Tuesday, August 21, 2007

Do you know what your partner is thinking?

The creation of new business partnerships continues to grow with the popularity of LLCs. In our practice alone, the number of LLCs, PLLCs, and LLPs represented in excess of 75% of the new entity formations during 2006. Regardless the entity form, the number of multiple-owner businesses continues to increase and this trend will most likely continue in the future. That said, while these new business partners will do whatever is necessary to bring business in the door, the one thing we find again and again is their lack of attention to communicating with one another.

For whatever reason, over the years, we have been fortunate enough to counsel with a number of business partners on a variety of matters. In doing so, more times than not, it becomes apparent that these partners do not communicate effectively with one another. I'm not talking about an inability to plan the business together, or meet with customers; I'm talking about simple, daily communication with one another. And, in many instances, this lack of attention to simple communication creates a disconnect between the partners and within their business. Moreover, in almost all cases, these disconnects created major, albeit tacit problems.

Communication between business partners is tantamount to maintaining a healthy partnership, and is analogous to the maintenance of a healthy marriage. I am currently counseling with a partnership that has incredible business dynamics, but they fell into the trap of losing respect for the simple task of "talking" to one another. Their paths diverged, and their business suffered as a result. Their ultimate willingness to listen to someone independent of the situation was tantamount to their admission that the health of their partnership was in danger. They have made the commitment to renew their partnership, make time for one another, and are on their way to healing their partnership. There will still be bumps, but if they commit to the process, and one another, they most likely will make it.

Regardless other distractions, business partners must MAKE the time to sit down and talk to one another, and keep the lines of communication wide open.

Several years ago (2003), I wrote an article for the The Practicing CPA called
"Preserving Business Partnerships" addressing this burgeoning problem; check it out.

-go figure-

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Monday, August 20, 2007

My Interest Rate DIDN'T Drop?

Yep, this was the question of the weekend. With the unexpected, but largely appreciated, reduction in the Discount Rate by the Federal Reserve on Friday, the markets cheered and most of the major indicies recovered nicely from the previous week's plummet.

I had several conversations like this over the weekend, and here is the answer: the Fed cut the Discount Rate, not the Fed Funds Rate. What's the difference?

So, in addition to my porfolio moving back up a bit, I'll get a .5% decrease in my bank loan, right?


No? Why not!?!?!?

  • The Discount Rate is the rate at which banks can borrow money from the Fed. The interest the Fed charges the bank is called the discount rate.
  • The Fed Funds Rate is the interest rate at which private depository institutions loan funds to other depository institutions overnight.
Over the recent past, the Discount Rate has been 1% higher than the Fed Funds Rate. Now, with the Fed's move last Friday, that differential is only .5%.
Who cares? Well, you do. The PRIME INTEREST RATE is based off the FED FUNDS RATE; consequently, since the Fed Funds Rate was unchanged, so is the Prime Interest Rate. The current Fed Funds Rate of 5.25% + 3.00% margin (or profit) = the Prime Interest Rate.
There are a more than an handful of economists who believe the Fed will follow Friday's action with a reduction in the Fed Funds Rate at some point in the near future, but for now, you're stuck with the same rate you had prior to Friday's announcement.

-go figure-

Sunday, August 19, 2007

To monitor email or not?

You're a business owner. You've hired a few employees. Your business is picking up, and your ability to supervise your employees wanes. What is happening when your back is turned? For the most part, you hope nothing. But, being one filled with experience-based cynicism, I doubt it.

Several years ago, our company implemented an email policy that basically put our employees on notice that we can/will monitor emails. This practice felt very invasive at first until I found an employee who was trashing my partner to another employee. The individual in question was unhappy at our firm, and was actively looking for another job. Well, that's fine, not every employee is going to like their bosses (you can only hope they will!), but the problem I was having was that this employee was "infecting" another employee. That cycle, uncontrolled, can create a hellstorm for a small business, and frankly, I couldn't let it pass.

I called the employee in and asked if she was unhappy and if she was looking to leave our firm. After her shock passed, she came across with a level of venom typically reserved for those acrimonious partings where tit-for-tat is the norm.  After some discussion, it was unanimously agreed this employee should move on immediately.

The fallout was contained. Why? Because I knew what was happening before the venom had metastasized. I spoke to the employee who had been receiving the emails from the now-departed employee, and let her know that she had every right to her opinion of her bosses and the firm, but that I would like to try to resolve any problems that existed. While this employee ensured me she was "good to go" and was "glad she didn't have to listen to [the departed employee]'s gripes," I was dubious. Regardless, this particular employee remained with us and was a solid performer until she decided to stay home and raise her family.

The net sum of this situation is simply this: while you may feel like "Big Brother," as an employer, you'd better know what is going on in your firm, period! And, securing the ability to monitor email within your company has become a protective device beyond simple employee disgruntlement. You'll never have an environment of total bliss and happy campers one-and-all, but you can definitely keep any growing cancers under control before they reach critical mass.

-go figure-