 16 months later.

As a company, you would have to pay the additional 7.65% social security tax, the supplemental security tax, workman's compensation taxes and whatever other matching taxes the IRS comes up with.

Would it not be better to use the bonus structure to pay more of such benefits as hospitalization, education, or retirement expenses? With these, you could at least get tax deductions or credits. You could save money and your employees would be taxed at the lower tax rates.

Maybe the Tax lady could shed some light on this?

Steve
Yes tax laws are very different between the two countries, accounting principals for the most part are very similar.

A bonus here is calculated as straight income, it's whatever the employees tax rate is for their standard income.

As a company I only have to match the unemployment income, every pay every employee must contribute a percentage of their income to Tax, Canada Pension Plan and Unemployment Insurance, as a business I have to match the unemployment income by 2.2 times for if you have $1.00 in Unemployment deductions the business has to pay $2.20 then remit the $3.20 by the 15th of the following month.

In my case all staff are currently covered health wise under their parent(s), keep in mind our health care is very different here, for the most part it's covered if you go see a doctor, drugs are your responsibility. Your 401k I believe it's called is similar to our RRSP, this is an excellent way to help them save for the future however at the age of employees I hire, they are not interested.
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Old 06-23-2009, 09:54 AM
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I'm a little late to the conversation, and a little overwhelmed by all of this. I'm getting stressed just reading it. I always assumed that I'd always want to keep advertising and marketing and trying to get more accounts, and then just hire more people as the business grew. You're really opening my eyes to a lot of different factors and issues to consider. Honestly, when I read your original post, I was rolling my eyes at someone complaining about too much business, and every time you try to do a $1000 account, it turns to $4000. Such big problems you have! I think I'm getting it now, although I won't pretend to relate, but handling employees is a whole separate skill that I haven't had to deal with yet. I've been a GM at Red Lobster where we had a kitchen manager, dining room manager, and bar/hostess manager and I have management skills from that experience, but thats a big company that makes all the decisions for you and handbooks, 401k and healthcare options are already dictated by the company. I guess you learn and adapt as you grow your business, and since your business has been growing faster than you may have expected, all of the new stresses are getting to you. Its funny though that all we want to do is make our business grow (thats the point of a business) but when it does, you want to pull back to your comfort zone. As far as the posts about the heat, its been 95 degrees everyday for the last 2-3 weeks, and will stay that way through september here. Heat index was 117 yesterday and I was throwing up in the back of my truck by 12:15pm, then did 4 more yards. I started at 9:15 digging up roots and wacking them with an axe trying to hurry before it got too hot, but at 5am its already 80 and by 9 its 90. Driving a zrt through yards is no big deal and I'm used to it but a shovel and axe for 3 hours?! Anyway, I'd love a day thats 80 degrees! Quick question for you northerners, since lawns are a summer thing up there, how does it effect your income the rest of the year and how do you retain employees? I guess hiring from the University works out well?
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Old 06-23-2009, 07:23 PM
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Quick question for you northerners, since lawns are a summer thing up there, how does it effect your income the rest of the year and how do you retain employees? I guess hiring from the University works out well?
A lot of guys do snow removal, snow plowing, salting.
There is more money in snow plowing than in mowing, long as we get enough snow.

Retaining employees in this business can be tough that's why I remained solo for so many years.

I have gotten lucky with some mature 16-20 year olds.
Problem is just when you get them trained the way you want them they either go off to college or move on to something else.
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Old 06-23-2009, 07:34 PM
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A lot of guys do snow removal, snow plowing, salting.
There is more money in snow plowing than in mowing, long as we get enough snow.

Retaining employees in this business can be tough that's why I remained solo for so many years.

I have gotten lucky with some mature 16-20 year olds.
Problem is just when you get them trained the way you want them they either go off to college or move on to something else.
Or they start their own business, this happens(d) to me so many times in cabinetry, construction and fine woodworking that I gave up and went solo.

I do a fair amount of snow plowing, the city is very specific on gear that they will hire for sidewalks, bus stops and fire hydrants so I made sure all the tractors I bought fit the bill. I did some bus stops and fire hydrants last season, it's very long hours, basically you are given a section and you only have a certain amount of hours to do it so you run the gear 24 hours, 2 12 hour shifts.

I have my name in for the fire departments and have an in as the chief is one of my best friends, they plow their own spaces with trucks however they hire loaders to push the snow back two or three times a year, it's by the hour and very good money.

My issue will be finding people to drive the gear, I have contacted several retired military people and have three lined up.

Personally I do my woodworking from mid September to March, I really ramp up in October as one can make a lot of money during the craft season, I import 67 species of exotic woods and make high end crafts.

There is always lots to do, late fall and early spring are good times for wood clearing and chipping, the two dead months are January and February, I am going to Brazil in January for most of the month and will build woodworking inventory in February, March and part of April to get us through the summer.

Mid April excavation starts as people start having water problems and that is pretty much the circle of business life here.
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