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American Bar Association

ABA Section of Business Law


Volume 13, Number 1 - September/October 2003

Speaking volumes
    Edited by David K. Cahoone and Larry W. Gibbs
    Reviewed by Mark S. Weisberg
 

  Strictly Business

Planning Strategies for Privately Owned Businesses

Starting a business is hard enough. Trying to figure out what form of entity to use is no picnic either.

The editors of this book should be complimented for taking information from a broad range of topics and organizing it in a manner that makes the book an extremely useful tool. While there are a few errors that undercut the credibility of some of the technical legal discussion in the book, it is still a great resource for anyone starting a business.

In my experience, for many people the process of starting a business begins on an individual basis, often with a trip to the business section of a book store to try to find a book like this one. Once the person becomes comfortable with the concept of starting their own business (that is, they are not so scared off by whatever books they purchase or peruse), friends and family are brought into the mix.

If the idea is not shot down at this phase, the next step is to find a business adviser (typically a CPA, but often a lawyer as well). Finding the right business adviser is more important and will advance the business more than this book will, but this book may make the adviser-client relationship a better one by educating the client on some of the basic issues.

The book is written in a question and answer format. It opens with a discussion of some of the building blocks, both business-oriented and tax and accounting. There is a nice summary of the elements of a business plan and a general discussion of topics such as "What are FICA taxes?" and "What is the accrual method of accounting?"

However, the book supplements these topics with more real- world questions, such as "Should I have written employment contracts with my employees?" (an offer letter is suggested as an alternative — but review by a lawyer is recommended) and "Is it a good policy to pay withholding taxes late when cash flow is tight?" (No!)

The chapters on sole proprietorships, partnerships, corporations and limited liability companies are grouped together under "Entity Primer." The book does a good job of listing the advantages and disadvantages of each form, and then summarizes the pros and cons for certain specific situations. To me, choice of entity is an art, not a science, as there are typically many competing interests that go into the decision, but again, the summaries will help educate a novice business owner on what the issues are and how they might be balanced.

The book intelligently divides its sections on employee benefits into those applying to all employees (fringe benefits, medical insurance, 401(k) plans, etc.) and those applying to key employees (incentive compensation and life insurance). This is a complicated area, and the summaries are generally well written and the organization is well thought out.

However, there are some errors, such as the statement that there is immediate taxable income on the grant of a vested nonqualified stock option equal to the difference between the strike price and the value of the underlying stock at the time of grant. Most lawyers would agree that this is generally not the case, and would not be the case for the example given in the book (options issued with a strike price of $10 when the stock is valued at $10.50 at the date of grant). And all lawyers would agree that an "83(b) election" is not a possibility with respect to a typical option granted subject to a risk of forfeiture, as the book later describes.

The portion of the book on exit strategies and succession planning is interesting, although I wonder whether it is necessary for someone starting a business or whether this book will catch the eye of someone with an established business for whom these issues are more relevant. Similarly, I thought the sections on estate planning were very valuable. I imagine there are many people out there who are smart enough to start their own business without outside advisers (or maybe naïve enough to be comfortable muddling through the start-up phase), but when it comes to estate planning or selling the business, this is best left to the professionals.

This book will help a new business owner understand the basics and ask the right questions. It is well organized and thorough. I suppose there are a handful of people out there who can read a book on how to play golf, and become a good golfer. But for most of us, the best book serves as a resource that we use in connection with advice we get from a golf pro, and maybe makes us feel a little less nervous when we show up for our first lesson.

Similarly, Strictly Business does a great job of getting the reader up to speed on what the issues that may require outside advice are, and will make the adviser/ client relationship a more productive and efficient one. Given the cost of many advisers these days, that should make this book a bargain.


Weisberg is a partner at Katten Muchin Zavis Rosenman in Chicago.

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