A Buy Sell Agreement – What a Waste of Time and Money! Or is it?

You started a business. You and your partner work 24/7 to make it a success.  All efforts are centered on the sale and delivery of your products or services.  No time is left over for your family or yourself much less for working with an attorney to complete yet more paperwork. ‘If it doesn’t make money for my business, don’t waste my time’, you think.  And rightfully so.  This level of focus is why you are where you are today.

Time passes and your business has grown, beyond your highest expectations.  It’s now your most valuable asset.  It provides you with a hefty income.

Time has passed for you and your partner, too.  There always has been the unlikely possibility of being hit by the proverbial bus.  As we grow older, risks to our health increase.

Joe and Jack started an electrical contracting business in 1995.  By 2018, it was a $35 million business generating annual paychecks to each of them of over $1 million.  Jack was diagnosed with stage 4 cancer and died within a few short months.  Joe continued to run the business single-handedly, as best he could.

After Jack’s funeral, his family reached out to Joe to sell him their interest.  No buy sell, not even an informal agreement.  No key person insurance.  No contingency plan.  Couple this new responsibility for Joe with running a $35 million business in a highly competitive market while seeking new employees to take on areas Jack handled.

Joe told me he spends more time dealing with this buyout than he does running the business.  What should have been a straightforward buyout funded by insurance is a major nightmare.

A buy sell agreement is much more than a piece of paper.  It’s a small investment in peace of mind for you, your partner and your families.  Are you prepared to have your partner’s spouse or children as your new partners?  Can you afford to buy them out?

Keep in mind that your partner’s spouse is highly distraught.  Not only is their spouse of many years gone, his/her substantial income stream has ended.  Rational thinking may not prevail in your dealings with him or her.

In most instances, a well-thought out plan can be prepared by a corporate attorney for only a few thousand dollars.  If you decide to back it with key person insurance, the cost will rise.

 

 

 

Hot-Button Issues Poll Results

As the chart below shows, our readers’ responses are mixed.  On a scale of 1-10 with 1 being strongly disagree and 10 being strongly agree, the weighted averages are below the midpoint for all questions.  The first two questions ask about President Trump, the impact on him with the government shutdown and his stance with China on tariffs. The weighted average scores of those answers are 3.26 and 3.33.

Concern about ISIS is not strong.  Global warming is seen as somewhat of an issue.  The effect of Brexit on the world economy is not significantly important.

Poll Results Chart

Reader Comments:

Totally agree with Trump’s stance against China. This is the best thing ever happen since Nazi regime prior to WW-2. China is Nazi-2 in a different kind of war since 10 years ago. The entire world should unite together to win the new era of war.

Global warming is an inaccurate statement. Global climate change is a real issue whether man made or natural it will be something that will continue to impact world economies.

Democrats should love America more than they hate President Trump. President Trump should behave like an adult!

Brexit is good for England, every country must stand on their own & take care of its economy.

Thanks to all our respondents!

 

 

 

 

IRS icon behind a green overlay

To Gift or Not to Gift? The Time May Have Arrived

Article written by Lou Vlahos of FarrellFritz Attorneys, used with their written permission.

The Joy – and Tax Benefits – of Gifting

IRS icon behind a green overlayAs we enter the “season of giving” and the end of yet another year, the thoughts of many tax advisers turn to . . . tax planning.(i) In keeping with the spirit of the season, an adviser may suggest that a client with a closely held business consider making a gift of equity in the business to the owner’s family or to a trust for their benefit.(ii)

Of course, annual exclusion gifts(iii) are standard fare and, over the course of several years, may result in the transfer of a not insignificant portion of the equity in a business.

However, the adviser may also recommend that the client consider making larger gifts, thereby utilizing a portion of their “unified” gift-and-estate tax exemption amount during their lifetime. Such a gift, the adviser will explain, may remove from the owner’s gross estate not only the current value of the transferred business interests, but also the future appreciation thereon.(iv)

The client and the adviser may then discuss the “size” of the gift and the valuation of the business interests to be gifted, including the application of discounts for lack of control and lack of marketability. At this point, the adviser may have to curb the client’s enthusiasm somewhat by reminding them that the IRS is still skeptical of certain valuation discounts, and that an adjustment in the valuation of a gifted business interest may result in a gift tax liability.

The key, the adviser will continue, is to remove as much value from the reach of the estate tax as reasonably possible, and without incurring a gift tax liability – by utilizing the client’s remaining exemption amount – while also leaving a portion of such exemption amount as a “cushion” in the event the IRS successfully challenges the client’s valuation.

“Ask and Ye Shall Receive”(v)

Enter the 2017 Tax Cuts and Jobs Act (the “Act”).(vi) Call it an early present for the 2018 gifting season.

One of the key features of the Act was the doubling of the federal estate and gift tax exemption for U.S. decedents dying, and for gifts made by U.S. individuals,(vii) after December 31, 2017, and before January 1, 2026.

This was accomplished by increasing the basic exemption amount (“BEA”) from $5 million to $10 million. Because the exemption amount is indexed for inflation (beginning with 2012), this provision resulted in an exemption amount of $11.18 million for 2018, and this amount will be increased to $11.4 million in 2019.(viii)

Exemption Amount in a Unified System

You will recall that the exemption amount is available with respect to taxable transfers made by an individual taxpayer either during their life (by gift) or at their death – in other words, the gift tax and the estate tax share a common exemption amount.(x)

The gift tax is imposed upon the taxable gifts made by an individual taxpayer during the taxable year (the “current taxable year”). The gift tax for the current taxable year is determined by: (1) computing a “total tentative tax” on the combined amount of all taxable gifts made by the taxpayer for the current and all prior years using the common gift tax and estate tax rate table; (2) computing a tentative tax only on all prior-year gifts; (3) subtracting the tentative tax on prior-year gifts from the tentative tax computed for all years to arrive at the portion of the total tentative tax attributable to current-year gifts; and, finally, (4) subtracting the amount of the taxpayer’s unified credit (derived from the unused exemption amount) not consumed by prior-year gifts.

Thus, taxable gift transfers(xi) that do not exceed a taxpayer’s exemption amount are not subject to gift tax. However, any part of the taxpayer’s exemption amount that is used during their life to offset taxable gifts reduces the amount of exemption that remains available at their death to offset the value of their taxable estate.(xii)

From a mechanical perspective, this “unified” relationship between the two taxes is expressed as follows:

• the deceased taxpayer’s taxable estate is combined with the value of any taxable gifts made by the taxpayer during their life;
• the estate tax rate is then applied to determine a “tentative” estate tax;
• the portion of this tentative estate tax that is attributable to lifetime gifts made by the deceased taxpayer is then subtracted from the tentative estate tax to determine the “gross estate tax” – i.e., the amount of estate tax before considering available credits, the most important of which is the so-called “unified credit”; and
• credits are subtracted to determine the estate tax liability.

This method of computation is designed to ensure that a taxpayer only gets one run up through the rate brackets for all lifetime gifts and transfers at death.(xiii)

What Happens After 2025?(xvi)

However, given the temporary nature of the increased exemption amount provided by the Act, many advisers questioned whether the cumulative nature of the gift and estate tax computations, as described above, would result in inconsistent tax treatment, or even double taxation, of certain transfers.

To its credit,(xv) Congress foresaw some of these issues and directed the IRS to prescribe regulations regarding the computation of the estate tax that would address any differences between the exemption amounts in effect: (i) at the time of a taxpayer’s death and (ii) at the time of any gifts made by the taxpayer.

Pending the issuance of this guidance – and pending the confirmation of what many advisers believed was an expression of Congressional intent not to punish individuals who make gifts using the increased exemption amount – many taxpayers decided not to take immediate advantage of the greatly increased exemption amount, lest they suffer any of the consequences referred to above.

Proposed Regulations

In response to Congress’s directive, however, the IRS proposed regulations last week that should allay the concerns of most taxpayers,(xvi) which in turn should smooth the way to increased gifting and other transfers that involve an initial or partial gift.

In describing the proposed regulations, the IRS identified and analyzed several situations that could have created unintended problems for a taxpayer, though it concluded that the existing methodology for determining the taxpayer’s gift and estate tax liabilities provided adequate protection against such problems:

• Whether a taxpayer’s post-2017 increased exemption amount would be reduced by pre-2018 gifts on which gift tax was paid. If the taxpayer makes additional gifts during the post-2017 increased exemption period, would the gift tax computation apply the increased exemption to the pre-2018 gifts, thus reducing the exemption otherwise available to shelter gifts made during the post-2017 period, effectively allocating credit to a gift on which gift tax in fact was already paid, and denying the taxpayer the full benefit of the increased exemption amount for transfers made during the increased exemption period?

• Whether the increased exemption amount available during the increased exemption period would be reduced by pre-2018 gifts on which gift tax was paid. If the taxpayer died during the increased exemption period, would the estate tax computation apply the increased exemption to the pre-2018 gifts, thus reducing the exemption otherwise available against the estate tax during the increased exemption period and, in effect, allocating credit to a gift on which gift tax was paid?

• Whether the gift tax on a post-2025 transfer would be inflated by the theoretical gift tax on a gift made during the increased exemption period that was sheltered from gift tax when made. Would the gift tax determination on the post-2025 gift treat the gifts made during the increased exemption period as gifts that were not sheltered from gift tax given that the post-2025 gift tax determination is based on the exemption amount then in effect, rather than on the increased exemption amount, thereby increasing the gift on the later transfer and effectively subjecting the earlier gift to tax even though it was exempt from gift tax when made?

With respect to the first two situations described above, the IRS determined that the current methodology by which a taxpayer’s gift and estate tax liabilities are determined ensures that the increased exemption will not be reduced by a prior gift on which gift tax was paid. As to the third situation, the IRS concluded that the current methodology ensures that the tax on the current gift will not be improperly inflated.

New Regulations

However, there was one situation in which the IRS concluded that the methodology for computing the estate tax would, in effect, retroactively eliminate the benefit of the increased exemption that was available for gifts made during the increased exemption period.

Specifically, the IRS considered whether, for estate tax purposes, a gift made by a taxpayer during the increased exemption period, and that was sheltered from gift tax by the increased exemption available during such period, would inflate the taxpayer’s post-2025 estate tax liability.

The IRS determined that this result would follow if the estate tax computation failed to treat such gifts as sheltered from gift tax.

Under the current methodology, the estate tax computation treats the gifts made during the increased exemption period as taxable gifts not sheltered from gift tax by the increased exemption amount, given that the post-2025 estate tax computation is based on the exemption in effect at the decedent’s death rather than the exemption in effect on the date of the gifts.

For example, if a taxpayer made a gift of $11 million in 2018, (when the BEA is $10 million; a taxable gift of $1 million), then dies in 2026 with a taxable estate of $4 million (when the BEA is $5 million), the federal estate tax would be approximately $3,600,000: 40% estate tax on $9 million – specifically, the sum of the $4 million taxable estate plus $5 million of the 2018 gift that was sheltered from gift tax by the increased exemption. This, in effect, would impose estate tax on the portion of the 2018 gift that was sheltered from gift tax by the increased exemption allowable at that time.

Alternatively, what if the taxpayer dies in 2026 with no taxable estate? The taxpayer’s estate tax would be approximately $2 million, which is equal to a 40% tax on $5 million – the amount by which, after taking into account the $1 million portion of the 2018 gift on which gift tax was paid, the 2018 gift exceeded the BEA at death. This, in effect, would impose estate tax on the portion of the 2018 gift that was sheltered from the gift tax by the excess of the 2018 exemption over the 2026 exemption.

The IRS determined that this problem arises from the interplay between the differing exemption amounts that are taken into account in the computation of the estate tax.

Specifically, after first determining the tentative tax on the sum of a decedent’s taxable estate and their adjusted taxable gifts,(xvii)

i. the decedent’s estate must then determine the credit against gift taxes for all prior taxable gifts, using the exemption amount allowable on the dates of the gifts (the credit itself is determined using date of death tax rates);
ii. the gift tax payable is then subtracted from the tentative tax, the result being the net tentative estate tax; and
iii. the estate next determines a credit based on the exemption amount as in effect on the date of the decedent’s death, which is then applied to reduce the net tentative estate tax.

If this credit (based on the exemption amount at the date of death) is less than the credit allowable for the decedent’s taxable gifts (using the date of gift exemption amount), the effect is to increase the estate tax by the difference between the two credit amounts.

In this circumstance, the statutory requirements for computing the estate tax have the effect of imposing an estate tax on gifts made during the increased exemption period that were sheltered from gift tax by the increased exemption amount in effect when the gifts were made.

In order to address this unintended result, the proposed regulations would add a special computation rule in cases where (i) the portion of the credit as of the decedent’s date of death that is based on the exemption is less than (ii) the sum of the credits attributable to the exemption allowable in computing the gift tax payable. In that case, the portion of the credit against the net tentative estate tax that is attributable to the exemption amount would be based upon the greater of those two credit amounts.

Specifically, if the total amount allowable as a credit, to the extent based solely on the BEA, in computing the gift tax payable on the decedent’s post-1976 taxable gifts, exceeds the credit amount based solely on the BEA in effect at the date of death, the credit against the net tentative estate tax would be based on the larger BEA.

For example, if a decedent made cumulative taxable gifts of $9 million, all of which were sheltered from gift tax by a BEA of $10 million applicable on the dates of the gifts,(xviii) and if the decedent died after 2025 when the BEA was $5 million, the credit to be applied in computing the estate tax would be based upon the $9 million of exemption amount that was used to compute the gift tax payable.

Time to Act?

By addressing the unintended results presented in the situation described – a gift made the decedent during the increased exemption period, followed by the death of the decedent after the end of such period – the proposed regulations ensure that the decedent’s estate will not be inappropriately taxed with respect to the gift.

With this “certainty,” an individual business owner who has been thinking about gifting a substantial interest in their business may want to accelerate their gift planning. As an additional incentive, the owner need only look at the results of the mid-term elections, which do not bode well for the future of the increased exemption amount. In other words, it may behoove the owner to treat 2020 (rather than 2025) as the final year for which the increased exemption amount will be available, and to plan accordingly. Those owners who decide to take advantage of the increased exemption amount by making gifts should consider how they may best leverage it.

And as always, tax savings, estate planning, and gifting strategies have to be considered in light of what is best for the business and what the owner is comfortable giving up.

—————————————————————
(i) What? Did you really expect something else? Tax planning is not a seasonal exercise – it is something to be considered every day, similar to many other business decisions.
(ii) Of course, the interest to be gifted should be “disposable” in that the owner can comfortably afford to give up the interest. Even if that is the case, the owner may still want to consider the retention of certain “tax-favored” economic rights with respect to the interest so as to reduce the amount of the gift for tax purposes.
(iii) Usually into an irrevocable trust, and coupled with the granting of “Crummey powers” to the beneficiaries so as to support the gift as one of a “present interest” in property. A donor’s annual exclusion amount is set at $15,000 per donee for 2018 and $15,000 for 2019.
(iv) In other words, a dollar removed today will remove that dollar plus the appreciation on that dollar; a dollar at death shields only that dollar.
The removal of this value from the reach of the estate tax has to be weighed against the loss of the stepped-up basis that the beneficiaries of the decedent’s estate would otherwise enjoy if the gifted business interest were included in the decedent’s gross estate.
(v) Matthew 7:7-8. Actually, many folks asked for the repeal of the estate tax. “You Can’t Always Get What You Want,” The Rolling Stones.
(vi) P.L. 115-97.
(vii) For purposes of the estate tax, this includes a U.S. citizen or domiciliary. The distinction between a U.S. individual and non-resident-non-citizen is significant. In the absence of any estate and gift tax treaty between the U.S and the foreign individual’s country, the foreign individual is not granted any exclusion amount for purposes of determining their U.S. gift tax liability, and only a $60,000 exclusion amount for U.S. estate tax purposes.
(viii) https://www.irs.gov/pub/irs-drop/rp-18-57.pdf
(ix) Only individual transferors are subject to the gift tax. Thus, in the case of a transfer from a business entity that is treated as a gift, one or more of the owners of the business entity will be treated as having made the gift.
(x) They also share a common tax rate table.
(xi) As distinguished, for example, from the annual exclusion gift – set at $15,000 per donee for 2018 and for 2019 – which is not treated as a taxable gift (it is not counted against the exemption amount).
(xii) An election is available under which the federal exemption amount that was not used by a decedent during their life or at their death may be used by the decedent’s surviving spouse (“portability”) during such spouse’s life or death.
(xiii) A similar approach is followed in determining the gift tax, which is imposed on an individual’s transfers by gift during each calendar year.
(xiv) As indicated above, the increased exemption amount is scheduled to sunset after 2025, at which point the lower, pre-TCJA basic exclusion amount is reinstated, as adjusted for inflation through 2025. Of course, a change in Washington after 2020 could accelerate a reduction in the exemption amount.
(xv) I bet you don’t hear that much these days.
(xvi) https://www.federalregister.gov/documents/2018/11/23/2018-25538/estate-and-gift-taxes-difference-in-the-basic-exclusion-amount; the regulations are proposed to be effective on and after the date they are published as final regulations in the Federal Register.
(xvii) Defined as all taxable gifts made after 1976 other than those included in the gross estate.
(xviii) Post-TCJA and before 2026.

Recession Poll Results

As the chart below shows, our readers’ worries about the US economy are mixed.  The weighted averages are slightly above the midpoint for all questions.  The first two questions ask about the readers thoughts on the possibility of a near-term recession. The weighted average scores of the answers are 5.86 and 6.61.  The second set of two questions ask if the reader feels a recession will occur either after 12 months or well into the future.  The weighted average of the responses are 5.40 and 6.58, similar to that of the first two questions.

Recession poll results chart

 

Reader responses vary, too.

We plan on repeating this poll in March seeing how reader perspectives have changed.

Thanks to all our respondents!

 

 

 

Kids fighting for teddy bear

The Rewards of Not Planning

MostKids fighting for teddy bear professionals working with small businesses have stories they hear from clients about bad situations that could have been avoided.  Here are two that we’ve heard from our clients:

A substantial New York-based electrical contractor had two 50% partners.  They started and grew the business over the years from scratch.  Each has a lifestyle they never imagined could happen.  At age 55, one partner passed away from previously undetected heart failure, and that’s when the troubles began.  The partners had only an oral agreement that if one should pass away, the other would buy him out at book value.

The widow had buried her life partner and realized her main source of income was gone.  She contacted her deceased husband’s partner for advice. He told her about the agreement he had with her husband. He let her know the amount of money he would be paying her.  The widow told her children of the conversation.  They balk at the amount involved.  Enter the lawyers.  The case still continues into year three.

Had the partners had a formal written and reasonable buy-sell agreement, this situation would never have happened.  What constitutes a reasonable agreement depends on the company.  Book value for a contractor is typically not a good indicator of company value.  Engaging experts to determine a fair and unbiased value may have costs associated, but the surviving partner in this story has told me he regrets not having taken this step years before.

In the second situation, a Massachusetts boutique printing company started by parents employed their two adult children.  All were very well paid.  The son ran the company full time, the daughter contributed on a part-time basis.

After some time, the son convinced Mom and Dad to transfer 100% ownership to him, leaving Daughter out completely.  He then proceeded to remove her position, eliminating a $400,000 salary. Here, too, the lawyers enter and the case continues at high expense.  And it gets even uglier: As a result of feeling betrayed, the Daughter has forbidden her parents from seeing their grandchildren.

How did this happen, you might ask? The son told me he is still angry his sister took his teddy bear away when they were children.

A succession plan must be fair, as difficult as that process can be.  Request our booklet Business Transition Planning: Maximize Your Legacy to see how this process can work best for you.

How Technology is Shaping Travel and Tourism

 

Technology improves every aspect of travel.

60% of all travel-related searches begin on a mobile device according to MobileMarketing, a specialist in the delivery of mobile marketing.  The ubiquity of smartphones makes travel research and experiences much easier.  With mobile apps and websites, people can quickly shop for the best flights at the lowest prices.  Most airlines offer mobile check-in and tickets, eliminating the need for paper tickets.

Using filtering criteria, travel websites search thousands of destinations and arrangements to find the perfect fit in minutes. Online reviews provide a better understanding of different travel destinations and accommodations.  Nielsen Media Research reports 92% of consumers trust recommendations over all other forms of advertising.

Even at arrival, mobile apps can help improve your experience. Apps such as Firef.ly tailor travel recommendations based on the user’s personal interests, budget, etc.  Some apps show users the best restaurants, historical sites, and tourist attractions.  Itineraries are easily accessible down to step-by-step directions. Wi-Fi hotspots are readily available when traveling, making it easy and free to stay connected through calls, texts, emails and more.

Social media fuels tourism.  Travelers often document their experiences on platforms such as Instagram and Facebook.  This is free advertising for travel destinations.  Seeing a post from a friend on vacation may lead someone to indulge in research about that place.  According to National Geographic, “in 2015, the tourism board of the small alpine town of Wanaka, New Zealand, began inviting and hosting “influencers”—social media trendsetters with large followings—to post about their adventures.”  This led to a 14% increase in tourism.

The accommodation industry has changed.  Many travelers opt to rent a house or apartment instead of staying in a hotel.  Hotels adjust their strategy to compete.  Many give their customers a more personalized experience.  Hotels today analyze online and offline data to provide guests with the most personalized experience possible.  Technology may be entering the field, but a good personal touch remains essential.

The travel industry is focusing on millennials.  This generation would rather spend their money on experiences than material goods.  According to AARP, millennials are 23% more likely to travel than older generations.  Growing up in a world of social media, millennials often travel for the sake of capturing an Instagram photo or bragging rights on Twitter.

Millennials, when traveling, want a different experience than past generations.  Millennials do not want to do all the “touristy” things, but instead, want to experience everyday life in their destination.  This means eating at local restaurants and bars, going to lesser-known attractions, etc.  Many millennials even decide to rent a house, or apartment instead of a hotel to make them feel part of the local community.

There has been an increase in business travel in the past couple of years.  Business travel is more important than ever to building strong customer relationships.  Many millennials do not have much responsibility at home (kids, family, etc.), allowing them to take longer trips.  They are more likely to extend their business trips into leisure trips than any other generation.

The biggest impact technology has made to improve traveling is save time.  When traveling, you want to take advantage of every single bit of time you have.  Mobile apps, websites, and more have simplified and personalized the traveling industry as a whole.

Electronic library

How Technology is Changing the Publishing Industry

Publishing is in constant change.  Since the birth of modern publishing in the 19th century, the rise of e-books has led to a decrease in physical book sales; publishers have had to adjust their business strategies in order to stay afloat.

The publishing industry, like most, was heavily impacted by the financial crisis in 2008, and has not been the same since.  Publishing companies downsized, crumbled, or merged together.  Twenty years ago, there were three dozen “major publishers,” while today there are a “Big Five:” Hachette Book Group, HarperCollins, Macmillan Publishers, Penguin Random House, Simon and Schuster.

In 2007 the Amazon Kindle was released.  Two years later, Borders closed in the United States.  Publishers took this as a wake-up call.  The industry was drastically changing, and publishers would have to find new ways to generate revenue to keep the business running.

Today, with the proliferation of smartphones, everyone has access to a whole library in their pocket.  People can read their favorite books at anytime, anywhere.  As a result, publishers are now focusing a great portion of their energy on e-books.  Many physical books today even include reminders that they are also available digitally.

E-books open a whole new door of opportunity for publishers.  With e-books, publishers reach a new audience.  Many classics have been converted into e-books, making them more attractive for a younger audience, and the cost of producing digital books is cheaper than the physical counterparts.  This means e-books cost less for consumers, and in turn readers often buy more books.

The problem publishers now face is being able to generate sufficient revenue through e-books sales.  Many people expect the internet to be free and therefore it is difficult for publishers to get consumers to pay for their books and protect their intellectual property.

Another big change in publishing, resulting from the rise of technology, is self-publishing.  Self-publishing has been a method of publishing for years but has only recently taken off.  This method that once only yielded poor, unprofessional books, has risen through the charts with quality that is indistinguishable from traditionally published books.  In fact, the Oscar-nominated film The Martian was based off a self-published book by Andy Weir.

In the past, people would write stories and keep them private. Today, it is easy to publish anything yourself quickly and with great quality.  Self-publishing has many benefits.  With self-publishing, authors exert all the control over the book.  When signing with a publishing company, the author gives away his/her control of the book to the publisher in exchange for an advance and royalties.  However, this also means that the author bears the financial risk of the whole enterprise.  When self-publishing, the cover, editing, copywriting, and release of the book all become the responsibility of the author.

It is important for self-publishers to make sure they do not release a low-quality book, for this will hurt their reputation.  Writers, editors, proofreaders, etc. were once only accessible through publishing companies.  Now many of these professionals are readily-accessible as freelancers and can be of great service to self-publishers.

According to advocacy website Author Earnings, independent authors are now earning more from e-books than authors who are handled by publishing companies.  Big name authors, such as Stephen King, have realized that they can bypass a publisher and go directly to Amazon, where they receive more of a revenue for their work.  Kindle Direct Publishing can even give authors up to 70% of the purchase price, while allowing them to retain copyright and a non-exclusive deal.

Though there are many benefits to self-publishing, many still go the route of traditional publishing.  When signing with a traditional publisher, the author surrenders his/her creative and content control of the book.  However, there are many benefits to traditional publishing.  When signing with a publisher, an author will receive an advance.  This assures the author that he will receive monetary compensation even if his/her book fails.  Books from a publishing company also have greater access to mainstream media.  The only people who still look at the publisher as a source of credibility are journalists, who in turn will review and bring attention to the book.

Getting a book published by a publishing company is a big process, often taking 2 to 3 years.  Plus, if the author does not have an existing audience, it is nearly impossible to get a deal with a publishing company.  Book Agent Byrd Leavell says “Publishers aren’t buying anything that doesn’t come with a built-in audience that will buy it. They don’t take risks anymore, they don’t gamble on authors, they only want sure things. I won’t even take an author out unless they have an audience they can guarantee 10k pre-sales to.”

Building an audience has never been more important.  With the internet, readers want and expect to be in communication with their favorite authors.  Many authors today have Facebook groups, Twitter accounts, and e-mail chains.  There are many different outlets available for authors to build an audience, so it is vital they take advantage.  It is impossible to write for everyone, so finding a niche audience is very important for an author.

Publishing companies have implemented the use of data and analytics into their decision- making process, identifying reading trends every year to find out which genres, titles, etc. generated the most sales.  Social trends are fast-paced and always changing, making it important for publishers to jump on them while they’re still popular.

Audiobooks are another driving force in the publishing business, especially with the ubiquity of smartphones, audiobooks have risen in popularity. Audiobook sales in the U.S. rose by 31% from 2015 to 2016.  Audiobooks do not replace reading, but instead allow people to explore books that they otherwise would not have time for.  People often listen to audiobooks while performing menial tasks such as cleaning, driving, etc.  People also finish more books when listening to them instead of reading, leading them to purchase more as well.

The publishing industry has been turned upside down by the rise of technology in recent years.  Though, what will never change about publishing is the necessity of telling a good story.

Woman is shopping online with digital tablet

How Consumer Behavior Influences Businesses

Offline shopping is becoming obsolete, as Americans are increasingly shopping online.  According to a survey by UPS, 51 percent of purchases were made online in 2016.  Consumer’s expectations of distribution companies are rising.  This is due, in large part, to Amazon Prime which has set the standard for 2-day delivery.  Now, customers expect their items delivered within a few days tops and if other companies want to stay competitive they are forced to follow suit.

According to BigCommerce, an online e-commerce and shopping cart platform, e-commerce is growing 23% per year yet 46% of American small businesses do not have a website.  An online presence is necessary for transportation companies or they will be left in the dust.  Customers expect to be able to see real-time updates on delivery status and get a response quickly to any questions or complaints.

To keep up with the fast-paced industry, distribution companies must implement technology into their business model.  Logistics have historically been haunted by bad communication and slow response times.  Today, companies are implementing technology to improve these aspects.  Software, such as FlashView, allows managers to consolidate all aspects of the supply chain into one place, making it easier to manage the whole operation.

Companies are applying technology that allows for better tracking of packages.  The delivery process has become much more transparent.  Apps and websites are available for customers to track their packages each step of the way.

Technology is often implemented in trucks to alert managers and truckdrivers of the truck’s needs.  This decreases the number of breakdowns and extends the truck’s life.  Disruptions and issues are also solved faster with technology.  The source of a problem can be easily pinpointed and solutions are provided within seconds.  By implementing technology, managers gain a more comprehensive understanding of their on-road operations.

Distribution companies must pay mind to data and analytics to guarantee the process is running as smoothly as possible.  Analytics can discover trends, identify recurring problems, and recognize cost savings within the supply chain.  Data can help companies to better plan, monitor, and execute their operations.  Data is everywhere, and for companies to stay competitive they must utilize it.

Bernard Marr, bestselling author, and Big Data guru explains that “there’s certainly reason for the 8.7 million people employed within the U.S. trucking industry to be concerned about how self-driving trucks will impact their livelihood.”  Driverless cars have been talked about for years and are inching closer and closer every day to becoming a reality.  By eliminating the need for a driver, distributors would address the driver shortage, as well as improve safety by eliminating the possibility of driver fatigue.  Although the thought of driverless cars is scary to truck drivers, they would be nothing short of advantageous for companies.

Several companies have tested driverless cars on the open road.  Local Motors used IBM’s Internet of Things technology to create a driverless shuttle bus, which boarded its first passengers on the streets of a shopping district just outside Washington, D.C.  Automated vehicles are being refined and will be ready to hit the roads soon.

In the upcoming years, giant leaps will be made within the transportation industry.  Delivery expectations will only increase, and customers will become even more impatient when expecting a delivery.  Today, many companies even offer same-day delivery for an added cost.  Amazon announced Prime Air, a new program that will deliver packages by drone to shoppers within 30 minutes of their order.  If this proves successful, it would be a major hit on the transportation industry, decreasing or even eliminating the need for truck deliveries.  UPS, DHL, and FedEx are experimenting with robotics in the loading and unloading process of irregular parcels.  This would increase efficiency and decrease wage expenses.  The companies with the most innovative and effective ideas will rise ahead of their competitors.

Transportation companies are at a crucial point.  They are increasingly being called upon to deliver more goods at a much faster rate than ever before.  Distributors must implement technology into their logistics and transportation processes to keep up with the rising competition.

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Michael Eisner

Where They Are Now – Former CEOs

It is no secret that CEO’s do not have much job security, and do not often have extended careers.  This is especially true with large corporations. Here is a look at a few prominent leaders in the early 2000’s that had turbulent or short-lived careers.

 

Michael Eisner – DisneyMichael Eisner

Michael Eisner was named CEO of Disney in 1984 after leaving Paramount for the job at the request of Roy Disney, the nephew of Walt Disney.  At Eisner’s arrival, Disney’s entertainment division was struggling and relied heavily on its theme park revenues.

Eisner turned Disney into a global media empire.  Eisner increased the company’s value from $1.8 billion at his arrival, to $80 billion by the end of his tenure.  Eisner was the top paid CEO in 1998, and released his first book, Work in Progress: Risking Failure, Surviving Success. 

Although Eisner brought Disney great financial success, he was criticized by many investors.  Fans believed Eisner was selling too hard, and subsequently taking away the Disney magic.  At a shareholders meeting around the time these complaints surfaced, Roy Disney stated that “Branding is something you do to cows. Branding is what you do when there’s nothing original about your product. But there is something original about our products. Or at least there used to be.”  In 2005, Michael Eisner resigned as CEO of Disney.

Eisner did not leave the entertainment business behind after his departure from Disney.  In 2005, Michael founded the Tornante Company, a privately held business that invests in, acquires, incubates, and operates media and entertainment companies.  Through Tornante, Michael also created Vuguru, an independent multi-platform studio.  The Tornante Company has recently found great success with the Netflix show BoJack Horseman.  Eisner has also published three additional books with his most recent work, released in 2010, titled Working Together: Why Great Partnerships Succeed.

 

Sanford Weill – Citigroup

Sanford Weill has brought success wherever he has gone throughout his career.  In 1981, Weill sold his first company, brokerage firm Shearson Loeb Rhoads, to American Express for nearly $1 billion.  After serving as President for American Express for a short time, he bought the Commercial Credit division of Control Data Corporation and rejuvenated the division.  Weill  later merged the company with Primerica, and then acquired Travelers Insurance.  The company took the name Travelers Group.

Weill had accomplished a lot, but his hope to create a “one-stop-shop” for consumer banking was yet to be achieved.  In 1998, Weill got one step closer by merging Travelers Group with Citicorp in a $76 billion deal.  The company took the name Citigroup and was one of the world’s largest financial services companies.  This was the largest merger in history at the time.

Weill was CEO of Citigroup until 2003, and stayed on as chairman until 2006.  In 2009, shortly after Weill’s departure from the company, the financial crisis almost led to Citigroup’s demise.   Many believe that Weill’s attempt to create a financial supermarket spurred the Great Recession of 2008.  Weill was placed on Time Magazine’s list of “25 People to Blame for the Financial Crisis.”

The financial crisis hurt Weill financially, but recovering Citigroup shares have restored his place on the Forbes billionaire list. Weill and his wife are now active philanthropists, having been honored with a Carnegie Medal of Philanthropy in 2009.

 

Rick Wagoner – General Motors

In 2000, G. Richard “Rick” Wagoner was named CEO of General Motors.  Wagoner, appointed at the age of 47, was the youngest CEO in GM history.  Wagoner was successful in his early years with the company, being named Executive of the Year by Automotive Industries in 2001.

In 2003, Wagoner faced adversity.  Increased competition, government regulation, and massive pension and health care costs made it very difficult for GM to turn a profit.  Japanese car companies, such as Nissan, Honda, and Toyota, had become more popular as well.  The company’s revenue decreased by 2.4% in 2003.  Wagoner promised the public a turnaround in profits, but the market situation made this a very difficult promise to keep.

General Motors continued having financial difficulties while Wagoner was criticized by the public for flaunting his wealth openly.  A report released in 2007 showed that Wagoner received over $14 million in compensation. A later incident revealed Wagoner arriving to a company hearing in a private jet, which landed him on the wrong side of public criticism.  Wagoner was also disparaged for resisting to invest in electric, and hybrid cars.

The financial crisis of 2008 hurt General Motors immensely, having caused the company to declare bankruptcy later in 2009.  The Troubled Asset Relief Program, a group of programs run by the US Treasury to stabilize the country’s economy following the 2008 financial crisis, invested about $50 billion in General Motors.  Part of this agreement with the Obama Administration included that Rick Wagoner would have to resign as CEO to provide further funding.

Since resigning as CEO, Wagoner has spent his time advising startup companies.   In April 2017, Wagoner was appointed to the board of ChargePoint Inc., the world’s largest electric vehicle charging network.  Many find this ironic because of his opposition to electrification during his tenure with General Motors.

 

Lee R. Raymond – ExxonMobil

Lee R. Raymond began working at Exxon in 1963.  Raymond worked his way up the ranks, eventually working in a refinery in Aruba, where he turned profits around.  Raymond was appointed CEO of Exxon in 1993. In 1998 Exxon merged with Mobil to create ExxonMobil.  The merger was very successful, and the company increased its earnings by $1.2 billion in the first year of the merger.

Raymond maintained his position as CEO of Exxon-Mobil after the two companies merged.  Following the merger’s completion, Raymond cut costs by cutting many employees.  Within four years of the merger, Raymond had let go about 16,000 employees.

Lee R. Raymond was a very private person.  He prided himself on keeping his personal life private from the media.  Raymond was said to be extremely smart.  His colleagues noted that he rarely sought advice from others, and never had a clear number two.  Many people who he worked with found Raymond to be arrogant.

Although many competitors, such as BP, Amoco, and Shell, were researching renewable resources, Raymond resisted.  Raymond stated that ExxonMobil would stand by oil and stay away from renewable sources of energy.  Being the CEO of an oil giant, Raymond had to deal with environmentalist protestors.  Raymond dismissed the idea of global warming, claiming it to be a hoax.  However, Raymond often mentioned the company’s initiative to work with car manufacturers to reduce vehicle emissions.

Lee R. Raymond was set to retire in 2003 at the age of 65 but delayed his retirement until 2005 so the company could groom a new CEO.  Raymond had a very successful career as CEO of ExxonMobil, increasing the market value fourfold to $375 billion.  In April 2006, it was announced that Raymond’s retirement package was worth about $400 million, the largest in history for a US public company.  Today, Lee R. Raymond sits on the board of JP Morgan Chase & Co.

 

These former CEO’s prove that large corporations had their struggles retaining great executives without the price of public humility, financial loss, or multiple transitions.