Just because you’re the brilliant founder of this business does not mean you can retire in place and set up some sort of perpetual motion machine that will keep paying you cash forever without any further work on your part.

The General’s was having a staff meeting. The General was pontificating about a new marketing plan he devised while at the last trade show. The Lieutenant is worried since he just came back from the battlefield. The General hadn’t visited the battlefield in years. “Sir,” the Lieutenant says, “I know that you are fascinated with the latest tank and you really want one, but our battlefield is a swamp. And unless that tank can float, it won’t do us a lot of good.” The General agreed, but took all of the assets at his disposal and traded them for a tank anyway. He liked the salesman. Besides, he’s the big picture guy and doesn’t have time for details.” Think this army will succeed? I don’t.

Sometimes Junior and Junior Miss are right. And they are right most of the time when they are doing the work while Pop (and sometimes Mom) fiddles. Just because you have a successor in place and just because they are capable of taking on additional responsibility, doesn’t mean you can quit and do what you want to do. Someone still has to drive this car regardless of who owns it. And this boils down to the predecessor’s role in the business right up to the minute they turn it over to someone else and walk away. Instead of being the pontificating General, be a good President. Do what’s most important, not what’s most fun.

Yes, but some owners insist that they don’t have to work. Take this quote from a print shop owner from their local newspaper, “(running a print shop) isn’t all it’s cracked up to be, but I hope to build something for the future … I guess everybody has that dream of someday sitting back and having someone else run it for you,” he said. “It hasn’t happened here, yet.” Well, it’s not going to either. If that is your idea of being successful, then get a better idea. All you want to do here is to do what’s most fun.

Do you have enough money to retire now? If yes, go for it and do what’s most fun. If no and especially if the business is going to form part of your retirement, then get busy.

If you need $750,000, then is your business worth that? If yes, then sell the business to junior for that amount (or to someone outside the business) and get out of the way so junior or junior miss can make more money and don’t read any further. You don’t need to work since your goals are already met.

But, if it’s not worth that, then you’d better be working on the business, polishing it and improving it until it is.

Remember, only about 35% of all businesses available for sale in the US really sell. So, if you have a successor in place, you’d better be training and teaching. And guilt is not a transition plan. Just because you bred them, fed them and led them doesn’t mean they will stay put forever. This is particularly true if there is more than one.

Yes, I know that your parents didn’t give you a business. But, you’re not going to give it to your kids either. You’re going to sell it to them. Why? You’re going to sell it to them because that’s the fair thing to do, especially if there is more than one sibling. Yes, the lawyers and accountants will encourage you to work it out in some sort of transaction that may not be an outright sale, but the idea is the same. The business is worth so much. You should get only so much and the next generation should pay only so much based on what the business is worth.

Don’t whine that your kids ought to run the business because you bred them. These kids have great opportunities, especially if they went out to get a real job. Either they have the skills or you are protecting them from reality and they will fail after you’re gone.

If they have the skills, then you need to pay them what they are worth. The concept of “one of these days this will all be yours” is only valid if you discount the price to them based on their work over time. Don’t expect them to be underpaid for twenty years and then pay you a premium for the business. You will be robbing them of the money they need to succeed.

So, in an effort to make life simpler, I offer the following 12 concepts.

1. The business leader must select, train and install their successors in their lifetime (Dr. Leon Danco, Inside the Family Business, Center for Family Business, Cleveland, Ohio). And I add that it is not enough to just be a member of the family. You must choose from among all qualified to lead the business, not just among your sons or daughters. You must be willing to train them to run the business. If they are not willing or are un-trainable, you must move on to someone else.

2. There can be but one leader of a business at a time. You cannot retire in place. A leader does not prepare their successor by stepping aside yet staying at the helm. This frustrates successors and infuriates predecessors.

This conduct can lead to no one directing the business and no one taking responsibility. The ship is adrift and the pilot is teaching the first mate a lesson by running the ship ashore. Good job. The leader (king) must remain leader (king) until the next leader (king) takes the helm. To do less is to abdicate responsibility.

Or, this conduct often leads to the successor pretending to run the business. “I do everything but the checkbook. Dad still does that.” This is not preparation. This is “playing business.” Further, giving a successor checkbook responsibility and then taking it back as punishment is a sure way to kill a transition.

3. You cannot make demands upon the successor that you will not willingly do yourself. Go sell. Learn how to produce. Learn about finance. You are in charge until the successor is in charge. The worth of the business at the time of the transition is based upon what you do, not what the successor is expected to do. One person and one person only can run a business.

You must understand the concept of command. You in charge regardless of whom may advise and assist. You would be wise in listening to all those under your command, whether they are related or not. And you would be wise in not placing too little weight on what the other participating family members say, as they would be wise in not placing too much on it.

4. It is impossible for you to give away your responsibility to run the business. It is not possible for you to “share” power or do part of a function. It is only possible for you to assign real functions (jobs) and then see that the jobs are carried out.

5. You are responsible for the results of the business until you have finalized the transition (sale) of the business. You must be part of this performance-oriented concept and not be a drain on performance.

In family-based businesses, we founders take the assets from the family and put them into the business. Therefore, we are responsible for returning to the family MORE money and MORE time than we would otherwise. And if we are not doing that, then we need to fix it so it happens, or we need to go get a real job.

6. You, as leader, assign jobs (authority) to all within the business. You must also assume responsibility to see how these jobs are carried out. You must lead and do so with enthusiasm, loyalty to those serving under you and eagerness. You do not have any more authority over others than what they are willing to give you. You earn the right to lead, you cannot command it.

7. It is from assuming leadership that others will follow you as well as learn, participate and achieve. If you don’t accept the responsibilities of leadership, you can never be expected to develop a successor, let alone a successful business.

8. It is as important for you to earn the confidence and acceptance of the workers under your command. Not assuming responsibilities for leadership will be met with resentment, confusion and conflict; not only from the successor, but from other workers as well.

9. You MUST know the business of your business. You must have a good work ethic. You must lead people; you must never manage them. You may not be less academically qualified than your successor but that does not mean they know what you do. You must teach them what you know. They cannot learn it any place else.

10. You set the work ethic of the organization. If you do not work hard, you cannot make them work hard. If you lie, cheat and steal, they will lie, cheat and steal. It is up to you to insist that the successor adopts and learns your work ethic that has made your business successful. If the successor refuses, get another successor.

11. The successor must have specific technical knowledge gained by serving in various jobs in the business. In doing these jobs, the successor has no more authority than anyone else. It is through the development of the technical competence of the organization that the successor is best prepared to lead. It is your duty to see that the successor is so trained.

12. It is the successor’s job to accommodate you; it is not your job to please the successor. However, it is not your right to insist that the successor do what they are unwilling to do. It is your right to choose another successor should that happen. And it is not your right to retire in place.

And there they are – twelve concepts for you, the predecessor to consider. I don’t think they can be ignored without adverse consequence.

Tom Crouser
= = = =

The General’s was having a staff meeting. The Lieutenant on the back row spoke, “Excuse me, General. But what you are saying is not exactly the way I see it. I think you should . . .” The General nodded and continued. A few minutes later the Lieutenant spoke again. “Excuse me, General. The idea is good but you’re ignoring the new technology available to us. I think you should . . .” The General was fuming underneath the surface. A few moments later, the inevitable happened. The Lieutenant spoke again. The General blew.

“Lieutenant, why must you disagree with everything I say?” “Well,” the Lieutenant said confidently, “I want to get ahead, sir. And I know you didn’t get where you are today by agreeing with your superiors. Fact is I know you have had your own ideas and spoke your mind.” “Yes,” the General responded with his voice lowered, “I didn’t get to be a General without having my own views, expressing my own points and confidently discussing issues.” “See, that’s my point.” the Lieutenant said smugly. The General continued, “But, that’s sure as hell how I made Captain, Lieutenant.”

Just because the successor is trained and capable of taking on additional responsibility, if not the business, doesn’t mean it is time.

Before you can be a good General, you have to be a good enough Lieutenant to be promoted to Captain. And that boils down to the predecessor’s confidence in the successor. Instead of being the impetuous Lieutenant, be a good Vice President.

Yea, but some would insist that my concept is closely akin to “sucking up” and why would anyone want to do that? Well, does the successor have $500,000 to pay the predecessor? That’s what the business is worth. The answer is no. The answer is always no. However, if the answer were yes, then pay the predecessor the $500,000, take over the business and don’t read any further. You don’t need to know how to suck up, er be a successful successor.

If, however, you are trying to get the predecessor to loan you $500,000 so you may purchase the business from them over time and pay them back with the proceeds of the business, then you need to know how to be a successful successor.

Yea, I know that the predecessor (often parents) didn’t know much about business when they started the business. But no one gave them a business doing $1 million in sales, with ten workers whose families’ livelihood depended upon the skills of the person running the business either.

They risk everything and perhaps that was because they didn’t have anything to lose at the time, but they took the risk and succeeded. You, as successor, have that option open to you. If you want to go do it, have at it. But, don’t come whining that your parents ought to give you their business because you happened to pop up in the lucky gene pool. No, you’ll have to do it the old fashioned way – earn the opportunity to succeed by first becoming a successful successor.

In an effort to make the time the successor serves as the understudy happier and more productive, I offer the following sucking up concepts.

1. The business leader must select, train and install their successors in their lifetime (Dr. León Danco, Inside the Family Business, Center for Family Business, Cleveland, Ohio). It is not enough for you to just have been born into the family (lucky “gene pool”).

It is up to you to prepare yourself so you are the most logical person to be selected. The predecessor must train, but you must be willing to be trained. If not, the leader must select someone else or sell the business to an outsider.

2. There can be but one leader at a time. A leader cannot retire in place. A leader does not prepare their successor by stepping aside yet staying at the helm. This frustrates successors and infuriates predecessors. This is a rule that is often broken.

This conduct can lead to no one directing the business and no one taking responsibility. The ship is adrift and the pilot is teaching the first mate a lesson by running the ship ashore. The leader (king) must remain leader (king) until the next leader (king) takes the helm. To do less is to abdicate responsibility.

Or, this conduct often leads to you, the successor, pretending to run the business. “I do everything but the checkbook. Dad still does that.” This is not preparation. This is “playing business.” Further, giving you checkbook responsibility and then taking it back as punishment is a sure way to kill a transition.

3. You cannot make decisions for the predecessor regardless of the righteousness of your position and regardless of what you know that the predecessor doesn’t. The predecessor is in charge until you are in charge. Until then, you advise and assist. One person and one person only can run a business.

You must understand the concept of under command. You are under the command of the predecessor. You would be wise in beginning ideas, changes and solutions with the phrase, “With your permission…”

4. It is impossible for you to join the business without “working” for the predecessor. You cannot “share” power or do part of a function. It is only possible for you to be assigned a real job and then to do it to the best of your ability like everyone else.

5. The leader is responsible for results. Therefore, the leader is responsible for returning to the family MORE money and MORE time than they would have otherwise. And if we are not doing that, then we need to fix it or we need to get a real job. You must be part of this performance-oriented dynamic and not be a drain on performance.

6. The leader (predecessor) assigns authority to everyone, including you. You have no more authority than what the leader assigns. Your first duty is to assume responsibilities of your job. And do so with enthusiasm, loyalty and eagerness. You do not have any more duties or authority until assigned by the leader.

7. You gain recognition and authority from assuming responsibilities of your job. If you do not step up to the responsibilities, you will never receive more authority or responsibility. It is in this gradual earning of authority that the successor gains the confidence of the predecessor.

8. It is as important to earn the confidence and acceptance of other workers as well. Assuming responsibilities not yet assigned will be met with resentment, confusion and conflict from the other workers as well as the predecessor.

9. You MUST know more than the predecessor knows about different things. You are probably more academically qualified than the predecessor. But, that does not mean you know what the predecessor knows. Knowledge of things is not enough to allow you to gain authority. You gain confidence of the predecessor by learning what the predecessor knows and practicing their work ethic.

10. The predecessor sets the work ethic. It is not up to the predecessor to accommodate you; rather it is up to you to adopt the work ethic of the predecessor.

You are not able to change the work ethic successfully until you adopt and learn the old work ethic. If the predecessor comes in early, you come in early. If the predecessor works on weekends, then you work on weekends. These tasks are not entirely necessary to run the business, but these tasks are necessary to gain the confidence of the predecessor.

11. You must have technical knowledge gained by serving in various functions (jobs) of the business. While doing these jobs, you have no more authority than anyone else serving in these jobs. A leader who does not understand the work of those led remains a poor leader forever.

The leader must have technical competence in order to successfully lead.

12. It is your job to accommodate the predecessor; it is not the predecessor’s job to please you.

And there they are – twelve concepts for the successor to consider. I don’t think they can be ignored without adverse consequence.
= = = =
Yes, we work with businesses undergoing an internal transition of ownership either among family members or people who work in the business and welcome your inquiries. Message me at tom@crouser.com. I also tweet business topics from @TomCrouser and find me on Facebook by searching for “Business with Tom Crouser.” Also connect with me at LinkedIn.

 
Products and services printers have added the last two years and their plans for the next two are the best predictors of where this industry is headed. Information based on data collected from 185 printers in January 2012 shows that 54% of all expansion was in tangible products (wide format, more digital capacity, signs) while a full 46% was intangible products and services such as web and sales based services. This report details by category the additions by category.

Not only that but the report reveals 84% of the group had reduced revenues from offset. Even though, offset still accounts for 39% of total sales. While only 5% of the shops in the survey were digital-only shops, they are appear to be the as only two out of our 185 responses (0.01%) indicated offset printing capacity was or will be added vs. a total of 32% who have added or plan to add digital printing capacity.

Additional questions in this report include: what budget changes have the participants made over the past twenty four months as well as what non-budgetary changes have been made? An add-on question regarded advertising the business on Google, Facebook, LinkedIn or similar Internet sites. Report includes comments from recipients.

$50.00 – Delivered via US mail in printed form – 27 Page Report

Let’s both learn the facts about the small press and digital printing industry without cost or obligation on your part; facts on prices, costs and wages.

Like what? What do we charge for pricing envelopes printed digitally? What products/services have we added in the past two years and what do we plan to add in the next two? How much do we charge for digital printing flat sheets? What’s the charge for off-line UV coating or scan backs of originals to searchable PDF formats? That’s not to mention our annual Wage and Benefit Study. These are just a few of the reports we have generated in the past year with more to come this year.

And it’s free! Free, that is, if you participate fully in the survey. If you don’t, then you may buy a copy for a reasonable rate (usually $50 or $75). And, even if you don’t participate or purchase a study, summary information is typically published in the Crouser Report itself.

Way this works: you receive the Crouser Report via email every week. Here you will not only find pertinent articles but also survey invitations. These surveys are open for a specific period (typically 10 days) and you may choose to participate or not.

If you are too busy or the survey doesn’t pertain, ignore the request. Of course, if you do participate your individual results are confidential. Reports are published within 15 days after the close of the survey.
It’s as easy as that.

One last thing, please add tom@crouser.com to your address book so my messages won’t be caught up in your spam filter. Now, fill in the form below and let’s get started ….

Let me first say that there is what is usual and then there is what is negotiated. Anything can be negotiated so anything could be a condition of a sale, but let me start off with what I see as usual.

Usually our kinds of businesses are sold in an asset (or bulk) sale versus a stock sale. This is where the producing assets are sold to the buyer but the seller retains both the current assets (cash, accounts receivable, etc.) as well as current liabilities (accounts payable, taxes payable, etc.). In this scenario, usually equipment loans are assumed by the buyer but working capital loans are paid by the seller. That’s because the value is usually based on the amount of earnings and that is, in large part, based on the equipment deployed. Usually there is no question that equipment leases (and building leases) are assumed by the buyer (example: as on digital output device) so the same applies to productive equipment that is financed as well.

Working capital loans (loans not specifically against a specific asset such as equipment) are usually paid by the seller because they support the current assets retained by the seller in an asset (or bulk) sale. However, as I said, anything can be negotiated so it really depends on the parties’ agreement.

In a stock sale the loans stay with the corporation just as they would if you sold your shares of General Motors to someone else. However, there are small business issues with stock sales so it is less common. What kind of issues? Well, continuation of potential liabilities (taxes and environmental damage liability mainly) and practical issues such as assuming someone else’s accounts receivable. An asset (or bulk) sale normally sets up a firewall between the buyer and seller so that unexpected liabilities don’t pass through the transaction.

End

Yeah, I know we say we will approve their vacation time and all, but the last thing you want is a surly press operator or CSR. So we approve whatever they ask and feel more like martyrs than owers. Believe me; I know that feeling well and it stuck with me until I did something different. What? Well, I began closing for vacation twice a year as well as began viewing all benefits as mainly ways to attract new workers rather than being something I am giving to existing ones.

What’s Offered

First, let’s consider what others are doing. A full third of printers surveyed (34%) offer one week’s vacation after one year and two weeks after two. What’s wrong with that? Nothing except it’s not exactly competitive. In the olden days, we use to hire folks off the street and train them. That’s changed as today we are mainly talking to people who have jobs. Right, regardless of the high unemployment rate, finding the RIGHT worker typically requires us to hire someone away from someone else.

I recommend two weeks’ vacation benefit after each full year of employment, including the first (as 24% of the printers I surveyed do). This is because the employed worker typically has two weeks’ vacation now so it’s hard to entice them with less. Additionally, the real cost is minimal as the extra week applies only in the first year. After that, the benefit is the same. And, no, we do not have to give existing workers additional time off.
Now some extend vacation beyond two weeks. Don’t do it. It’s waste. Why? Few workers ever decide on employment based on a promise of vacation after five years but they sure do based on what they will get in year one. Oh, yes. No, we owners are not limited in vacation. If you want to take three months off and can afford it, do it. If you don’t want to show up for a long weekend, then don’t.

But among your workforce, time off for vacations is signficiant. In a four person shop, the difference between two weeks’ vacation and three is dramatic. Because most everyone requires only one worker be on vacation at a time, then that means you are working short-handed for eight weeks every year (two weeks x 4 workers). Extend that to three weeks and that adds another month so you will be working short-handed for roughly one-fourth of the year! It’s even more dramatic.

So, a better way to handle vacations is to simply close for a vacation period two weeks’ per year. Usually it is a week around the Christmas holidays and a week around Independence Day (perhaps Civic Day the first of August in Canada). This is because these are typically the two slowest weeks in the entire year because your customers are on vacation too. However, it can be any two weeks. If you’re in ski lodge country, then close during mud season or during slow season if you’re at the beach.

An added benefit is that there are no accruals to track (you don’t have to remember anyone’s date of hire). If you work here, you get off and are paid for the time we are closed for vacation. If you are not working here, well, you don’t. So don’t hire someone right before vacation; wait until after.

BTW, be sure to grant yourself the holiday that is wrapped up in the vacation period as well as the vacation. For instance, if Christmas is on Tuesday, I’d suggest you close that week and also the Friday of the week prior so you have six days off (five vacation and one holiday). Also, if there is a choice, close before the holiday, not after. For instance if July 4th is on Monday, I’d suggest you close the week before rather than the week after. Seems to me customers understand taking off to stretch out the holiday, but once it’s over they feel you should be open to serve them. Maybe that’s just me but it’s what I’d recommend.

Yeah, butta the press operator has plans to go to their family reunion in September. Okay. They may take time off without pay as long as it is okay doke with you. But, no, they do not get to come in during the vacation period and substitute. There are usually a couple of these special circumstances the first year or so; but after that it calms down to a regular routine. Just be sure to pay people vacation pay ONLY during the time of the official vacation close and allow them time off without pay for any additional time.

Yeah, butta I’m gonna lose all this business. No you are not. You pick the two weeks of the year that are SLOW, meaning customers order a lot less. And this is especially true when done right by letting the customers know beforehand (personal visits to top accounts). In fact, it often helps for it gives you a reason to get toe-to-toe with customers.

The biggest beauty of this system is that WE get to take a real vacation, typically for the first time in many years. When was the last time you went on a real vacation without constantly calling back to the shop and trying to micromanage from afar. Treat yourself.

Tom replies -> Be glad to do so. First, there should be no such thing in your business as a smoke break (see below). Second, breaks aren’t required by federal law but some states do. In my experience most states don’t, however. If you allow breaks, don’t formalize them when everyone is on break, rather the supervisor usually specifies if guidance is needed.

NON-PAID LUNCH break is required by law everywhere usually when a worker is scheduled to work six hours or more in one shift. For elaboration on these points, click on “Read the rest of this entry” below …

1) SMOKE BREAK: There should be no such thing as a smoke break. If you allow a smoker a break, you should allow a non-smoker the same. Smokers, in essence, have no rights to smoke in your facility or grounds. Non-smokers usually feel discriminated against if you allow smokers breaks but not them. I don’t know of any case law that found an employer liable because of this, but it is definitely a morale issue.

2) BREAKS TYPICALLY NOT REQUIRED: Breaks typically are NOT required by law of employers in MOST states rather have grown up through tradition (there’s no legal requirement for vacation either but it is traditional for the employer to grant vacation in order to be competitive for workers). Where breaks are REQUIRED BY LAW, they usually are 15 minutes within each four hours worked (here’s where your local employment at law attorney comes into play for specific advice). People scheduled to work for less than four hours typically receive no required break. Most companies who voluntarily set up breaks typically allow up to 15 minutes.

3) IF YOU ALLOW BREAKS, DO NOT set a time when all workers should take a break. Breaks should be granted with the permission of the supervisor. “May I check out for break now?” In fact, if you watch some of the fast food places, you will see the supervisor telling individual workers, “Sam, take your break now. Mary, you go in thirty minutes” …. Ya da. IF you formalize breaks, then I would recommend you use this procedure, however I don’t recommend you formalize breaks.

The most production time lost is upon start-up of the day and shut-down. Folks show up at 8 am and really do their first bit of work at 8:30. Workers leave at 5, so they begin shutting down at 4:15. This same phenomena happens when you introduce a formalized break where everyone takes it at the same time. Fortunately, I’ve rarely ran into this being done by printers (usually when a printer buys a formally union shop).

4) RECOMMENDATION: DO NOT FORMALIZE BREAKS. “We don’t have formal breaks around here. If you have to go to the bathroom; go to the bathroom but don’t take all day. If you need to grab a soft drink, you may do so. Otherwise you are expected to be working at your job.” Under this scenario, breaks are indistinguishable from paid work hours so breaks are effectively paid.

5) PAID BREAKS: Nowhere that I know of requires any break to be paid. For informal breaks (see 4 above), most businesses do not require the worker to clock out. IF it is a formal break period, then workers usually do clock out and it is unpaid. Again, the most typical situation is that we don’t formalize the break and avoid all of this.

6) NON-PAID LUNCH break is required by law everywhere that I know and usually is required when a worker is scheduled to work 6 hours or more in one shift. Again, the supervisor should assign WHEN the lunch break should be taken (fast food example above) and it is not guaranteed that it will be at a specific time or in a specific order. Usually it depends on the specific workload.

Alright. Those are some answers off the top of the head. Hit me back if you have specifics that I haven’t covered …. And thanks for the question….

Tom replies -> Hum, problem here is YOU don’t get to choose whether the worker is contract labor or an employee and it sounds like they are employees to me. Specifically, what matters is whether you have the legal right to control the details of how the work is performed and it sounds to me like you do. Nevertheless, every situation is considered on the facts of the relationship. However, there are guidelines that will be useful to you. Here’s the lowdown….

Main issue: the Internal Revenue wants the worker to be someone’s employee so that proper payroll and social security taxes are paid. When you treat a worker as contract labor or an independent contractor, no taxes are withheld and it’s not common for them to be voluntarily paid by the worker either. That’s the rub.

There have been many court cases over the years establishing what an employee is. Today I can say with certainty that if they are working in your premises, on your equipment, at your direction and/or during the hours you set and/or you are paying them by the hour, then the worker is an employee. The following 20 Factor Test is commonly cited as a guideline, however the circumstances of each specific case rule. Nevertheless, these factors give you a good idea as to whether a worker is an employee:

1. If the workers are required to comply with your instructions about when, where and how they are to work, then the worker is an employee.

2. If the worker is trained by experienced employee(s) and required to attend meetings, then the worker is an employee.

3. If the workers’ services are integrated into your business operation (rarely would a press operator, for instance, be considered an independent contractor), then the worker is an employee.

4. If the worker is required by you to render their services personally (you expect your typesetter – -a specific person – - to do the work as opposed to any number of people actually setting the type in a service bureau), then the worker is an employee.

5. If you set the hours to perform the work (such as between 8 and 5), then the worker is an employee.

6. If you tell a full time worker how much time they must spend working (as opposed to an independent contractor taking as many breaks as they choose) and if they are told whether or not they can do other work (such as you not allowing them to do work for your closest competitor), then that would make them an employee.

7. If the worker performs the work on your premises and you pay the person for the work, then the worker is probably an employee.

8. If you control the order in which the services are performed (such as the decision over which job will be done and in what order), then the worker is probably an employee. (An independent service bureau responds to your demands as it does any customer’s demands. If you have the absolute ability to order your job to be done in preference to some other customer’s job, then the worker is probably an employee.)

9. If your worker submits regular or written reports to you, then the worker is an employee.

10. If the worker is paid by the hour, week or month, then the worker is an employee.

11. If the worker receives payment for their business and traveling expenses, then the worker is an employee.

12. If the worker is furnished with tools, materials and other equipment, then the worker is an employee.

13. If the worker can quit without incurring any liability (such as the typesetter having an actual lease on space and equipment within your facility and having to honor that lease whether or not they choose to continue to do work for you), then the worker is probably an employee.

14. If the worker can be fired by you, then the worker is an employee.

15. If the worker has a continuing relationship with the person hiring them, then the worker is probably an employee.

16. However, if the worker pays for their own facilities used in performing their services, then the worker is probably an independent contractor.

17. If the worker can realize a profit and loss, then the worker is probably an independent contractor.

18. If the worker performs services for multiple unrelated firms at the same time, then the worker is probably an independent contractor.

19. If the worker makes their services available to the general public, then the worker is probably an independent contractor.

20. Finally, if you hire, supervise and pays assistants, then it is considered that you control the workers on the job, and therefore, those workers are ordinarily considered employees.

Yea, But What If They Work For A Temporary Agency?

A temp agency employers workers (and pays employment taxes, etc.) on the worker and supplies workers to you so they are on someone’s payroll which is what the Internal Revenue is most interested in. However, note that the temp agency assigns the workers and can send you whomever so they have been held to be the employer of record. It could get sticky here but remember the big deal to the IRS is the collection of payroll taxes. So, since that’s being done through the temporary agency, there is much less likelihood of contract labor being an issue.

What About Employee Leasing?

Generally this is a co-employment arrangement which could present you some problems if you paid the leasing company and they failed to pay the worker, but that’s rare. Again, what’s important is that the worker is an employee of the leasing company and that’s where the payroll taxes are paid so you are unlikely to get into trouble here.

Report: entrepreneurs losing revenues, profit and sleep – but not determination

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How to Handle Customer Postage in Financials: for mail services and small press/digital print shops

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German printing press manufacturer Manroland applies for bankruptcy protection

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China increased quantity of funds available to smaller businesses. More monetary easing likely

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Leading Means Legislating with Workers: especially if small business owner. Why? What it means with examples

End

]]> http://crouser.com/articles-you-may-have-missed/feed/ 0 http://crouser.com/handling-customer-postage-in-financials/ http://crouser.com/handling-customer-postage-in-financials/#comments Tue, 29 Nov 2011 17:28:01 +0000 Tom Crouser http://tomcrouser.com/?p=437 Reader writes: Does your chart of accounts manual include accounts appropriate for mailing services such as collecting postage, paying discounted postage, etc.? That is something I haven’t really been able to wrap my brain around for our Chart of Accounts….

Tom: Yes it does, Dale. BUT it’s more complicated than just having the accounts on the Chart of Accounts. I’ve attached a paper I did on the subject which may be more than you ever want to know …. and I’m making it available for all at www.crouser.com/shop.

Now, let me give you some highlights because flowing postage purchased for customers can hose up your financial statement (mainly the income statement but also the balance sheet). Here are a couple things it can do:

+ Messes Up Sales History: if you record customer postage as a sale, your sales history may look like you are growing but it may just be your customers mailing more. Likewise a decrease in your sales may mask a real sales increase accompanied by a decrease in the amount of postage your customers purchase.

+ Messes Up Direct Materials: recording the cost of customers’ postage in direct materials will increase cost of direct materials and may lead you to believe your overall prices are too low.

This, of course, leads to widely varying results from month to month and year to year.

Why Not Have Customer write USPS a Check?

Technically, the US Postal Service (USPS) does not allow third party checks to be deposited into your permit account, which means that a check payable to “Postmaster” that is not drawn on your checking account will not be accepted. However, many bulk mail acceptance clerks accept these third party checks and lull many mailers into a false since of security.

Here’s the rub. If the check is returned for insufficient funds, then it comes back to the USPS, not to you and the USPS will immediately takes enough funds to cover the NSF check from your permit account including bank fees. That may mean your account could be short for other customer mailings so you have to pony up the missing funds quickly and/or have your other customer’s mailing delayed.

Additionally, you then do not have the NSF check to collect from the customer so you have to hope the customer reimburses you quickly. This is a remote possibility in most cases but why take the risk?

How to Handle It

You should collect the postage from the customer and then issue the USPS a check from your account. But how do you handle that in your financials?

For typical shops that do not markup postage (sell it to the customer at cost of purchase) and when the cash coming in and going out is close to the same time, then an easy and better choice is to use a clearing account on the Balance Sheet.

How does that work?

Set up an account in Current Liabilities (you are holding money for the customer so it is a liability to you even if the cash comes in and goes out at almost the same time – I suggest Customer Postage as a title). Deposit the customers’ postage check normally debit Cash (increases your balance) and credit Customer Postage (increases the liability). When you write your check to the USPS, debit Customer Postage (decrease) and credit Cash (decrease).

The balance in the Customer Postage account is usually zero so it has no net effect on your balance sheet nor does it inflate your sales or your cost of direct materials so you avoid inflating sales or the cost of your direct materials.

You could also set up your clearing accounts on the Income Statement in the Direct Materials area. Again, if cash comes in and goes out quickly, then the balance in the account will typically be zero and have no impact on the Income Statement.

In this example this transaction would be recorded each time a purchase of postage or a payment from the customer is received. A way to avoid that and to reconcile cash is to keep a subsidiary ledger showing the specific activity in this account. That would be the cash-in and cash-out which is identified by customer. You may use a simple form (described in our white paper on the subject) for this or, in some cases, you can identify the transaction in your accounting system so it can be tracked  by printing out the entries of this Customer Postage account (identify cash-in by customer and cash-out by customer.

Any of these processes works well for most shops; however, there could be complications.

Complications

+ IF you charge a handling fee for this transaction, then you have to have a compound entry which would recognize the fee as a debit to cash and a credit to a sales account in addition to the entry described above.

+ IF you purchase postage for your postage meter and then dispense it for customer postage as well as use it for your general postage and, perhaps your direct mail (postage for your direct mail advertising should be recorded as an advertising expense rather than a postage expense), then you have a more complex entry that is explained in our white paper, Handling Customer Postage within Financial Statements.

+ IF you markup the postage then you must treat it as a sale and a cost of direct materials. This also is explained in our white paper, Handling Customer Postage within Financial Statements.

+ When you purchases postage for your meter by phone and then it is used for customer postage as well as for the shop’s use. Additionally, if you differentiate between postage used for normal business and postage for our direct mail efforts (sales expense) is also explained in our white paper, Handling Customer Postage within Financial Statements.

To order for $50, click on www.crouser.com/shop.

Isn’t this fun? If you have questions, please message me at tom@crouser.com and I’ll try to answer them.

Tom Crouser