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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Andrew Tellijohn
May 2006

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Personal finance

business builder personal finance  

Boost personal networth along withbusiness’s bottom line

by William Ringham  

Many small-business owners are so busy building their businesses that they neglect their personal financial affairs, missing out on opportunities while overlooking long-term wealth management planning.

 Savvy business owners should take the time to address both their professional and personal finances, which can intersect in a variety of ways.

The following five tips can help business owners organize their finances and boost their bottom line:

Craft compensation that benefits you and staff. You may be able to increase your income by carefully planning your own compensation. Owner-employees typically compensate themselves with salary and distributions.

If you operate your business as a C corporation, you may benefit from paying yourself a higher salary rather than taking distributions, depending on your corporate, individual and dividend tax rates. This is because your salary is a tax deduction to the corporation and taxable as ordinary income to you. Distributions are taxed twice, once at the corporate level and again as dividends paid to you.

Further, the impact of Social Security is felt twice for the owner-employee because of payment of both the employer’s and employee’s portion of the Social Security payroll tax.

You will receive an additional benefit once your salary is over the Social Security wage limit. But there are reasonable compensation limits: If the IRS deems your salary to be too large, they will recharacterize the excess as a distribution.

Focus on retirement planning.
Establish a retirement plan in which you and your employees may participate. This is an excellent way to promote regular savings while also attracting and retaining quality employees.

Qualified plans may provide significant tax benefits, including contributions that are generally tax-deductible to the employer, while the employee receives a tax deferral on pre-tax contributions until the funds are distributed.

Qualified plans must adhere to strict IRS and ERISA requirements. These plans include simplified employee pension (SEP) plans, SIMPLE IRA plans, Keogh plans and 401(k) plans. The choice of the plan often depends on the business entity.

Nonqualified plans may not be as beneficial from a tax standpoint. These plans are often used for a select group of employees and generally don’t have to satisfy the stringent requirements of qualified plans, allowing you to plan for you and your employee’s more unusual needs.Get your personal estate in order.

Everyone needs the following basic estate planning documents:

• A document that articulates how your assets are to pass at death, a will or a trust.

• A durable power of attorney, which provides your attorney the authority to make decisions on your behalf for your financial matters

• A health care directive, which provides your designated agent the ability to make health care decisions on your behalf if you are unable to do so.

Many business owners are so busy that they put off a review of their current estate plan, but your estate plan should evolve along with your business. It is not uncommon for a business owner to have a will that was drafted in the early 1980s and is more than 20 years old.

For example, in the early 1980s, a business owner and his wife had recently married and just started a family. They had not yet built an estate and their main concern was the guardianship of their minor children. Their wills left everything they had to each other outright under what is called a “simple will” arrangement. At the time, that made sense.

Fast forward 25 years and their estate has grown significantly. Given how the estate tax currently works, leaving everything outright to your spouse could be a costly mistake. Each of us has what is called an “applicable exclusion amount,” or an amount that we can transfer to someone other than our spouse free of federal estate tax. In 2006, this is $2 million per person. (Under the Economic Growth and Tax Relief Reconciliation Act of 2001, this amount will revert back to $1 million in 2011.)

If you leave everything to your surviving spouse, you lose your exemption. By amending their will to include what is typically known as a “credit shelter trust,” they would not lose this exemption at first death. Together they could transfer $4 million to their children free of federal estate tax instead of $2 million. This change alone could save significant federal estate taxes.

Draft a buy-sell agreement. 
A buy-sell agreement between business owners is your business plan for success in the event of a business owner’s death or disability, and it is essential for a number of reasons including the following two.

One of the most important features of a buy-sell agreement is that if one of the business owners dies, it secures a buyer during uncertain times and typically provides the decedent’s estate with a more accurate reflection of the value of the decedent’s business interest. Secondly, as the continuing business owner, it could also ensure that you are not in business with partners you did not choose.

Develop a succession plan. 
After successfully building your business, your thoughts may shift to, “How do I effectively transition my business to new owners?” Your options may include a sale, gift or a combination of both, depending on whether you run a business that you would like to transfer to family members or non-family members, as well as what your income needs are during retirement.

This area becomes extremely complex, but with some proactive advice you could save yourself both income and estate taxes.

When transferring your business to family members, you must determine your cash flow needs during your retirement years. This may help indicate when the sale of your business is necessary. Often, however, owners focus on transferring the business to the next generation through the use of various gifting techniques. Some of these techniques allow the donor to discount the value of the gift made.

If you are transferring your business to a non-family member, on the other hand, you are probably more concerned about the value and the sale of your business.  With that in mind, you may decide whether you want to recognize the gain in one tax year or to defer the gain over time. Either way, a succession plan is crucial to your — and your business’s — future.

Mapping out your short- and long-term goals for your business and your personal future can help you save both time and money.

[contact] William Ringham is senior vice president, director of wealth planning services, for Bremer Bank in St. Paul: 651.312.3662;  info@bremer.com; www.bremer.com