Kitchen & Bath Design News

OCT 2018

Kitchen & Bath Design News is the industry's leading business, design and product resource for the kitchen and bath trade.

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Page 23 of 83

WE SEE AND HEAR a great deal on the news about those in both business and government taking advantage of their posi- tions to enrich themselves and/or friends and relatives at the expense of their sharehold- ers or taxpayers. As small business owners, kitchen and bath firms may not have the same sort of stakeholders that elected officials or corporate CEOs answer to, but we are in a position to face some of the same challenges and temptations that they do – and even some that they don't. If your kitchen and bath firm is a sole proprietorship, partnership or Sub-S corpora- tion, it's easy to mix your personal affairs with those of the business. Whatever the situation, there are some legitimate ways to minimize the impact of taxes on you and your business, and there's no reason not to take advantage of these. However, there are many "grey" areas where it becomes difficult to discern between what is a legitimate business expense and what is a personal expense. When you are a sole propri- etor, you have only your own conscience and the IRS to deal with. Once your business grows to include employees, though, the issue of "setting the tone" is added. It is at this point that the danger arises that these employees will perceive that you are using the business as your personal "piggy bank," limiting their and the business' opportunity to grow and prosper. Most people will understand that, because the business owners are taking most of the risks, they are entitled to a larger share of the rewards. While that is the case, it's important that everyone buys into what is going on. The key to this is to be open and up front with what you are doing with compensation, perks and benefits. It's even more important that these not be out of line with what the business can afford to pay out and still be sound and competitive. Likewise, it is important that your employees do not feel that your lifestyle is preventing them from being fairly rewarded for their contributions. As your business grows, you will find that there's more and more distinction between you, as the owner, and your employees. At this point, it's time to evaluate how you are organized and how you operate in order to more clearly sepa- rate your personal and business affairs. There are certain things that will stand out as problem areas and we can take a look at them. COMPENSATION As the number of employees grows, it's import- ant to establish a rational compensation policy for all of your employees, including yourself. As the labor market continues to tighten, you're likely to have to pay higher compensation in order to attract new employees. Address this situation as soon as you can if it has resulted in inequitable compensation for these employees. As mentioned above, your own compensation should be based in accordance with the busi- ness' ability to pay you. Inequities in compensation of employees within a company can be one of the most serious morale problems that any business can face. While most small businesses treat compensation as a highly confidential area, the reality is that it is likely that most of your employees know what some of the others are making. The best test of fair compensation is this: Could you post your pay rates on the company bulletin board and not receive any blow-back? In other words, does everyone think they are being compensated fairly relative to each other? If your business is achieving a reasonable amount of success, make sure that the em- ployees are participating financially in that success. The best way to accomplish that is through some form of bonus program, rather than raises, until you are sure that the success is enduring. It's important that your employee group understands how the bonuses work and that they relate to measurable achievement on their part. PERKS AND BENEFITS As your business grows, you will find that you, as the owner, receive the majority of the perks and benefits. It is likely that you have a compa- ny vehicle. You might also have very beneficial health insurance coverage and perhaps some allowances for necessary business expenses. Many business owners feel that business entertainment expenditures are necessary and important to the marketing efforts for their company. Again, there are several issues to ad- dress here: First, can your business afford these expenses? Do they really provide solid marketing returns, or are they just a rationalization for you to buy those season tickets? And, finally, what is the impact on morale if the business owners are spending lavishly on such things while the busi- ness is starving for capital? Again, do the em- ployees feel that you are "in the fight" with them, or just reaping the rewards of their efforts? THE SMALL BUSINESS OWNER Most of us got into business for ourselves be- cause of an entrepreneurial drive and a desire to "be our own boss." It is sometimes said, however, that "the only thing more overrated than natural childbirth is owning your own business!" We have all felt the stress of having to deal with an unhappy client or worrying about how to make the next payroll, so it's not unreasonable that the person shouldering these responsibilities is rewarded appropriately. Most of us enjoy the opportunity to lead and don't mind dealing with the challenges that go along with being our own boss. A big element of this leadership, however, is making sure that your "team" members feel like you have their backs and are sharing whatever success you achieve together. What this means is that you need to be careful that your employees do not feel that your personal lifestyle is inconsistent with the business' ability to support it. In other words, hold off buying that luxury car if the business is having trouble paying its vendors. The kitchen and bath design and remodel- ing business can be a rewarding and satisfying business if you make sure that you strike the right balance between the business' needs and your personal desires. Be careful you do not become a "swamp creature," taking advantage of your position! ▪ " If your business is achieving a reasonable amount of success, make sure that the employees are participating financially in that success. Until you're sure that the success is enduring, the best way to accomplish that is through some form of bonus program." Read past columns and features and send us your comments about this article and others at Don't Create a 'Swamp' in Your Business BRUCE KELLERAN, CKD, CPA 24 Kitchen & Bath Design News • October 2018 BUSINESS MANAGEMENT

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