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WFCA develops new business resource

WFCA logoDalton––World Floor Covering Association (WFCA) is launching “Tom’s Tips,” the newest business resource to be made available to members free-of-charge on the association’s website, according to Freida Staten, vice president of marketing and communications.

Tom’s Tips consists of a weekly video lesson offering professional instruction on current issues faced by retailers throughout the country. Though topical to retailers across all categories, Tom’s Tips presents inside knowledge addressing the specific concerns and needs of flooring retailers. The weekly videos feature WFCA’s own Tom Jennings, vice president of professional development. Jennings brings nearly 50 years of professional experience as a career flooring retailer and professional industry instructor.

The series is focused primarily on maximizing customer service and getting the best out of your team. Topics currently available for viewing include: Payment Options; Trust but Verify; Making a Quick Connection; One Unintended Remark; First Impressions Count; Being Distinctly Different; Shut Up and Listen; and We All Like Nice Things.

To access Tom’s Tips visit wfca.org/toms-tips.

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Retailer roundup: First-quarter sales a mixed bag for dealers

May 22/29, 2017: Volume 31, Issue 25

By Ken Ryan

 

Screen Shot 2017-05-30 at 11.36.06 AMWith the 2016 Presidential election in the rear-view mirror, and with the U.S. economy experiencing a bump in consumer and investor confidence, flooring retailers are turning their attention to the business at hand—building traffic and growing sales. While most dealers FCNews spoke to reported a general uptick in business during the period, they experienced varying degrees of success.

“We were up 8.5% for this first quarter,” said Cathy Buchanan, Independent Carpet One Floor & Home, Westland, Mich. “We were very positive with a promising April, but May has slowed down over the past few weeks. And with Memorial Day upon us I am afraid May will see flat numbers.”

Like many dealers, Buchanan has seen a boost from hard goods. “Our hard surface sales have just been off the charts. Three days this week alone we have only hard surface installs going in—not a single carpet job.”

Dillabaugh’s Flooring America in Boise, Idaho, also put up strong numbers. “We were up a little over 10% through the first quarter, despite a slow start to new construction growth due to a winter unlike Boise has seen in a long time,” Casey Dillabaugh, owner, explained. “It delayed builders substantially and they quickly made up for that in March.”

Now, new construction on both the residential and commercial fronts is driving growth, Dillabaugh said. “Retail has been flat, if not a little soft. We had a fantastic private sale at the end of March, which helped boost those Q1 numbers.”

At Ted’s Abbey Carpet & Floor, with multiple locations in Alabama, the ratio was just the opposite from Dillabaugh’s. “While new home construction is still almost nonexistent in our market compared to where it was in 2007, retail traffic is better than it has ever been for us—and the commercial segment is strong as well here,” said Ted Gregerson, president and owner. “Our margins are up as well.”

Gregerson, who described business in the first quarter as “outstanding,” actually had some reservations coming into the year. “We had such a great 2016 that I was worried about trying to maintain the pace this year. But we got out of the gate really fast and were actually 15% up through the first quarter. We maintained that lead over last year through April and the first half of May as well.”

For Ted’s Abbey Carpet & Floor, maintaining a strong presence in the market is the key to success. “I believe the reason our retail traffic is so good is because we have never stopped advertising through the years. We have been consistent every month of every year in putting our message before the consumers in our market. Not only have we continued with traditional type advertising such as radio, direct mail marketing, etc., but we have hit all avenues of social media really hard. In March 2016 we hired someone full time to be our director of online marketing.”

The strategy seems to be paying off. To encourage retail traffic and awareness, Gregerson offers giveaways every month in order to build its followers on Facebook, Twitter, Pinterest, Instagram and LinkedIn. The company also increased the amount of money it spends on pay-per-clicks every month. “I truly believe it has had a major impact on our retail traffic, and it will only continue to get better as we go. Just [this month], I was in our Floors To Go store, and our store manager was telling me he has never seen it this busy as far as walk-in traffic is concerned.”

For other dealers, active remodeling work is driving business. “The renovation market and new home construction business is booming in Utah right now,” said Suzy Namba, co-owner of Salt Lake City-based Namba Services. “We’re seeing a lot of jobs from homeowners on the higher end of the market.”

Dealers elsewhere are seeing more moderate growth. “Our first quarter started a little slow but picked up and we ended up with about 5% growth over the first quarter of 2016,” said Josh Elder, Gainesville CarpetsPlus Color Tile in Gainesville, Fla. “The biggest increase in sales first quarter 2017 over 2016 was in resilient, particularly in the WPC and rigid core products.”

At Crest Flooring in Allentown, Pa., business during the first quarter was a bit soft. “We have been slightly off compared to last year’s period,” said Steve Weisberg, owner. The good news is the company is doing better on the residential front, especially in hard surface cash and carry. “We’re slowly showing signs of activity. We completed a great Shaw program with coupons and financing that was extremely well received. In fact, we are booked with installation for the next month.”

For other dealers, sales during the first quarter were flat. Kevin Rose, owner of Carpetland Color Tile in Rockford, Ill., reports business during the first three months of 2017 were level with last year’s sales. “Ecommerce is still gaining market share of the resilient and hard surface sales, and the excessive competition and lower margins in the marketplace lower the average ticket. I also believe politics played a role in the non-growth rate thus far in 2107.”

At Davenport, Iowa-based Carpetland USA, another Alliance Flooring retailer, sales grew incrementally. All in all, though, activity was sluggish.

“It has been a very muddied and competitive marketplace thus far in 2017,” said Eric Langan, president and owner. “While we’re up, it hasn’t been easy. We’ve had to be very aggressive with our marketing. The overall market competitors appear to be stressed, and it shows in what kind of pricing is being quoted within the marketplace.”

Short-term outlook
Retailers are hopeful that the momentum generated at the start of the year will carry over into the second and third quarters. At the same time, those who experienced lackluster sales don’t all of a sudden expect a dramatic turnaround. Most, though, are cautiously optimistic.

“I do believe things will level out,” Dillabaugh said. “We’ve already seen a decrease in retail traffic due to warmer weather and clients spending on the outside of their home rather than the inside. Construction will continue to be strong but retail, or lack thereof, will stifle full potential.”

Carpetland/Color Tile’s Rose expects to be up by 3-5% for the second quarter. “I am hopeful that politics will take a backseat with the media as time progresses, and our clients will be more at ease with their economic situation and spend more in our category.”

Elder expects to cruise along. “Our second quarter has started off strong. If this continues, I expect between 8-10% increase over the first two quarters compared to our 2016 sales.”

Others, like Carpet One’s Buchanan, are more skeptical. “Overall, business is wishy-washy. Right when you think everything is on an uptick the clock stops and traffic dies. Our advertising efforts never change; we are constantly out there on radio and TV and even billboards. So it’s not from a lack of advertising. It’s quite unexplainable. Due to this drop we will be flat to +2% from last year.”

 

(Lindsay Baillie and Reginald Tucker contributed to the story.)

 

 

 

 

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Dear David: The cost of negotiations

May 22/29, 2017: Volume 31, Issue 25

By David Romano

 

Dear David:
I recently had a discussion with my sales associates about the current mindset of consumers regarding negotiations and the true cost of discounting. They got defensive and said the ability to negotiate is an important tool to closing sales. I disagree but need some advice or data to counter. Can you help?

Dear Owner,
Screen Shot 2017-03-06 at 10.37.51 AMThe most common stories about negotiations seem to center around sitting in front of a car salesman dickering over the price of a new vehicle. Millennials—which will soon become your largest customer base—are used to purchasing everything from music to groceries online and are changing that decades-old model. To accommodate this new type of buyer, more companies are embracing fixed pricing.

Last year Costco struck a deal with General Motor dealerships to sell 465,000 cars at fixed prices. Electric carmaker Tesla has made a practice of it, and other brands like Subaru and Lexus are experimenting with it in certain locations.

One reason is that instead of just dealing with a salesperson, millennials tend to research purchases online, visiting an average of 25 sites. That means they’ve largely made up their minds before they arrive on the lot. If this is happening at car dealerships, one must assume the same can be said for those looking to purchase flooring.

These buyers aren’t looking for a salesman; they’re looking for a customer advocate. The job of your sales team is to build rapport, establish trust, understand the features and benefits of each product and sell on value, not price.

When I owned a flooring company, I’d ask my sales staff: Do you think this customer is going to pay your rent/mortgage this month? Do you think they are going to buy you groceries for the next few months? Are they going to invite you over for dinner and the holidays?

When they’d say no, I’d ask, “Then why are you so willing to give up some of your commission to someone who doesn’t understand your sacrifice and doesn’t care?” I instructed them to stop relying on negotiating and sell on the merit of the product.

According to data from my company Benchmarkinc, the average flooring retailer generates just over $2,600,000 in sales. That company sells products at a margin just under 36%, with an average transaction around $2,200 and closes its opportunities at a rate of nearly 35%. Benchmarkinc is also able to analyze the effect certain practices have on business. Following are the results of allowing sales associates to negotiate: gross profit is 0.4% lower, average transaction is $35 lower and close rate is 0.5% lower.

Those numbers may look small, but the compounding effect is quite large. Based on the numbers above, the average number of opportunities is 3,376. If you take those 3,376 opportunities and close just 0.5% more you would have an additional 17 transactions, totaling 1,199. With an average sale of $2,235 ($2,200 + $35) you would generate $2,679,765 in sales. If you take that $2,679,765 and multiply by the 0.5% increase in gross profit you would have an additional $13,398 in gross profit dollars. For an average store generating $2.6 million in sales the effect is just over $13,000.

You can do the same exercise using an individual sales associate’s numbers and show him how much money he has lost by giving things away at a discount. When your sales team realize how much money they give away to complete strangers, I’m sure they will change their approach to negotiating.

 

 

 

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Mohawk Industries soars on Forbes’ America’s Best Employers of 2017 list

Mohawk_Industries_logoCalhoun, Ga.—For the second consecutive year, Mohawk Industries has been named to Forbes’ elite list of America’s Best Large Employers. The company climbed an impressive 82 spots in the magazine’s annual ranking.

This year, Mohawk placed 106 among companies that employ at least 5,000 people. Mohawk rose substantially from its 2016 ranking of 188 on the Forbes list. The company is the only flooring manufacturer on the 2017 list, the second highest-ranked company headquartered in the state of Georgia and the No. 5 company nationally in the “engineering/manufacturing” category.

“We’re proud to be included on Forbes’ list of America’s best large employers, particularly because the rankings are based on employee satisfaction,” said Phil Brown, Mohawk’s senior vice president of human resources. “We appreciate and respect the thousands of men and women whose talent, skills and dedication have made us a global flooring leader.”

The Forbes ranking of America’s Best Employers was drawn from an online survey of more than 30,000 employees and conducted with global digital data collection partner Statista, which uses proven sampling methodologies to facilitate a deep understanding of consumer opinions and behavior. Participation in the survey was voluntary, and respondents were recruited from thousands of sources to maximize reach and representation.

Lennie Nicholson, a Dalton, Ga.-based claims analyst who has devoted more than 50 years to the company, explained that the company’s culture is one of the primary reasons why people enjoy working at Mohawk.

“I never had a reason to leave,” Nicholson said. “The culture of our business and the support I’ve always had here makes Mohawk feel like family. When you’re happy somewhere and feel like you belong, why would you leave?”

Last October, on her 50th service anniversary, Mohawk honored Nicholson with a reception during which she was presented with gifts, commemorative items and a framed letter of congratulations from Mohawk chairman and chief executive officer Jeff Lorberbaum.

“I applied for a job at Mohawk, because I heard it was a great company to work for,” said Corey Adams, a team lead at the company’s Garner, N.C., laminate flooring facility. “I’ve succeeded here and been promoted to team lead within my three years. The company is now providing me with training so that I can grow even further.”

Becky Hale, Mohawk’s senior talent acquisition manager, said that she hears many similar experiences from people her team helps to place through the company’s northwest Georgia hiring center.

“Many of our new hires are referred by family and friends,” Hale said. “People want to join Mohawk for many reasons. They know this is a stable company where they can gain new skills, earn a promotion and improve their health. Beyond that, they know that this is a company that cares. Mutual respect and kindness are parts of our culture, not because we write those values on a wall but because people here truly care about one another.”

Mohawk extends that caring culture to all employees with many resources to help individuals grow professionally and improve their quality of life.

“Our goal is to have the safest and healthiest workforce in American industry,” Brown said. “To help us reach that goal, we have implemented many wellness initiatives, including Company-provided on-site clinics or virtual care kiosks, as well as free access to health coaches for advice on nutrition, exercise and chronic disease management. Repeatedly, we’ve heard employees share how these programs have dramatically improved their health. They, in turn, have encouraged one another to take advantage of company-provided resources to make healthier choices because they want their friends at work to be healthier, too.”

Mohawk also promotes opportunities for advancement through award-winning training and development initiatives and a nationally recognized apprenticeship program. Industry-leading sustainability practices and long-term community partnerships further reinforce the company’s commitment to thousands of employees across the United States.

“There’s really never been a better time to work at Mohawk,” Hale said. “Our employment website features an overview of our value proposition and a glimpse into our culture. We hope people will visit the site to see what makes working at Mohawk a special experience.”

To entire 2017 Forbes list of America’s Best Employers is available at forbes.com/best-employers/list/.

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Marketing mastery: Creating profitable referral relationships

May 8/15, 2017: Volume 31, Issue 24

By Jim Augustus Armstrong

 

(First of three parts)

Screen Shot 2017-03-06 at 10.45.16 AM“How many realtors send you referrals?” I was on the phone with a dealer from Texas, trying to determine where his sales were coming from. He mentioned he worked with some realtors who sent referrals. His answer: “five.”

“How much revenue did these five realtors generate for you last year?”

“About $100,000.”

“That’s an average of $20,000 per realtor,” I said. “Imagine if you had 20 more sending you the same amount of business. That’s $400,000 in additional revenue with no extra marketing costs.”

“Wow, I’d never thought of it that way before.”

Many dealers don’t, which is too bad because acquiring new flooring customers through advertising is getting more expensive and more difficult. There are a variety of factors affecting this, including the sheer number of advertising channels (both online and offline) and the fact that consumers are more skeptical than they were 15 years ago. This is why you should market to your past customers. They already know, like and trust you, they have a shorter buying cycle and it’s far easier and cheaper to get them to buy from you and send you referrals. A monthly newsletter—supplemented with a short email newsletter—is the most effective way I’ve found to market to past customers.

Now let’s assume you’re already doing that. What’s another group to tap that has some of the same characteristics as past customers? Characteristics like built-in trust, lower price resistance, a shorter buying cycle, higher margins, etc.? The answer is referrals from other businesses. Realtors, interior designers, remodeling contractors and carpet cleaning companies are just a few of the businesses that can send you referrals. Let’s look at some ways you can quickly establish relationships with multiple businesses.

Networking groups. BNI and LeTip are two well-known networking groups that exist to exchange referrals and help grow each other’s businesses. Only one business category is allowed for each group, so there will only be one flooring company. Check out your local chapters and join if there is an opening.

Civic groups. Rotary, Lyons, the Chamber of Commerce and other civic groups exist to help the community, not to exchange referrals. Directly trying to get sales or referrals at these meetings is not very effective—a different approach is required.

First, introduce yourself to people who own businesses that are most likely to send you referrals. Second, devote most of the conversation to talking about their business. Third, ask them how you can help them spread the word about their business. Fourth, after the event send them a hand-written notecard with your photo, business name and contact info. Tell them you enjoyed meeting them, and mention something positive about their business. Also, add them to your newsletter mailing list. Finally, phone them a couple of weeks later and invite them out to lunch or coffee. This is the time to talk about establishing a referral relationship.

In part two I’ll cover another strategy for establishing these relationships, and how to make these relationships as profitable as possible.

 

Jim Augustus Armstrong specializes in providing turnkey marketing
strategies for flooring dealers. For a complimentary copy of Jim’s book, “How Floor Dealers Can Beat the Boxes and Escape the Cheap-Price Rat-Race of Doom Forever,” visit beattheboxestoday.com.

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Dear David: Crafting the perfect job interview

May 8/15, 2017: Volume 31, Issue 24

By David Romano

 

Dear David:
I’m finding that I have to conduct too many interviews before I can fill just one position. It seems like I am wasting time on people who are not even qualified to do the job. Even worse, when I find someone who can do the job they decline the offer. Any ideas?

Dear Frustrated Owner,
Screen Shot 2017-03-06 at 10.37.51 AMKeep in mind that 29% of candidates refuse a job offer because of how poorly the interview went. In order to avoid this, let’s create a protocol for your interviews so you can determine the best hire for your business and stop turning good people away or wasting time. Follow these three tips:

Establish an interview agenda. Build an outline for the entire interview, which should take no more than 45 minutes. Sketch out the framework with a set length of time for each section, covering information about the company, the job scope, position requirements, compensation. Include time to find out about the candidate through probing questions. Reserve a few minutes at the end for question and answer.

Focus on the candidate. Before asking the first interview question, review the job description, especially the hiring criteria, as well as everything the interviewee has submitted: résumé, cover letter, online profile, etc. This allows you to hone in on what you’re looking for in candidates. It should give you:

  • Firsthand information about the candidate’s background, work experience and skill level. It’s your chance to clarify what you learned from the résumé, profile or previous interviews;
  • A general sense of the candidate’s overall intelligence, aptitude, enthusiasm and attitudes, and whether he/she fits the job;
  • The capability to evaluate a candidate’s motivation to tackle job responsibilities, desire to join the company and ability to integrate into the current work team.

Don’t improvise. Prior to the actual interview, write down questions you intend to ask based on key areas of the candidate’s background. While it’s a good idea to have a core list of questions that you ask every candidate, it’s also helpful to jot down some targeted questions for clarification as you review the job description and résumé. Keep your list of questions in front of you during the interview.

Try this technique in your next interview; you will be surprised how much you learn. You can also mix up the types of questions you ask, but ask more open-ended questions since they require more thought on the part of the interviewee and will help he/she open up. Ask two or three hypothetical questions that are framed in the context of an actual job situation. Feel free to ask an off-the-wall question to see how the candidate thinks on his or her feet.

Pay attention to the candidate’s answers; don’t rehearse your next question in your mind. Although you have your questions written down, don’t hesitate to veer from those if you want to reword or follow up on something, or eliminate questions that were already covered.

After you’ve given the candidate a chance to ask questions, close the interview by thanking him/her for his/her time and tell him/her when to expect to hear from you.

As soon as the candidate leaves from the interview, collect your thoughts and write down your impressions and a summary of your notes. Collect feedback from any other interviewers while the interview is fresh in everyone’s mind.

You’ll find that if you focus on your business needs during your interview process you’ll find the best new hire every time.

 

David Romano is the founder of Romano Consulting Group and Benchmarkinc, a group that provides consulting, benchmarking,
recruiting and software solutions to the flooring, home improvement and restoration industries.

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Lisbiz strategies: Taking shortcuts can hurt your business

May 8/15, 2017: Volume 31, Issue 24

By Lisbeth Calandrino

 

Lisbeth CalandrinoWhen you first opened your business you most likely did everything by the book. You took your time completing tasks to make sure everything ran properly. Fast forward a year or two and the corners of that book were probably cut to save time and money.

Why do we take risky shortcuts in business, and where do these shortcuts usually happen? Do we only “fess up” when we are caught?

Here are five areas where we should stop taking shortcuts:

1. We pretend that social media doesn’t matter. I recently spoke at the Chicago Floorcovering Association’s product show. Most of the attendees were aware of social media and looking to learn new tips that would improve their relationships with their customers. For the “smart” businesses, there is no more pretending that putting up a social media site is all you have to do to have a successful site. You need a social media marketing strategy so you know what you want to achieve.

At the show, the audience shared some great experiences they had with social media and their customers. Social media matters if you are interested in building important connections with your customers.

2. Do you show a customer a cheaper product because you think she can’t afford the one she wants? How many times have we prejudged a customer because she didn’t look like she had enough money? The more experience we have, the more likely we are to prejudge.

Prejudging gives us a shortcut. Sometimes we are right and other times we’re wrong. For example, you are in the supermarket and there are four lines to the cashier. You decide to take the shorter one because you think it’s the quicker line. All of a sudden you notice the customer in front of you has about $500 worth of groceries. In this instance you assumed wrong; you’re now in the longer line.

3. We don’t believe in warranties so we don’t explain them to the customer. I cannot tell you how many times sales people have said, “Warranties don’t really matter, and they’re all lies.” As a certified carpet inspector, when we look at a complaint we look at the manufacturer’s warranty to see if the customer has followed the specified guidelines. If she hasn’t, the claim can be denied.

4. How many things do you put off until tomorrow? This is something we’ve all done. Putting things off only makes them worse, especially if we think it is going to make the other person unhappy or angry. While we’re antagonizing, our blood pressure soars and our stomach rumbles. Over the years, procrastinating only escalates the problem. When we put something unpleasant off we’re saying, “I can’t do it or I don’t want to do it.” This doesn’t raise your self-esteem—it just makes you feel more helpless. How about making a list and tackling those tough problems? In fact, make a list for the year and get at it. If you’re like most people, you probably have a list a mile long with things left over from last year.

5. Do you spend your time preserving the status quo? Nietzsche called this “amour fati”—loving one’s fate. In his final book Nietzche wrote, “One wants nothing to be different, not forward, not backward, not in all eternity.”

Taking shortcuts might seem like a quick fix, but it can ultimately hurt your business. Avoid the pitfalls and prosper.

 

Lisbeth Calandrino has been promoting retail strategies for the last 20 years. To have her speak at your business or to schedule a consultation, contact her at lcalandrino@nycap.rr.com.

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Distributors' perspective: Life lessons learned from ‘Moneyball’

May 8/15, 2017: Volume 31, Issue 24

By Dunn Rasbury

 

Screen Shot 2017-05-15 at 2.14.27 PMA few years back, I read a book by Michael Lewis called “Moneyball.” The story is about the Oakland Athletics Baseball team. In 2002, the team’s general manager, a guy named Billy Beane, was faced with a huge challenge: field a competitive team using a little more than half of the average MLB team payroll. This disparity forced him to look at the “value” of a player differently.

The moral of the story is that by using specific statistical metrics instead of traditional baseball evaluation techniques, he was able to create a team that won 20 games in a row, went to the playoffs and in many ways revolutionized the game of baseball.

The idea of using non-traditional criteria to judge talent intrigued me. It seemed to me that the “old, tried-and-true” method of judging sales potential was “knowing” the customers, the products and the industry. It struck me that those attributes can be learned. What can’t be learned is a high energy level, work ethic and competitiveness. Certainly, it would be ideal to have all of the above but we all know those candidates are few and far between. Maybe hiring on intangibles and then committing to a robust training protocol is a better recipe for long-term sales success? Of course, this would require a greater commitment to sales training than is traditional in our industry. However, if we could get the personality criteria and the training paradigm to align, we could realize a much greater ROI on our sales force investment.

Using specific analytical metrics is a relatively new concept in our flooring world. In the future, analytical data will be the foundation that all sales functions rest. High-performing sales teams are already to one degree or another making themselves more efficient because of the data they gather and use. Think of the efficiencies to be attained if we had empirical data that told our individual sales team members where and with what products they were most likely to have success. Just as valuable would be data on product categories by region or demographic. Aside from sales, think of the money saved in inventory efficiencies by the use of advanced analytics. The new generations that are just beginning to impact the compositions of our sales teams are going to force companies to use such techniques. Millennials, Gen-Xs and Gen-Yers grew up in a world where virtually anything you wanted to know was literally at their fingertips.

There is also an opportunity to leverage technology through things like e-commerce websites and logistics automation that would allow distributors to enhance the “customer buying experience” while still keeping costs in line. Our customers’ expectations of how they purchase product in business is influenced by their customer experience when they buy online. Think of how much more inclined our customers would be to buy from distribution if we could give them an “Amazon-like” service model.

Like most things in life, sales and—to larger extent—running a company, has gotten simultaneously easier and more complicated. It’s the companies that can hold true to their core values yet still leverage the power of innovative, non-traditional thinking and ideas that will win the day.

 

Dunn Rasbury is distributor director, NAFCD, and director of flooring for A&M Supply, Atlanta. He is also a strategic planner, product line developer and sales team builder.

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Al's Column: Choosing the right business entity profile

May 8/15, 2017: Volume 31, Issue 24

By Roman Basi

 

(First of two parts)

Screen Shot 2017-05-15 at 9.35.04 AMIn the past, choosing a business entity under which to operate was easy. Either businesses operated as a sole proprietorship, a partnership or they incorporated as an “S” corporation or a “C” corporation. There were clear advantages and disadvantages to each one. The sole proprietorship and partnership had the advantage of simplicity and lack of formal arrangements. The C corporation was for national companies, and the S corporation was for those individuals needing asset protection and a formal entity in which to operate.

Today the business structure is not a default arrangement. Businesspeople have an alphabet soup of business types from which to choose. Though many of the new forms offer limited liability and single layer taxation, the tax and legal differences are not nearly as clear as they used to be. This series will discuss three types of business entities and point out some subtle and not widely known differences between the chosen entities.

All three entities are excellent for any small businessperson to operate a company. When deciding which entity to operate under, the owner must take into consideration legal liability, tax circumstances while operating and dissolution, the person’s goals and the size of the operation among other factors. Tax circumstances are of utmost importance when choosing an entity. However, ease of transferability, legal protection and other factors are affected under each entity type.

Limited liability Co. With an LLC, there are no restrictions on ownership. An S corporation, on the other hand, has restrictions. To hold an S corporation status, one must be a resident and citizen of this country. Also, no more than 100 people are allowed to own stock. If the requirements are violated, the company losses its S corporation status and it can’t attain that status for years.

Screen Shot 2016-07-15 at 3.49.34 PMWith an LLC, these restrictions do not exist and its status is not jeopardized. While most LLCs will maintain membership of well under 100 members, the option or ability to expand the number of investors rapidly does exist. Many immigrants just starting business can benefit from this classification as well without suffering from double taxation.

While there are formalities with the LLC, failure to follow usual formalities is not grounds for imposing personal liability. This is a major convenience and aids in limiting liability. The other types of businesses identified here are all subject to being disregarded as an entity if the owner does not obey formalities. This is what is known as “veil piercing,” which happens when company owners don’t observe formalities in paperwork, meetings and otherwise use the business as an “alter ego.”

While the owner of the business cannot use the company to defraud people out of money, the LLC liability protection does not require the formality by which corporations must abide. Hence the LLC can be a better insulator against liability if maintenance of meetings and documents is going to be an issue.

Shares of an LLC are easier to put into a trust than an S corporation. To put shares of an S corporation into a trust, special trusts must be used. It can be somewhat complicated and LLCs tend to work very well instead of S corporations if you want to transfer ownership through a trust.

With an LLC, no unemployment taxes are due on income—unlike both the C corporation and S corporation. While this is not a huge tax savings it is significant. If your business is going to make less than $10,000 per year, LLCs might be the way to go. If you’re an at home business, this is particularly important.

Part two will cover the pros and cons of the other entities.

 

Roman Basi is an attorney and CPA with Basi, Basi & Associates at the Center for Financial, Legal & Tax Planning. He writes frequently on issues facing small business owners.

 

 

 

 

 

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Armstrong agrees to purchase Mannington's VCT business

logo_manningtonSalem, N.J.—Mannington Mills has signed an agreement to sell its vinyl composition tile (VCT) business to Armstrong Flooring. The transaction is expected to close in the 2nd quarter of 2017.

This transaction is an adjustment to Mannington’s product portfolio, according to Russell Grizzle, president and CEO of Mannington Mills. “The decision to sell the VCT business is in line with our long-term growth strategy and opens up opportunities for us to invest in high-growth high-profit markets and categories.”

VCT is designed for the heavy traffic experienced in schools, grocery stores and other commercial applications. Mannington entered the market in 1990, with manufacturing located in Salem, N.J. The site is also home to Mannington’s headquarters as well as all commercial and residential sheet vinyl manufacturing operations, which will continue to operate as usual.

“Mannington’s successful history is based on growing our business through a combination of innovation, customer focus and investment in opportunities in mid- to upper-end flooring product categories,” Grizzle said. “We remain committed to a strong U.S. manufacturing base, to our surrounding communities and to our valued distributor partners and customers.”

Armstrong Logo 2016Armstrong Flooring president and CEO Don Maier shared the company’s enthusiasm toward the transaction. “It gives us a good opportunity to increase revenue within the well-structured VCT category which has historically generated above-average profitability within our product portfolio. We expect this transaction to be accretive to earnings in 2018 as we drive profitability through improved capacity utilization and scale using our existing facilities and distribution system. We have a strong history and deep expertise in VCT which makes this acquisition consistent with our strategy to support our legacy product lines while simultaneously investing in innovation and new growth initiatives to help us realize our medium-term goals.”