One of your first starting points is to be clear exactly what is being sold. This may seem obvious but many Sellers think they will deal with it when they get an offer. So let’s break this down and look a little more closely at it.

The two most important things to a buyer when looking to acquire a business, is current cash flow and the potential of the business. From the buyer’s perspective, the cash flow is the fuel that feeds the business to pay the suppliers, employees, landlord, tax man, lenders and of course, leave something left over for them after all their work and capital investment in the business.

For the buyer to achieve the above, they need to purchase all the assets of the business so they understand what each asset does and how it contributes to the cash flow and/or potential of the business. As the seller of the business, it’s therefore important that you make it clear what those assets are and present them in the best possible light.

So if you are thinking of selling your business, your immediate response to this question may have been “I am selling the business as a going concern on an ‘as is’ basis.” This is perfectly fair. But you need to do a little better than that. And I’ll explain why at the end.

So we are agreed the business is being sold. When you have your first buyer meeting at the business, the buyer will be absorbed in processing what they can see and assume they will buy with their purchase of your business. The first thing to do is therefore remove any items that are not part of the purchase price. If you have collectibles such as paintings, antique cars or items that are personal to you and not needed to make the cash flow of the business, remove these now.

If the business has inventory, make sure the inventory is fresh and as usable as possible. If a buyer sees a lot of old inventory with doubtful value, it will become a specific negotiating point in the transaction and may kill the deal. If time is on your side, start selling the inventory to your customers even if it needs to be at a reduced price. You are likely to get more from your customers than being forced to sell it as a discount as part of the purchase price to the buyer.

The next thing to do is make a list of all the Fixtures, Furniture and Equipment. Hopefully this list is already in place as your accountant would be using this list as the depreciation schedule for your tax return. If the list doesn’t exist, now’s the time to build it as when you close escrow upon selling the business this list will be required. If the list is old, now is a good time to update it by making sure you still have everything and it is in good working order and condition. If it can no longer be found, remove it from your list and talk to your accountant about writing it off for tax purposes. If it’s still on the list but it no longer works, sell it or get rid of it to make the presentation of the business better and allow the items that are working and in good order stand out to the buyer.

If your business has Works In Progress, make sure you can easily arrive at a value for those items. It will become a negotiating point in the transaction.

If the business has excess fixtures, furniture and equipment, turn those items into cash by selling them. There are plenty of options to selling the goods including eBay and Craigslist. Make sure what is being sold is as presentable as possible but again, get some cash into the business and move unwanted items. This could include vehicles and real estate and other excess items. Hopefully the business has a current list of fixtures, furniture and equipment. If a list doesn’t exist, there is your starting point as you may be surprised what you have stored away.

After the above has been played out as much as possible and the motivation is still not strong enough to keep the business open, it may be worthwhile considering selling the business with the assets that are in place and needed to run the business. For example, if the business is a restaurant or has a lot of assets built in such as a manufacturing plant, there may be value in selling the business on an “as is” basis to a buyer who will take what you have, bring some fresh capital and enthusiasm and move forward with what you have. If your business owes money to a landlord, this may also be a method to “pay” the landlord and get out of your lease.

If this is an option that makes sense to you, your best way of handling this situation is by getting a third party valuation on the machinery and equipment. A third party appraiser who is properly trained and certified can you give a written report showing the total value of the assets. You can then use this report to negotiate with other parties and settle some or all liabilities. The appraisal method used may be Fair Market Value but it could also be Fair Market Value In Continued Use. Fair Market Value In Continued Use recognizes that the equipment may have shipping costs to get to the business, may have expert labor to install and get the equipment operational, and to remove and transport the item would incur costs thereby affecting its value.

As the saying goes – beauty is in the eye of the beholder. Where assets of a business are concerned, such as inventory, machinery and equipment, prices fluctuate based on supply and demand. If the supply and demand gets too far out of balance then prices move accordingly. That is, if the supply increases it means that prices decrease and vice versa. This is influenced by one final component and that is time. If the seller wants to move quickly then the price will go down. If the seller is in no hurry to sell and the buyer wants to move quickly, the price will go up.

First, it’s rarely as simple as closing the door and handing the key back to the landlord. If your business has a lease you obviously need to discuss the situation with the landlord. If you have a good relationship and feel you can handle it on your own to save hiring help, take care as you handle the issue. Bear in mind the landlord is no different to you. They lease the real estate to make money. If you close the doors, they need to find a replacement for you which may take time to achieve. This can be a talking point with the landlord as you may be able to bring a tenant to replace you. If this is the case, make sure this is correct as the landlord may become frustrated if the person changes their mind. Similarly, the landlord is not required to accept the person you bring so be aware the landlord has options.

Second, and this is the main reason for this article, some businesses are cash poor and so are struggling to keep their doors open. That is, they are unable to generate enough sales to produce the profit that allows them to keep their doors open. However, some of these businesses are rich in assets. If this is the case, a real option is to manage down the assets to either keep the business going or get the best price possible for the assets. Here are some suggested strategies.

If the business has a lot of excess inventory but limited cash, move the excess inventory. This means going through each piece of inventory to make sure it’s in good condition. If its condition is questionable, discount it but get it sold. Better to have a few dollars in the business and free up some space than have it sit around and collect dust. This is especially true if the business is paying to store any inventory as costs can be reduced by eliminating unnecessary storage space.

Most buyers are interested in two things when buying a business; cash flow to service debt and provide an income to sustain the buyer’s lifestyle and potential. Buyers are not excited about buying a business and managing it down to a smaller business. If you own a business that is challenged by cash flow and limited potential, your buyer may be someone in the industry who is looking to add the assets of your business to their business and therefore take you out as a competitor. These buyers can be harder to find and they are almost always only motivated by paying as low a price as possible.

The first option is to take a real assessment of where you are at. One of the best ways of doing this is to talk with your accountant. Make sure your accountant is not simply filing your tax return to meet compliance but actually helps you look behind the numbers and understand how your business is performing.
What do you need to know?

Most business owners understand their gross sales. Some are adept at using this number to explain the success of their business. For example, have you spoken to a business owner that said “Sales are up 20% on this time last year.” They say this with great pride but that doesn’t tell the full story.
Some business owners can tell you the net profit of the business. Net profit is simply what they pay taxes on or gross sales less cost of goods less expenses. Some business owners like to say “Our bottom line was up 10% compared to last year.” This is good news but that doesn’t tell the full story.

A few business owners can get into their financial statements and understand what’s happening in their business. For this business owner it’s the Profit and Loss Statement. If they prepare this document themselves they know what’s going on, but most business owners have a resource such as a family member or at least a book-keeper to handle these details for them. However, that leads to a couple of points. The first point is that theft in small businesses, due to the recession, is at its highest in many years as the person handling the books is able to cook the books by stealing funds which the owner doesn’t know about. They can steal funds through a false invoice or buying certain goods, have the business pay for them and then take the goods back and get a refund and keep the money. There are many creative ways for someone to find money if they want to. So how does a business owner protect themselves? One of the ways is for the business owner to do a line by line check of the profit and loss statement at least on a monthly basis. Any item that appears and the owner can’t remember what the expense was for can be challenged to find an acceptable answer. It can then be wise to do random tests to make sure all expenses can be verified such as checking to make sure that new computer the sales person needed is still around or that special order of inventory was needed and did arrive etc. Testing the monthly profit and loss followed up with random checks creates good discipline and helps the owner stay on top of the critical aspect of the business but this doesn’t tell the full story of the financial health of the business.

The health of the business is really revealed by working with the Profit and Loss Statement and the owner that can read and understand the Balance Sheet. The balance sheet is the place that explains how the money coming into and going out of the business was used. It shows what’s owed and it shows what the business owns (or the assets of the business). It reveals the owner draw and investments and basic information about the Accounts Receivables and Accounts Payable and how they are tracking. If Accounts Receivables are growing then Accounts Payable may also grow but they should keep their ratio’s consistent.
If a business owner can understand a healthy balance sheet they are well on their way to maintaining and growing a successful business. Understanding a balance sheet doesn’t mean you need to become a CPA. It means you need to ask questions until you “get it.” Most business owners shy away from understanding the balance sheet as it’s too confusing. However, if you ask the same question month after month it will eventually makes sense.

The first area to look at is the financial statements of the business.  The first and most readily used is the Profit and Loss Statement as it shows the income and expenses of the business with hopefully the income greater than the expenses.  Just as important, however, is the Balance Sheet as this document shows the wealth of the business.  With an up to date profit and loss statement and balance sheet, a trained business appraiser can then calculate what the owner of the business could expect to get if they decided to sell it on the market.

In addition to the financial statements, the next performance area to measure and manage can be simple business metrics that include the number of incoming calls to the business (and this can be broken down into times of day if call volume is an important metric,) the number of hits to the website, volume of email, volume of faxes and volume of orders placed on-line (if important.)  Depending on the business, the total number of orders placed and/or the number of orders placed by each sales person.  In simple terms, sales can generally be easily measured.   It’s important that the sales team is clear on sales targets and agree how they are to be measured.  Sales people are motivated by getting results.  Make sure the results are measured accurately, consistently and fairly or sales people will become de-motivated; which is obviously the complete opposite from what you want to do.  It’s important to start by building Key Performance Metrics for your business.  Don’t be afraid to change and add other metrics as they are normally easy to isolate and therefore count.

Make sure all metrics are counted monthly and as many data points shared with everyone in the business as possible.  Celebrate successes and ask the team for suggestions when the performance isn’t acceptable.

The next aspect to a Performance Plan for the business and something not always done is an annual performance review.  There are different approaches to this topic; some are personal preference.  For example, some businesses tend to link the annual performance review to also a salary review.  My preferred strategy is not to link them.  My reason for this is that I don’t think they are linked.  Compensating someone on performance is important.  However, the good performance of one person does not always mean the business can afford to pay as collectively the business may not be performing well enough.  The argument goes that incentives should include as many workers as possible so if they are successful so too will the business, but you can have a top performing employee that is bring in the best sales for the business but his demeanor or attitude to co-workers may not be acceptable.  Therefore, how do you financially reward a top performer during a meeting and then point out behavior or communication problems.  Rewarding people for sales is great however, you will lose any goodwill from acknowledging and rewarding great sales and then bringing up negative issues.

If the performance of each employee is measured with an Annual Performance Review an extension of that is to include feedback from the co-workers at the same level as the employee.  This is called a Peer performance review.  It can be controversial as someone may choose to denigrate the performance of a co-worker they don’t like.  So there are risks.  However, it can provide constructive results if managed correctly.

A best practice for a Performance Review is asking an employee that reports to a manager their opinion on the performance of the manager and how the manager could do things better.  This is called a Management Review.  Once again this approach can have a downside but it can enable a business to grow and be internally stronger if open and honest communication is part of the business culture.

The final item to consider is your performance as the business owner.  Not every owner has the time or desire to put such a process in place, but if you want your business to grow and have a healthy business environment I think it’s one of the best means to enhance the success of the business.  Depending on the size of the business, the Owner Performance Review can be done by hiring an outside consultant.   An alternative suggestion is to do it by anonymous survey but this approach reduces the effectiveness as it restricts the answers that can be given and doesn’t allow an exchange to clarify things.

There is a business axiom that says “If you can’t measure it, you can’t manage it.”  The Performance of a business can mean the difference between success and failure.  Most businesses do not fail overnight.  They decline gradually, with often the decline picking up steam towards the end.  A good Performance Plan will provide warnings that if measured and managed will allow corrective action to be taken in time.

Part 11 of this article series, explains the importance of a Disaster Recovery Plan.  Most businesses don’t have the time to put this together.  That can be a mistake and this article explains why.

So step one is the idea to sell. What should step two be? Step two is to make sure you have something to go to that’s better than what you’re currently doing. If you’re burnt out and are thinking of selling but you go to all the trouble to find a buyer of the business, get their offer and all of a sudden realize you’d sooner continue what you’re doing rather than sit on a beach or play golf 4 days a week or whatever. So step two is to make sure you are excited about what you’re going to move to.

If selling seems the best option, step three is to get a business valuation from an independent third party. I can’t tell you how many business owners call me and explain why they think their business is worth a certain amount of money. After asking a series of questions I have the problem of bursting their bubble. So if you are serious about selling, get a third party valuation. The valuation can be an opinion of value from a business broker, accountant or other professional. It doesn’t require an in depth appraisal where the matter may go to a court such as for a divorce or partnership dispute.

The fourth step is to talk to your tax agent or hire a professional that can let you know how much you will get to keep once the buyer pays your negotiated purchase price. Just because the buyer offers you $1,000,000 for your business it doesn’t mean that’s what you get to keep. There is an issue called taxes that needs to be dealt with and it can get complicated.

There are many ways it can get complicated. Complication one starts with the legal entity of the business. Tax write offs and tax minimization are different for a Sole Proprietor or an LLC or an S Corp and especially a C Corp.

Complication two comes into play as the buyer wants to maximize the tax benefits from his perspective which often have a negative consequence to the seller. This complication has to be resolved for the transaction to close through the Purchase Price Allocation process.

The Purchase Price Allocation comes into play when the total purchase price is broken down into items such as inventory, goodwill, fixtures, furniture and equipment, covenant not to compete, training and other categories available that vary according to the business being sold.

For the benefit of both the buyer and the seller, it is important to recognize that the deal can fall over if agreement is not reached on the Purchase Price Allocation as there are tax consequences to each party.

Furthermore, this piece of negotiation can arise after the first set of negotiations for the purchase price and terms of the deal. If the purchase price and terms have been protracted and tough negotiations, working through the Purchase Price Allocation can open a new source of tension. The key point here is that there must be willingness for each party to give on the Purchase Price Allocation. If one party refuses to budge then the transaction will most likely die.

1. Talking when you shouldn’t.
This may sound obvious but when you sell a business it’s more important to listen and ask questions than continually talk to try and “sell” the business. Often there is more information in hearing the type of questions being or not being asked and the follow up comments. If you are the only one talking that means there is little interest or other negative perceptions that need to be removed so the buyer is comfortable moving forward.

2. Failing to use common sense.
Selling a business rarely happens to the first buyer that comes along. There is a need to reveal information but only after the buyer provides enough information to show they are suitable buyers. This is one of the main reasons to use a broker to sell your business. They are trained and have the emotional detachment to ask appropriate questions to know not only if the buyer is truly serious but more important, qualified to be able to buy, finance, manage and run the business.

3. Poor communication and not listening.
A motivated buyer who is serious about buying your business will ask a series of questions. Often it can be the same question but asked a different way. They are looking to hear a consistent answer and therefore develop confidence in buying the business. For example, an important question could be how many hours do you, as the owner, work in the business? The same question a different way, how many hours each day do you work and is that Monday through Friday or do you work on the weekend? Or another approach, does your spouse work in the business and if so, how many hours do they work and are these hours when you work?

4. Giving worldly advice on subjects or matters not relevant to the transaction.
Politics, sport, religion and how best to run a business are not conversation topics to have with people you want to sell or buy something from. Respect the sole reason that is bringing you together with the buyer. Absolutely keep it friendly and honest.

5. Failing to get expert advice or assistance when it is required.
If you do your own tax returns, file your own legal papers, do your own financial planning, do your own negotiations, are a sales and marketing guru and have plenty of time to waste by people who don’t mind wasting your time; then selling your business without expert help may be a good option…until something goes wrong.

1. Do I need to create and use a team?

Selling a business is not a solo job.  Just as you have a team around you to make the business successful, putting together an exit strategy and then executing it is a team sport. So don’t try and do it on your own. The members of your team to consider include:

• Accountant or tax agent
• Personal financial planner
• Psychologist or Business Coach
• Insurance expert
• Attorney
• Business Broker

Are you worried about the cost?  Your team will get it right for you, so it won’t be a cost but rather an investment.

2. Determine your goals and objectives before moving forward.

Selling your business is a major decision. Be patient with yourself including

• Be patient with those around you.
• How long did it take you to get here and now you are here – what’s the rush?
• Taking action before you determine your goals and objectives can waste time, waste money, lets things that can’t be undone and/or cause unintended damage.
• Once you determine your goals and objectives – take action.

3. What are the tax consequences of selling the business?

Are these tax consequences manageable or not?  Talk to a tax agent to understand the implications and what strategies can be used to minimize taxes.

4. How much income do you need to maintain your lifestyle?

Talk to a personal financial planner to make sure you can achieve your goals.  If you can, what are you waiting for?

5. Does the fear of spending the rest of your days playing with your grand kids keep you awake at night?

Talk to a psychologist or business coach to plan your future. Get that degree you always said you wanted to get, learn to fly or scuba dive or be a mentor or join a board or become an advisor or coach a new business owner or master public speaking or leap…then look.

6. What would happen to the business owner if there was a medical or worse, fatal incident?

Talk to an insurance specialist and put coverage in place that protects the business owner and any immediate family that need to be taken care of.

7. Are legal matters up to date and decided?

Talk to an attorney to make sure all legal matters are fully understood and addressed. Family trusts, wills, powers of attorney etc require refreshing… just in case.

8. Is there a natural heir to the business or is selling the business or finding a new owner required?

Talk to a Business Broker to explore the above.

• Is there a natural owner to take over and run the business?
• If the business has more than one owner, what should be discussed and implemented with any ownership changes?
• Can this be done to minimize disruption?
• If not, what’s the end game and is professional help needed?
• What is the date to complete all the changes?
• How much is the business worth?

9. Establish a deadline and take action

After all the discussion and talk, now it’s time for a clear plan and action by executing the following.

• Create an advisory team to execute the plan and hold your team accountable; especially yourself.
• Consider a leader to execute the plan – yes – delegate
• Conduct exit planning meetings to review schedules, assigned tasks and new information and ideas.

 The success of an exit strategy for a business owner starts with the business owner.  If the above are discussed, executed and aligned, the rest will take care of itself.

1. Do I need to create and use a team?
Putting together an exit strategy and then executing it is a team sport. Don’t try and do it on your own.
Members of your team to consider include:

Accountant or tax agent
Personal financial planner
Psychologist or Business Coach
Insurance expert
Attorney
Business Broker

Are you worried about the cost? Get it right and it won’t be a cost but an investment.

2. Determine your goals and objectives before moving forward.
Be patient with yourself; Be patient with those around you.
How long did it take you to get here and now you are here – what’s the rush? Taking action before you determine your goals and objectives can waste time, waste money, lets things that can’t be undone and/or cause unintended damage. Once you determine your goals and objectives – take action.

3. What are the tax consequences of selling the business?
Are these tax consequences manageable or not?
Talk to a tax agent to understand the implications and what strategies can be used to minimize taxes.

4. How much income do you need to maintain your lifestyle?
Talk to a personal financial planner to make sure you can achieve your goals. If you can, what are you waiting for?

5. Does the fear of spending the rest of your days playing with your grand kids keep you awake at night?
Talk to a psychologist or business coach to plan your future. Get that degree you always said you wanted to get, learn to fly or scuba dive or be a mentor or join a board or become an advisor or coach a new business owner or master public speaking or leap…then look.

6. What would happen to the business owner if there was a medical or worse, fatal incident?
Talk to an insurance specialist and put coverage in place that protects the business owner and any immediate family that need to be taken care of.

7. Are legal matters up to date and decided?
Talk to an attorney to make sure all legal matters are fully understood and addressed. Family trusts, wills, powers of attorney etc require refreshing… just in case.

8. Is there a natural heir to the business or is selling the business or finding a new owner required?
Talk to a Business Broker to explore the above.

Is there a natural owner to take over and run the business?
If the business has more than one owner, what should be discussed and implemented with any ownership changes?
Can this be done to minimize disruption?
If not, what’s the end game and is professional help needed?
What is the date to complete all the changes?
How much is the business worth?

9. Establish a deadline and take action
Now there is a clear plan it’s time for action.
Create an advisory team to execute the plan and hold your team accountable; especially yourself.
Consider a leader to execute the plan – yes – delegate
Conduct exit planning meetings to review schedules, assigned tasks and new information and ideas.

The success of an exit strategy for a business owner starts with the business owner. If the above are discussed, executed and aligned, the rest will take care of itself.

The Patient Protection and Affordable Care Act (the Patient Protection Act) was signed into law by President Obama on March 23, 2010. The Reconciliation Act has now passed the Senate and the House and will be signed into law by President Obama sometime during the week of March 28, 2010. Not withstanding the fact that amendments to the Act will likely occur, some minor and some significant, it is important for small business owners to understand the tax components of the Act which apply to them as it currently stands. All small businesses will be impacted with the following information hopefully of assistance to those businesses in the local Sacramento area.

For owners of small businesses and their workers, the recently enacted health reform legislation has some key provisions to pay attention to. The major ones include: tax credits; excise taxes; and penalties. But whether a business will be affected by them depends on a variety of factors, such as the number of employees the business has. This article provides an overview of the key tax provisions in the new law with the biggest impact on small business.
Tax credits to certain small employers that provide insurance. The new law provides small employers with a tax credit (i.e., a dollar-for-dollar reduction in tax) for nonelective contributions to purchase health insurance for their employees. The credit can offset an employer’s regular tax or its alternative minimum tax (AMT) liability.

Small business employers eligible for the credit. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost. The business must have no more than 25 full-time equivalent employees (“FTEs”), and the employees must have annual full-time equivalent wages that average no more than $50,000. However, the full amount of the credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of less than $25,000.

Years the credit is available. The credit is initially available for any tax year beginning in 2010, 2011, 2012, or 2013. Qualifying health insurance for claiming the credit for this first phase of the credit is health insurance coverage purchased from an insurance company licensed under state law. For tax years beginning after 2013, the credit is only available to an eligible small employer that purchases health insurance coverage for its employees through a state exchange and is only available for two years. The maximum two-year coverage period does not take into account any tax years beginning in years before 2014. Thus, an eligible small employer could potentially qualify for this credit for six tax years, four years under the first phase and two years under the second phase.

Calculating the amount of the credit. For tax years beginning in 2010, 2011, 2012, or 2013, the credit is generally 35% (50% for tax years beginning after 2013) of the employer’s nonelective contributions toward the employees’ health insurance premiums. The credit phases out as firm-size and average wages increase. Tax-exempt small businesses meeting these requirements are eligible for payroll tax credits of up to 25% for tax years beginning in 2010, 2011, 2012, or 2013 (35% in tax years beginning after 2013) of the employer’s nonelective contributions toward the employees’ health insurance premiums.

Special rules. The employer is entitled to an ordinary and necessary business expense deduction equal to the amount of the employer contribution minus the dollar amount of the credit. For example, if an eligible small employer pays 100% of the cost of its employees’ health insurance coverage and the amount of the tax credit is 50% of that cost (i.e., in tax years beginning after 2013), the employer can claim a deduction for the other 50% of the premium cost.

Self-employed individuals, including partners and sole proprietors, two percent shareholders of an S corporation, and five percent owners of the employer are not treated as employees for purposes of this credit. Any employee with respect to a self-employed individual is not an employee of the employer for purposes of this credit if the employee is not performing services in the trade or business of the employer. Thus, the credit is not available for a domestic employee of a sole proprietor of a business. There is also a special rule to prevent sole proprietorships from receiving the credit for the owner and their family members. Thus, no credit is available for any contribution to the purchase of health insurance for these individuals and the individual is not taken into account in determining the number of full-time equivalent employees or average full-time equivalent wages.

Most small businesses exempted from penalties for not offering coverage to their employees. Although the new law imposes penalties on certain businesses for not providing coverage to their employees (so-called “pay or play”), most small businesses won’t have to worry about this provision because employers with fewer than 50 employees aren’t subject to the “pay or play” penalty. For businesses with at least 50 employees, the possible penalties vary depending on whether or not the employer offers health insurance to its employees. If it does not offer coverage and it has at least one full-time employee who receives a premium tax credit, the business will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. So, for example, an employer with 51 employees who doesn’t offer health insurance to his employees will be subject to a penalty of $42,000 ($2,000 multiplied by 21). Employers with at least 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit will pay $3,000 for each employee receiving a premium credit (capped at the amount of the penalty that the employer would have been assessed for a failure to provide coverage, or $2,000 multiplied by the number of its full-time employees in excess of 30). These provisions take effect Jan. 1, 2014.

The “Cadillac tax” on high-cost health plans. The new law places an excise tax on high-cost employer-sponsored health coverage (often referred to as “Cadillac” health plans). This is a 40% excise tax on insurance companies, based on premiums that exceed certain amounts. The tax is not on employers themselves unless they are self-funded (this typically occurs at larger firms). However, it is expected that employers and workers will ultimately bear this tax in the form of higher premiums passed on by insurers.

Here are the specifics: The new tax, which applies for tax years beginning after Dec. 31, 2017, places a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan to the extent that the annual premium exceeds $10,200 for single coverage and $27,500 for family coverage. An additional threshold amount of $1,650 for single coverage and $3,450 for family coverage will apply for retired individuals age 55 and older and for plans that cover employees engaged in high risk professions. The tax will apply to self-insured plans and plans sold in the group market, but not to plans sold in the individual market (except for coverage eligible for the deduction for self-employed individuals). Stand-alone dental and vision plans will be disregarded in applying the tax. The dollar amount thresholds will be automatically increased if the inflation rate for group medical premiums between 2010 and 2018 is higher than the Congressional Budget Office (CBO) estimates in 2010. Employers with age and gender demographics that result in higher premiums could value the coverage provided to employees using the rates that would apply using a national risk pool. The excise tax will be levied at the insurer level. Employers will be required to aggregate the coverage subject to the limit and issue information returns for insurers indicating the amount subject to the excise tax.

Continue monitoring regulatory changes. Debate over health care reform, and in particular the recent Act, will continue. Be sure to monitor ongoing health care issues as it is very probable that the new law will eventually be amended in significant ways.

If you need additional information, have questions, or need assistance navigating the sea of business confusion, call your Business Transaction Strategist, Monty W. Walker at (940) 322-5086.