Wilkes-Barre Business Law Blog

Considerations for companies planning to buy real estate

Many Pennsylvania entrepreneurs are interested in investing in commercial real estate. A property investment can provide much-needed space for office activities, retail, storage or other business activities. In addition, this purchase can be a long-term positive that goes beyond simply a space to work or do business. There are some key guidelines that business owners can keep in mind when planning for a real estate acquisition.

When deciding to purchase real estate, businesses need to consider the long-term future rather than simply immediate needs. If an owner continues to run their business for some time to come, it is important to think about how long their potential space will fit the needs of the operation. They may also want to think about the potential of reselling the business property in the future. Business owners may also want to think about the value of the locations that they choose. This can include retail value as well as accessibility to customers. If a business relies on client visits or walk-in appointments, choosing the right location can be critical to success.

Some S corps switching to C corps for lower tax rate

The reduction of the top tax rate for C corporations from 35 percent to 21 percent established by the Tax Cuts and Jobs Act has prompted some Subchapter S corporations in Pennsylvania to become C corporations. Because this switch might require a change from overall cash method to overall accrual method accounting, the Internal Revenue Service published Revenue Procedure 2018-44 to clarify the process.

When an organization terminates its S corporation status to become a C corporation and is required to adopt the overall accrual method of accounting, an adjustment arising from 481(a) should apply. This adjustment begins the first taxable year after the S corporation revocation and continues ratably for six years. For businesses that make the switch but are eligible to continue using the cash method, the same adjustment can be applied ratably for six years.

Why social media is still an important part of business growth

More small business owners in Pennsylvania and other parts of the country are feeling optimistic about their financial situations. Results from an annual ranking of business optimism show that 80 percent of small business owners are positive about their finances. However, only 54 percent report having plans to boost social media presence. Part of the reason for this hesitation may be stats showing a decrease in users of major platforms like Facebook, Twitter and Snapchat.

However, social media can still play an important role in business development, growth and visibility. Email campaigns, well-developed websites and direct mailers can all be helpful. Even so, many customers prefer to turn to social media to seek customer service assistance, see what other customers are saying, or share how pleased they were with recent purchases or the service they received from a business.

Tips for securing investor capital

Pennsylvania startup creators should always be ready when an investor shows interest in their businesses. One way to convince someone to invest in a business is to have real-time data available. This can make it easier to demonstrate that the company is growing and has a product that people actually want to buy. It is important to note that a company doesn't necessarily need to be profitable to secure venture capital.

It is also no longer necessary to seek out funding from a big firm in Silicon Valley. When pitching a potential investor, a startup owner's top job is to show the possibility of long-term revenue growth. From there, an investor needs to know when and how an exit from the company occurs. To increase the odds of obtaining investor capital, startup founders should develop connections with the right strategic partner.

Understanding the ins and outs of commercial real estate loans

When it comes time to build a storefront or office in Pennsylvania, most business owners must apply for a real estate loan. These loans can be very complex, and that is why borrowers need to spend some time researching how they work and what types of financing options are available. With the right loan, an entrepreneur won't have to worry about an unmanageable payment plan or hidden fees.

Commercial real estate loans generally range from five to 20 years, and they usually require a final 'balloon" payment. That final payment, which is much higher than the other monthly payments, will pay off the outstanding balance. The interest rates for commercial loans are also much higher than the interest rates for private home loans. Business owners can sometimes lower their interest rates by providing additional collateral or investing some of their own money.

Time management for entrepreneurs

Entrepreneurs in Pennsylvania and around the country must manage their time carefully. Designing a website, creating a logo and drafting a company mission statement may seem like important tasks, but they do little to generate revenue. Instead of focusing on developing a business brand and identity, experts in this area recommend that entrepreneurs devote their time to tasks that will produce sales and bring in money right away.

This is important because most businesses are valued based on the revenues they generate rather than the cleverness of their marketing strategies. While unique selling propositions and innovative products or services may interest investors, they are generally reluctant to financially back nascent commercial ventures that have yet to prove that they can attract customers on a regular basis. Investors may also be deterred by entrepreneurs who seem overly concerned with matters that do not directly impact their bottom lines.

Commercial real estate market may not be as strong in 2018

According to the Mortgage Bankers Association's annual report, 2018 will not be as strong for the commercial real estate market as 2017. The group cites slow growth in net operating income and rising interest rates as among the reasons why anyone considering investments in CRE ventures in Pennsylvania may wish to proceed with caution.

On a positive note, solid income returns for commercial real estate investments are expected to continue. However, predicted slow growth may impact the rate at which property values increase. The Mortgage Bankers Association also believes the tax reform bill passed in 2017 could help offset the slower growth by boosting after-tax yields on real estate investments involving commercial properties.

Getting financing for a small business

Pennsylvania residents who want to borrow money for their small businesses may find it difficult to obtain financing. However, by taking time to plan properly, business owners can improve their chances of obtaining the financing they may need. The preparation entails making sure that they have documents pertaining to their financial history, a business plan and projections regarding their finances.

When meeting with a prospective lender, the business owner has to be able to tell his or her company's story to the lender, which can be accomplished by presenting the financial history of the business. For a business that has already been established, the owner should obtain three years' worth of personal and business tax returns. The lender will use these documents to detect trends in the business.

Preparing for construction mediation

Contract disputes occasionally arise between Pennsylvania businesses. Many companies are able to resolve their disputes through mediation. Some companies may have contracts that call for mediation in the event of a dispute while others elect to mediate their disputes so that they can continue to perform under their contracts.

Mediation involves the parties meeting with their lawyers and a neutral third party. The mediator works to facilitate a resolution to the issues. The parties who are participating are able to control the process and its outcome. Mediation can offer a way for construction businesses to resolve their differences without the expense of undergoing protracted litigation, making it a valuable process.

Strategies for avoiding or resolving construction disputes

Most construction projects in Pennsylvania involve substantial investments by both a project owner and contractor. Contracts form the foundation of their relationship. Careful consideration of every detail for the project, including the potential for disagreements between the parties, could prevent costly and time-consuming disputes.

During the development of a contract, the parties should pay close attention to clauses that guide the dispute process. These could serve as preventative measures that keep the parties out of court and on track for completing the project. Both parties should spend time reading the contract and discuss clauses that appear unclear or problematic and adjust them for clarity. Diligent efforts to calculate precise estimates, establish a building schedule and hire subcontractors during the planning phase could also limit problems once ground is broken.