Situation: A company has been looking at alternatives for expansion but would be willing to stay in their present site if the landlord is willing to lower their rent without requiring more time on the current lease. Another option would be to purchase a building and lease out extra space until they need to expand. The CEO seeks advice on how to move forward. Do you more or negotiate a lower rent?
Advice from the CEOs:
Much has to do with the current real estate market. If the market is slack, there are more options whether the decision is to move or renegotiate the rent with the current landlord. However, if demand for space is high then landlords and sellers have the upper hand. This is a classic demand-supply situation.
Investigate lease buy-out options if the decision is to move. Better yet, if the decision is to move ask the new landlord to pay off the old lease.
For the money required to move an operation of substantial size, why not buy? In this case, the decision is balancing the size of the down payment with the company’s current cash position.
If the decision is to buy, consider creating an LLC to purchase the property and fund the purchase through a Small Business Administration loan.
The Devil’s Advocate Perspective while you make the decision: don’t worry about the least until it runs out. Instead focus on making as much money as possible and prepare for a move closer to the end of the lease. Renegotiating a lease and looking for a building at this time can consume a lot of time.
Situation: A company allocates 10% of pre-tax profit to a Bonus Pool. Employees qualify for quarterly bonuses based on company and group performance, and for semiannual bonuses based on individual performance. Last year not all funds were paid out of the pool because some employees failed to hit performance targets. What’s the best and fairest way to allocate the excess funds in the pool?
Advice from the CEOs:
Why not let the pool be the pool? Employees will or will not qualify for bonus participation based on individual and group performance. The company determines who qualifies at each level and these individuals become the pool participants, splitting the full pool in proportion to their level of qualification and their salary.
Not all companies will do this based on pay and bonus level policies. For these companies there are options on what to do with unpaid bonus funds in the pool:
Leave the funds in the pool for future distribution;
Shift unpaid bonus to Retained Earnings; or
Retain a percent of the funds in the pool and shift the rest Retained Earnings.
Another consideration is whether to use discretionary or metric criteria to determine bonuses. Some companies use only or primarily metric criteria, others use discretionary criteria, and some use a blend of metrics for one portion of the bonus with the remaining portion discretionary. The rationale behind discretionary criteria is to give managers the opportunity to recognize extraordinary contributions that fall outside the normal metrics.