BusinessWest

Business Planning Should Be More Than a Year-end Exercise

When employers contemplate the various facets of business planning — everything from staffing changes to tax preparation to payroll and benefits — they often target the end of the year to make those decisions. But some experts say such planning should be a year-round commitment. Here’s why.

When it comes to end-of-year business planning, Kevin Vann said, every company is different.
“If you’re an accountant, obviously tax planning is critically important,” he said. “If you’re a business advisor, consultant, or whatever, other things are critical, like long-term strategic planning.”
But he has one piece of advice that crosses all sectors: business planning is not just a year-end exercise. At least, it shouldn’t be.
“We look at it as an ongoing thing,” said Vann, a principal with the Springfield-based Vann Group. “For us and our clients, I think year-end planning is still very important, but that kind of narrow focus has changed a lot over the years.”
The activities many business owners associate with the end of the year — from budgets to tax preparation; insurance changes to retirement benefits; capital investments to employee handbooks — should actually be part of a year-round review process, Vann said, although it’s natural for employers to think about them more as the calendar change approaches.
Other business-planning strategies may involve evaluating technology needs, examining a business-succession strategy, or — and this has come to the forefront with the wild weather of 2011 — business-continuation planning in case of a disaster.
As the holiday season signals the close of another year, BusinessWest takes a look at how employers can plan for the short and long term — and why it shouldn’t be just a December thing.

Pay Grades
“The end of the year is basically the culmination of working with the staff on recognition, incentives, staffing, and then setting the bar for the next year,” said Brenda Olesuk, director of marketing at Meyers Brothers Kalicka, P.C. “In terms of goals and budget, we put a lot of focus into the year-end merit bonus so the staff can share in the firm’s success.
“We also take a look at staffing,” she added. “We identify what our busiest seasons are — in our case, it’s January through April — and evaluate staffing at all levels to see what we’re going to need in terms of bringing new people in, sometimes seasonal people. Then we take a look at our benefits, and we create budgets.”
Kristine Drzal Houghton, partner in charge of Taxation at Meyers Brothers Kalicka, focuses on the tax implications of year end and how companies can use constantly changing rules to their advantage.
“Typically, at the end of the year, the first thing everyone thinks about is trying to minimize tax liability,” she said. “For example, we’ll talk about analyzing their inventory and writing off anything that is obsolete and getting rid of that inventory. We’ll talk about their accounts receivable; if they’re not going to collect on a bad debt, to get that deducted.”
Another key area in that vein, she said, is analyzing the company’s fixed-asset listing to make sure it isn’t paying taxes on equipment that’s no longer being used. “Companies have computers eight years old listed on there, when anything over three years, you’d probably pay someone to take away. These computers are not in the presence of that business any longer, yet cities and towns are hiring people to come in and do reassessments of companies’ fixed assets, and they will tell you that anything you’re still listing on your books still has value.”
In the case of an older computer, that value could be up to 30% of costs, Drzal Houghton explained, meaning a unit purchased eight years ago for $3,000 could still have a value of $900 for tax purposes. “If you don’t own it anymore, why is it in your fixed-asset listing? A good time to look at that and do what I call scrubbing the books is end of year.”
As another example of planning ahead, she noted that C corporations may deduct charitable contributions up to only 10% of their taxable income. In other words, if a company makes $100,000 and donates, say, $25,000 to charities, it can only deduct $10,000 of that.
“Many times I will suggest to business owners, why don’t you make the charitable contribution and have the corporation give you a bonus to offset the fact that you made the charitable contribution?” she explained. “It’s fully deductible to a shareholder, and the corporation gets a deductible for the bonus.”
Finally, “if a corporation has a net capital loss for whatever reason, the corporation will never get a deduction for that capital loss except to offset capital gains,” Drzal Houghton said. “You can sometimes look at creative ways to create capital-gain income so you can utilize those losses. With some planning, you can realize some tax savings by utilizing those capital losses.”
In addition, 2011 offers some beneficial depreciation rules; “if you buy an asset, you can write off 100% of that asset in 2011,” she explained. “So if a business is thinking of making any investments in the first quarter of 2012, they should really consider trying to accelerate those and make them in 2011, for a much better deduction from those capital improvements.”

Best of Times, Worst of Times
While employers often think of business planning in terms of their finances and personnel, many don’t consider what would happen if their physical worksite was suddenly gone or unusual — a possibility many now take more seriously after the June 1 tornadoes, the widespread power outages around Halloween, and other odd weather events this year made that a distressing reality.

As a result, companies are increasingly reviewing their plans for how they would communicate with customers if phone and Internet service is interrupted, or where they would set up shop in case of a fire or other disaster, or how they’re storing key data offsite and how often they need to back it up.
Disaster planning is a good example of a strategy that shouldn’t be a once-a-year concern, and Vann said that goes for other types of business planning as well.
“It’s something all businesses, irrespective of size, have to look at constantly. Things are changing so rapidly today, with social media and other forms of communication,” he said.
“I don’t want to say we should do day-to-day planning, because that just creates chaos and crisis, but the window for planning time has been reduced,” he continued. “Where in the past you’d make a three-, four-, five-year plan, now you’re looking at a 12-, 15-, 18-month situation.”
He recognizes, though, that many businesses will seek help for their planning process when they’re at a “tipping point, when they want to get to the next level and grow — or when they’re in the middle of a crisis, when they’ve had a contraction of revenues or employment problems.
“I think those tipping points come more rapidly than they used to, and there’s a lot more short-term planning,” Vann added. “But you still have to look down the road.”

Joseph Bednar can be reached at
bednar@businesswest.com

There Are Many Applicable Lessons from Steve Jobs’ Succession Plan

By CHARLOTTE CATHRO

Former Apple CEO Steve Jobs passed away in October and left behind him an incredible legacy. He conceived and cultivated a successful and admired company, but a long history of health issues had investors concerned about where the business would be without him.
The company had been tight-lipped about their succession plan, leading to some speculation. The world was shown what Jobs intended for the company when he resigned in August and the plan was officially set in motion.
While a company as successful as Apple needs a plan on the largest of scales, there are some cues that can be taken to benefit all companies in planning for their future.
Jobs founded Apple with his high-school friend, Stephen Wozniak, in 1976, and the two transformed the personal-computer industry. After a disagreement with company executives, Jobs was ousted from Apple in 1985, but returned to take the helm in 1997 as part of a new management team. Upon returning to Apple, Jobs continually expanded the company with new innovations. What was a computer manufacturer became a conglomerate of music, software, and personal electronics. Jobs created a following for his sleek and modern design aesthetic. Keen marketing campaigns surrounded each new product in buzz. His charismatic presentations of new products were touted for their brilliance, and his own image became inseparable from Apple’s. It is this intertwining that makes Jobs an incredibly tough act to follow.
To ensure that Steve Jobs’ vision lived on, the company created Apple University. The university is a training program for Apple executives with high-level courses designed to instill Apple’s most important principles: accountability, perfectionism, simplicity, and secrecy. The project ensures that everyone is on the same page, and allows management to trust that the organization is acting with a collective brain.
Jobs took the project so seriously that he recruited the former dean of Yale University, Joel Podolny, to run it. While not all businesses have the resources to set up such a program, business owners can and should train employees to make smarter decisions independently. An education and training program fosters loyalty and a culture of self-improvement. It doesn’t just prepare them for when you are no longer running the business; building trust will allow you to transition responsibility over time.
When it came time to name a new CEO, Apple was ready. Jobs stepped down in August, and Tim Cook was appointed in his place. Jobs trusted Cook to take the helm for several reasons. First, Cook had a strong relationship with Jobs and considered him a mentor. He has respect for the vision and history of the company, and is not looking to completely revamp it now that he is in charge. He reportedly sent a memo to employees since he took over noting that Apple would not change.
Cook has a strong drive for success, which has gotten him this far in his career. As COO, Cook managed Apple’s enormous supply chain and enabled the company to post impressive profits. His experience will allow him to maintain Apple’s standing as a fierce market competitor. Most importantly, Cook loves Apple and its products.
Cook’s appointment in August was not his first time running the show. He had filled in on several occasions during Jobs’ previous medical leaves and had been in charge of the day-to-day operations of the business as of January. While it may have been Jobs’ continuous illness that required Cook to act as a standin, it served the succession plan well. Investors, analysts, and the public started to know his name, and employees of the company got a taste of what working under Cook would be like.
Field-testing executives allows them to get some comfort in the role, and gives opportunity for feedback. Businesses can begin by including protégés in meetings with major customers and suppliers and allowing them to create a rapport. Acclimating customers to future leaders can also result in fewer losses upon transition.
A succession plan doesn’t need to be a one-for-one replacement in leadership. Jobs had developed a team of advisors with specialties in different areas. This group includes Jony Ive, vice president of design; Scott Forstall, in charge of operating system software; Bob Mansfield, hardware engineering; and Phil Schiller, Apple’s marketing head. It is unknown whether roles within the organization will shift with Jobs gone, but this ‘two heads are better than one’ approach ensures that Cook will have a sounding board for ideas.
To follow the lead of Apple, companies developing succession plans should evaluate what skills are needed for future leadership and fill the gaps, spreading the abilities to supporting roles. Smaller organizations without the resources for multiple executives with different skill sets can retain consultants or send existing staff to targeted training.
Apple has reinvented itself several times over the years, and Jobs prided himself in knowing what the public wanted, even when they didn’t. A future for the company, then, needs to include continuous innovation. The vision for the future should not just be that of survival, but of growth.
In planning beyond Steve Jobs, Apple educated its employees, created a strong corporate culture, established a support team of differing skills, and test-drove their executives. To ensure that a company lives past its president, a succession plan needs to be more than just a decision. The plan needs to be in motion as an ongoing initiative.

Charlotte Cathro is a tax manager with the Holyoke-based CPA firm Meyers Brothers Kalicka, P.C.; (413) 536-8510; ccathro@mbkcpa.com

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