Today I’m talking about…

If you have listened to my other videos, you heard me talk about the annual meeting. If you’re a corporation, you are required to have an annual meeting. When you went to the Secretary of State and you filed that paperwork, that was part of the contract you have with the Secretary of State. You are supposed to hold this meeting once a year; it’s a legal requirement. Now, however, if you are not a corporation, I still recommend it, because the annual meeting is a great place to review what has happened toward in the past year and what will happen in the years to come. And plus, if the IRS bothers you, you can just say, “Look, this was planned, this is systemic. We’re not just random here but we actually have a system for making decisions.”

So now that you know the annual meeting is a legal requirement, how do you run one? Well, I’m sure glad you asked that question, because that’s what I’m here to talk about today. The annual meeting starts with a notice of the annual meeting of shareholders. Now, I know, I know, some of you might just be the sole shareholder, so it’s like, “Hey, why would I give myself a notice?” Well, you can just do that anyway, just give yourself a notice saying that you are going to schedule this meeting and its part of your schedule. It’s like an appointment with yourself. Because here’s the thing, if you don’t plan it, you probably are not going to do it. Another thing you can do is invite your accountant, or even get some consultants to consult with you during this meeting as far as where your strategy is going.

So, the notice of annual meeting starts with a name, which is probably going to be your name, the company name, address, state and zip code of your business, then who are you writing it to. If it’s you, obviously, you write it to you. And then, “Notice is hereby given that the annual meeting of the shareholders of,” company name, so the wording, which you can use this template to put your wording; where the meeting will be held out. Then you attach the agenda, and then you also include a proxy in case the person’s unable to attend. Like I said, if it’s just you, invite a consultant, invite an accountant. That helps you plan and think forward.

Now let us talk about the meeting agenda. What kind of things should you have on your agenda? Let’s think about that for a second. If I were a business owner, do I want to waste this time even if it’s with myself? Talking about stuff that doesn’t really matter, just to meet some state requirement? No, I don’t. If I were in this position, what I want to do is talk about strategy and how to be stronger going forward. So, besides the things the IRS would like to see, such as how you determine officers compensation and distributions, you also want to talk about financial matters that actually concerns your business going forward. Take this as your annual planning strategy session. You can combine both together, that way you can get the most use of it. So even if you don’t get your consultant on board or you don’t get your accountant on board, even just you taking the time to think things through is helpful. It’s more helpful when you have other people thinking things through with you, but it’s even helpful when you do it yourself. It’s more helpful… Even though I’d rather you do it with someone, but doing it alone is way better than not doing it at all.

So, obviously when you start the meeting, you want to have a call to order, roll call, just the normal meeting stuff. Just get that. Those don’t take more than a minute. Then you talk about the open issues, you look at your accountant and you say, “Am I happy with this accountant? Do I want to retain? Do I want to go somewhere else?” It’s important to review your accountant every year because if they’re not working on your behalf maybe it’s time for you to look for somebody else. Financial matters, including distributions, where are you? Where were you in the past? I would talk more about that in person. How you determine officers’ salaries and bonuses. Any new business. Talk about the financial reports. And then once you’re done with that, you can adjourn the meeting.

So, during the meeting you want to keep minutes, and this is a great template for you to keep track of what is important. You just fill in the blue shaded areas. You write the business name, the location, the date, the call to order time, the people in attendance, the retainer of accountant, talk about that, to keep or change, make your choice. And that someone motions to approve, and then someone seconds it, and there it is, you have your resolution. Talk about the next issue, the financial matters including distribution. Talk about what capital needs, so that’s based on the plan you need going forward. So, we’ll talk about that, how you come up with that amount. And obviously once you do that, you determine the percentage of funds to distribute, and then president’s salary will be… You talk about what that is. And you should have a kind of formula you use to determine compensation.

Technically, you want to pay your officer market rate, but however, a lot of businesses usually don’t have, especially small businesses, don’t have the funds to pay their officer’s market rate. So you should have a way you actually determine compensation for here. So, for example, maybe the officer is expecting to work $200,000 a year, the market rate is $20 per hour, so the required pay will be $40,000. But however, estimated profit’s worth $50,000. And then they do plan to reinvest $25,000 to expand and grow, so that’s available for only owners, people with $25,000, so that’s the most they can pay. Now, so since that’s the most they can pay, obviously, he’s not going to get dividends because you should try not to start taking distributions until you’re actually compensating the officer full market rate, that should be done first. At least worth what he’s putting into the business. And then once you determine that, you track that, how you determine compensation, and then if there was a distribution because you have excess earnings, how much was approved, and when the schedule is, when it will be distributed, any changes to the operating agreement, any new business, and when it was adjourned. So, you just keep track of what was talked about in the meeting. Like I said, this template is a great place to go and down and document what you guys are talking about.

So, let’s talk about what kind of financials you want to review at this meeting. Well, if you’ve been in the business by at least 10 years, you want to have at least 10 years’ worth of data to show how your business is going over the years. Obviously, if it’s less than 10 years, you have 10 years less worth of data. So, you want to go ahead and… This template, you can just go ahead and put your net income and net sales and add-in cash for the last 10 years; if you have less than 10, put less than 10, and it creates a chart for you to show how your business is growing or not growing over the years, so you can kind of see. ‘Cause I do believe when you can visualize what you’re doing, it’s easier for you to visualize how to do better, but if you can’t visualize how you’re currently doing, you can’t do better if you don’t currently don’t know what you’re doing. You can’t change what you don’t know. For you to change, you first need to know.

So, you want to look at that. That’s a great financial data to review at least once a year. You want to look at your top five income sources, which business sources… Like let’s say your business, you offer various services and products, which ones are doing the best? You want to go ahead and look at that, see how it’s done the current year, see how it’s done the prior year, and just compare. You do the top four and then everything else is classified under other. The same thing with your top five expenses. Where are you spending the most money? How is that growing? Compare that. The less you have to look at, the easier it is for you to make decisions. When you have too much data, your mind cannot pull it all together to make useful decisions. The more you can condense your data, the better decisions you can make.

And the other thing you want to do is review. You want to review your mission, vision, objectives. Are you sticking to it? Are you away from it? What were the goals you set at your last year meeting? Did you achieve it? Did you not achieve it? So just go ahead and write the goal, achieved, not achieved, you talk about it. Why wasn’t it achieved? Why? Any notes, just put that in there. And then what’s your plan going forward? What are the challenges you have in the marketplace? Are you positioned in a growth market? I just find it so amazing how some small business owners say, “I’m going to double my business next year,” but hey, not that many people need what you have to offer. So if the market is not really demanding your services, you’re probably not going to grow as much as you think you can grow.

Is one of the challenges limited internal resources? That’s a big one. Lack of cash to grow operations, that’s another big one. Those are the three top challenges I see that faze business owners to move forward. So, what strengths do you have? Do you have a good management system? Are you the top in the field? You want to figure out what your strengths are, what opportunities do you see in your market. What threats? Is the competition increasing? Is there a patent law change that will affect your business? At least it’s important to just look at this things and see them and know like, “Okay, here’s the challenge I have, here’s the strengths I have, here are opportunities, here’s a threat. How do I combine this?” And once you do that, you want to create a plan. What’s the plan, what’s the expected gains, how much investment is required, what’s the ROI. So, based on this, this is how you determine how much you need to reinvest back in the business.

So, going back here where it says, capital needs were determined as… Well, you determine that here in your plan, those are your capital needs you’re going to determine. And then once you determine that, then you can now start making decisions about, “Okay, I’ve determined my capital needs, I can pay officer this, based on what I project, we’re going to do next year and then we can declare the dividends or we can’t declare the dividends.” Dividends shall only be 20% of what we intend to keep.

Now let’s look at a specific example of how capital contribution needs to be determined. In this example we can see that the market pay for this owner is 40,000, have anticipated profit is 50,000. Now, based on the plan, so this is the plan they have, they do intend to invest $5000. So, if they’re investing $5000 and they have profit of $50,000, they have $45,000 available owner’s pay, which makes it, that they can actually pay the full market of 40,000. So, now since they can pay the full market, the owner can also get some distributions. At the board meeting it was determined that a percentage will be 20% of what was available for distributions. So 20% of what’s available is $1000. And then the total capital needs is $5000, available from profits is $50,000, so there’s no capital contributions required. So when you look at the minutes, you can see how the present variables was determined, you can see how distributions were determined, and at this point, we don’t have any capital needs.

Once you’re done with that, you can go ahead and adjourn the meeting, and then file the meeting minutes and everything with your corporate documents. If you ever have to defend yourself in court or the IRS ever ask you, “How did you come up with your numbers?” This is great documentation to show them like, “Look, I do have a system in place. And it just wasn’t that random.” This is actually great way to protect yourself.

So we have learned how to conduct an annual meeting. Specifically, we learned how to create a notice and give the notice out, how to create your agenda. How to determine officers’ compensation, officers’ distributions or dividends, how to determine capital requirements, why annuities are important and that annuities are a good place to document important decisions in the business. This documentation protect you in the case you have to go to court or if the IRS requires more information. It’s a very great way to protect yourself.

So, you can go ahead, this course, this annual meeting is part of the audit proof your business course, you can access this course by clicking the link below, and if you want the template, you can purchase it in the link in the annual meeting lessons at the very bottom, it’s a link to the template where you can purchase the annual meeting template.

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