November 15, 2019

You’re the Boss Blog: Training Employees to Analyze the Business

Building the Team

Hiring, firing, and training in a new era.

“Be direct.”

This is one of our core values at H.Bloom. It stems from another one of our values, which is to care deeply about our colleagues, and from the shared ambition to become as good as we can possibly be in this business. The only way to achieve this is to be direct with each other about areas of improvement. Otherwise, how will any of us know what to improve?

In my last two posts, I have written about the importance of practice, the formal training that we have set up, and shared the details of a specific management class that I led recently on data-driven decision-making. In this post, I want to walk through some of the projects our managers presented as part of the assignment from that class, and the direct feedback that I gave them so that they could work on the continued development of their skills.

After the training class, I gave the following assignment to our market managers and sales managers:

  1. Identify a problem or opportunity in your market.
  2. Analyze any available data about that problem or opportunity.
  3. Use the evaluation of data to draw a conclusion.
  4. Present your findings to the group.

The class participants could work on this assignment individually, or in teams, and they were given two weeks to complete the project. Here are four examples of what the participants presented, and how we used the presentations as an opportunity to give direct feedback on the skills they had learned.

Automate a Process

One of our market managers presented the need for a new piece of software that would automate the process of fulfilling same-day orders. Today, these orders are guided to completion in a relatively manual way. There is no question this process needs to be automated. However, as a three-year-old start-up, almost everything we do still needs to be automated. The presentation skipped over the data analysis and jumped right to the conclusion. While the conclusion was sound, the presentation missed the mark because of the lack of supporting data.

In our company, there is tremendous opportunity to derive competitive advantage by automating manual processes, but the trick is in deciding which processes to automate first. I gave this market manager direct feedback: First, when the assignment is data-driven decision-making, don’t forget the data! Second, and the important lesson in this interaction, was that because everything needs to be automated, the only way to determine what to do next is to compare the potential return of one project to that of another. With this filter, we work on the highest-value projects first, and eventually, we will get to everything. I asked this market manager to redo the presentation.

Buy Some Equipment

Another presentation, this time from a current SEED participant, suggested that we purchase a piece of equipment to deliver a particular corporate service in a more efficient manner. The numbers were sound: the presentation showed cost, a detailed potential return, and months to break-even. The return on investment was compelling, except for one other piece of data – this new business, one we had just introduced, was not yet profitable. I suggested to the presenter that we should drive the business to profitability first – which was only a couple of months away – before investing further in the line. While the presentation analyzed data, I thought it missed the analysis of contextual data (in this case, the profit and loss of the business line itself). The presentation provided a good opportunity to share with this future market manager my philosophies on investing limited capital, introducing new lines of business, and investing in those businesses for scale and efficiency.

Eliminate Wasted Effort

Two sales managers presented a detailed analysis of our sales pipeline. They enumerated activities by account executive, conversion rate and closed deals. They conducted an in-depth survey with current account executives, and identified a situation in which our sales people were duplicating efforts by entering the same data into two different systems. They calculated the potential uplift in sales if this wasted effort were removed and concluded that our engineering team should build the required functionality. My reaction was not what they expected. In the process of presenting their findings, they highlighted the number of activities that our account executives complete on average per day. When I asked the sales managers if they thought it was conceivable that our account managers could do more activities per day, the answer was a resounding, “Yes.”

In fact, these sales managers believed that our sales people could execute twice the number of activities per day even without implementing their suggestion. When I then asked them to compare the potential value of a) increasing the number of activities per account executive per day to b) removing the duplicative process, they saw that the former would provide a much larger return. My feedback to them was simple – if the data is there, make sure to draw the most rewarding conclusion. As a result of the presentation, the sales managers met as a group and instituted a new minimum number of activities a day, supported by our incentive program, and that has now been introduced to our entire sales force.

Try a Loyalty Program

One of our most seasoned sales managers analyzed our corporate subscription business. She proposed the introduction of a customer loyalty program, whereby we would systematically deliver something extraordinary to our customers as a thank-you for their loyalty during the previous year. This program could do two things: 1) surprise and delight our customers and 2) help ensure that they continue their subscription. The team compared the cost of this program to the potential benefit and proposed a pilot program that would contain our costs while enabling us to see any positive results in just two months. I gave the sales manager my feedback: it was a great presentation; a thorough analysis of the data; and a thoughtful decision to propose a pilot program. As a result of the presentation, I approved the program, which is in process right now. We will be able to assess the results in a couple of months.

Bryan Burkhart is a founder of H.Bloom. You can follow him on Twitter.

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Creating Value: The Tax Implications of Starting a Business With Retirement Money

Creating Value

Are you getting the most out of your business?

Last week I wrote about the risks of using retirement money to finance your business. I spent some time looking at a strategy called ROBS — rollover as business start-up — and came to the conclusion that although it is being done by thousands of businesses, it has yet to receive the full blessing of either the Internal Revenue Service or the Department of Labor. As a result, I would advise my clients to stay away from the strategy.

But there is another reason to be wary, and it might be even more important — it’s about how you will be taxed if you do manage to build a company using ROBS and sell it at a profit. The tax implications are significant, and I think the lessons are important regardless of how you choose to finance your business.

If you are going to use ROBS to finance a business, you must file taxes as a C corporation, and that is where the tax issue comes into play. That’s because when it comes time to sell the company, you will be taxed twice — first at the corporate level and then at the personal level. And this, of course, is why most closely held small businesses are subchapter S corporations, whose structure allows income to flow untaxed to the owners of the company, who then pay taxes individually but only once.

Here’s an example. Let’s look at what happens if you sell a C corporation for a $1 million gain without using a ROBS strategy.

Gain……………………………………………………………………. $1,000,000

Corporate taxes @ 35%…………………………………………….. 350,000

Gain after corporate taxes ………………………………………..   650,000

Personal taxes @ 20% (capital gains)…………………………. 130,000

Cash left after taxes…………………………………………………..  520,000

Thus, if you were the owner of this corporation you would have paid 48 percent in total taxes. Now, if this company had been financed through ROBS, you would not have paid 20 percent capital gains taxes at the personal level. Instead, the stock would have been owned through a 401(k) and you would have had to pay 39.6 percent ordinary income taxes. Here’s what that would have looked like:

Gain……………………………………………………………………. $1,000,000

Corporate taxes @ 35%…………………………………………….  350,000

Gain after corporate taxes…………………………………………   650,000

Personal taxes @ 39.6%……………………………………………  257,400

Cash left after taxes…………………………………………………… 392,600

As you can see, using a ROBS strategy increases the tax bite from 48 percent to a little more than 60 percent. And that’s my point: even if ROBS transactions are legal, the tax implications are significant.

Now, a ROBS promoter might object to this example and argue that the seller should do a stock sale rather than an asset sale. (Here’s the difference: with a stock sale, the buyer purchases the owner’s share of a corporation; with an asset sale, the buyer purchases individual assets of the company but the seller retains ownership of the legal entity.) And it’s true that with a stock sale, the taxes would be the same as they are on any stock that is bought and sold inside a qualified retirement plan. No taxes would be paid until money is withdrawn from the retirement plan, when the maximum rate would be 39.6 percent.

This might be a great idea except for one thing: buyers generally do not like stock sales. Buyers do not want to buy your liabilities, and they do not want to buy surprises that might not show up for years. If you insist on a stock sale, you may have a difficult time selling your business.

But again, the main thing I want to emphasize is that it makes sense to think about how you are going to get out of a business before you decide to get in. Seemingly small decisions can have big consequences down the road.

What do you think? Would you still do a ROBS transaction knowing what the tax cost is likely to be?

Josh Patrick is a founder and principal at Stage 2 Planning Partners, where he works with private business owners on creating personal and business value.

This post has been revised to reflect the following correction:

Correction: April 17, 2013

In a previous version of this post, I mistakenly suggested that an alternative to a ROBS strategy would be to roll the funds from an existing retirement plan into a new company and then borrow up to 50 percent of your retirement account balance to finance the new business.

But this actually won’t work. The reason it won’t work is that there is a limit to how much you can borrow from a retirement plan at one time. The most you can borrow in any calendar year is $50,000, which makes this an impractical way to start a business. I apologize for the error.

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Bucks: When to Collect Social Security? A New Calculator

Last week, we reviewed AARP’s new Social Security calculator, which helps you figure out when to begin collecting benefits. This week, we’re going to take a look at some more tools that will help you make this decision. Below, we take a look at the first one.


Evaluating new financial products and services.

Deciding when to begin collecting Social Security benefits may be one of the most important decisions retirees make. It’s certainly one of the more complex, especially for married people.

That was the conclusion Russell Settle, a retired economics professor who taught at the University of Delaware, came to when he tried to figure it all out. After talking about it with a friend, another economics professor who was also unable to find answers to his questions, they decided to write a program of their own. “It was far more complicated than we ever imagined,” he said.

Professor Settle and his partner, Jeffrey Miller, worked on their program part time for nearly two years. What they came up with is, which generates the optimal age when you (and your spouse, if you have one) should begin collecting benefits.

“Our calculator provides information that allows a person to pick any claiming strategy they want, and they can see how much it costs them relative to the optimum,” said Professor Settle. “Our findings show that life is much more complicated than simple rules of thumb suggest,” referring to the oft-cited advice for most people to wait until 70 if possible.

To start, the Web site asks you to enter basic information: the year you were born, gender, life expectancy and estimated benefit amount, which can be found on an old statement or the Social Security Web site. Once you do that, and provide an e-mail address, a free customized report should arrive in your inbox within a couple of hours.

I ran a couple of different scenarios: one for a married couple and another for a 62-year-old single woman we’ll call Betty, who expects to receive a monthly benefit of $2,000 at her full retirement age.

Betty’s three-page report included a graphic analysis that showed the optimal time to take benefits and the total amount she could expect to receive during her life, based on different life expectancies. The results? If Betty doesn’t expect to live beyond age 78, she should begin taking her benefits at age 62. The graph shows how much in lifetime benefits she would give up for each additional year she waited.

But if Betty expects to live until she’s 86, the program shows that the optimal age for her to collect is 68. Of course, if she’s still alive and well into her 90s, waiting to collect until 70, when she could collect the maximum, would make the most sense. With longevity on the rise, many financial experts advise healthy people to delay benefits, if they can afford to.

Deciding when to file for benefits get incredibly more complicated for married couples (in this case, a 62-year old man and a 58-year-old woman who expect to collect monthly checks of $2,100 and $1,500, respectively).  Their report came in at a whopping 40 pages! But don’t let that discourage you. You don’t have to slog through every page. Once you get the hang of reading the charts, the results are really illuminating and easy to understand.

The first analysis was based on what it called a normal planning horizon, or a life expectancy of 82 years for him and 86 years for her.  If they pursued the optimal strategy, they would collect a total of $610,000 in benefits over their collective lifetimes. To do so, the wife should file for benefits at 62. The husband should file for spousal benefits on her record at age 66. Then, once he hits 70, he should begin collecting retirement benefits on his own earnings record.

A grid shows how much less they would collect at every possible age combination, from 62 to 70. For instance, if the husband and wife started benefits at 64 and 63, they would collect 10 percent less than the optimal amount.

The advice changes for the couple if you want to plan for a much longer life — and many planners would probably suggest that you should. But with this tool, you can plainly see how much you’ll leave on the table by collecting benefits at a suboptimal time.

Though the calculator does a good job of illustrating all that, the analysis is limited. It does not take into account that some people may work part-time while collecting benefits before their full retirement age, which could cause at least some of their benefits to be withheld and recalculated later (but it does have a lengthy discussion about the topic on its site). It also doesn’t help you figure out if you can afford to delay Social Security. It doesn’t factor in how much you’ve saved or if you have a pension. It also doesn’t account for any children who may be eligible to collect benefits on a parent’s record.

And here’s another limitation: the calculator only provides the total value of your benefits over your lifetime, so you won’t know how much you will collect each month if you pursue one of their recommended strategies. Without those numbers, it’s hard to ascertain if you can make that strategy work with your other savings. But the company is working on adding those figures.

Moreover, the calculator only works for single and married people, not widows, widowers and divorcees; those versions are still in the works.

Of course, like other tools, it doesn’t come with a crystal ball, which means you’re going to have to decide on a reasonable life expectancy. Many financial planners suggest that seemingly healthy people base their calculation using longer time horizons. But the results do compare how the optimal strategy would change using three different life expectancies, which is really informative.

Give it a try and let us know what you think in the comment section below.

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