The Old “Borello” Test

Prior to the California Supreme Court’s ruling in Dynamex, the Borello test prevailed. Under the Borello “economic realities test,” courts first evaluated whether the person to whom service is rendered has the right to control the manner and means of accomplishing the results desired. Then, a number of additional factors are taken into consideration, none of which are dispositive on its own, but all of which are evaluated in the totality of the circumstances. These factors generally included:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
2. Whether or not the work is a part of the regular business of the principal or alleged employer;
3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
5. Whether the service rendered requires a special skill;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job; and
11. Whether or not the parties believe they are creating an employer-employee relationship.

The New “ABC” Test

The Supreme Court in Dynamex reevaluated the multi-factor Borello test, and as a result there is a new, three-factor “ABC” test used when evaluating whether a worker has been properly classified as an independent contractor. The Court held that the analysis begins with the rebuttable presumption that a worker is an employee and that an entity classifying a worker as an independent contractor bears the burden of rebutting the presumption by establishing each of the following three factors:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Failure to satisfy any of the three factors of the ABC test results in a finding that the worker is an employee and not an independent contractor.

What This Means for Hiring Entities

The new ABC Test provides a more rigid framework for compliance and less flexibility in the “grey” areas. As a result, hiring entities should be cautious when classifying workers as independent contractors to ensure that the worker’s classification will satisfy the ABC test. Hiring entities are encouraged to seek the advice of experienced legal counsel whenever classifying certain workers as independent contractors.

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Why video? To some, that may seem like a dumb question, but’s not. In some professional circles, video is what used car salesmen do. It’s what schlocky ambulance chasers use. And it’s what millennials use, not professionals.

According to MWP Digital Media, 55% of people watch videos online everyday.

According to Tubular Insights, 54% of senior executives share work related videos with colleagues weekly.

And according to Wistia, people spend on average 2.6X more time on pages with video than without it.

So, Mr. DeMille, we’re ready for our closeup!

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The are people in companies that feel like outsiders and because of such, their production and participation is not what it should be. Stephen Frueh calls these employees “orphans.” Workplace negativity is an issue many employers face. It leads to decreased creativity, communication, teamwork and motivation. So indentifying what types of negative employees an organization has is important so that business owners and managers can help them achieve goals effectively. Read more about this in Stephen’s article, “Eliminating Negativity In The Workplace.”

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Here’s a link to a short but interesting video on Tony Fadell, the guy credited with bringing us the iPod. In it he talks about his pre-iPod days, some missteps, and some breakthroughs. It’s certainly worth the 3-some minutes it takes to watch.

http://www.inc.com/chris-beier-and-daniel-wolfman/apple-ipod-inventor-tony-fadell-innovation.html

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When I meet someone who is very successful and busy making money for someone else, I ask, “Have you ever thought about running your own business?”

More often than not, I hear many of the excuses that Jeff Haden brings up in his post on Inc.com entitled, “15 Worst Excuses Not to Be an Entrepreneur.”

These are some of the classics:

• I’m too scared.
• I don’t have the right connections.
• I’m too late.
• I don’t have the money.
• I can’t take that risk.

and my personal favorite:

• It’s too hard.

Having run my own business for more than 16 years, I have had many times of it being hard. Sure, I’ve had sleepless nights, but when I look at the quality of my life, I wouldn’t trade it for the world. As Haden says, I’m living my life on my own terms. Immense joy and freedom comes from that. You should try it. •

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The Individual Buyer

Third In A Series

Most owners of small- to mid-sized businesses gravitate toward this buyer when it comes time to sell. Many of these buyers are mature (aged 40 to 60) and have been well-seasoned in the corporate marketplace. Owning a business is a dream, and one many of them can well afford. The key to approaching this kind of buyer is to find out what it is they are really looking for.

The buyer who needs to replace a job can be an excellent prospect. Although owning a business is more than a job and the risks involved can frighten them, this kind of buyer does have the “hunger”– and the need. A further advantage is that this category of buyer comes with fewer “strings” and complications than many of the other types. •

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The Foreign Buyer

Second In A Series

Foreign buyers tend to arrive in the United States with plenty of funds and a huge desire to share in the American Dream. In addition, many have difficulty obtaining jobs in their previous professions because of language barriers, licensing, and specific experience. As business owners, at least some of these problems can be short-circuited.

These buyers work hard and long and usually are very successful small business owners. However, their business acumen does not necessarily coincide with that of the seller (as would be the case with any inexperienced owner). Again, a business broker professional knows best how to approach these potential problems.

Important to note is that many small business owners think that foreign companies and independent buyers are willing to pay top dollar for the business. In fact, foreign companies are usually interested only in businesses or companies with sales in the millions. •

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Family Members

First In A Series

Members of the seller’s own family form a traditional category of business buyer: tried but not always “true.” The notion of a family member taking over is amenable to many of the parties involved because they envision continuity, seeing that as a prime advantage. And it can be, given that the family member treats the role as something akin to a hierarchical responsibility. This can mean years of planning and diligent preparation, involving all or many members of the family in deciding who will be the “heir to the throne.” If this has been done, the family member may be the best type of buyer.

Too often, however, the difficulty with the family buyer category lies in the conflicts that may develop. For example, does the family member have sufficient cash to purchase the business? Can the selling family member really leave the business? In too many cases, these and other conflicts result in serious disruption to the business or to the sales transaction. The result, too often, is an “I-told-you-so” situation, where there are too many opinions, but no one is really ever the wiser. An outside buyer eliminates these often insoluble problems.

The key to deciding on a family member as a buyer is threefold: ability, family agreement, and financial worthiness. •

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But how do you know what to do? It’s easy—just read How To Save On Your Next Office Lease by Mazirow Commercial founder and president Sheryl Mazirow. It’s a great feature article loaded with great information on what to look for, how to save money, and ways to negotiate better terms.

One of the key takeaways offered by Sheryl is that one needs to recognize that landlords lease space all the time. Tenants only lease space every few years at best. By engaging a good leasing professional, you won’t have to go to the negotiating table alone. And what’s more, their services to you are typically free (they’re paid by the landlord out of the lease).

So if you don’t want to get taken for a ride on your next office lease, don’t go to the table alone. Read How To Save On Your Next Office Lease. Special thanks to Sheryl for contributing this great piece. (For more information on Mazirow Commercial, click here to visit www.tenantadvisory.com.)

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Facebook just went public. Initial valuation estimates were between $90-120 billion. In some people’s minds, this company was worth more than McDonald’s, Bank of America, Kraft Foods and/or CitiGroup before a single share of stock was sold. Really? Yet, look at the hit the stock took on its second day of trading. Where is its real value?

Facebook does have more than 900 million sets of eyeballs that make up its user base. There’s definitely value in that. But how much value? Currently, it’s generating a couple bucks of revenue per user annually. That’s not much, and it’s far below the industry norm. Google generates nearly 8 times that in per-user revenue. What does it mean when General Motors just pulled its plug on advertising on Facebook since it was not helping them sell cars? Certainly nothing good.

Other than users, what are the assets? McDonald’s has recipes, stores, franchise revenue streams, real estate, trademarks and subsidiaries generating tons of revenue. Bank of America has loans, fees, credit cards, mortgages and other revenue sources.

I’m reminded of AOL, which if you recall, was sold in 2000. It was valued somewhere north of $150 billion, only to become one of the largest value declines in history. It’s currently estimated to be valued at around $5 billion or less.

What is a company worth? Or a product? Or a piece or art? Well, the simple answer is, “What someone will pay for it.”

Here at Southern California Professional, it’s fun to follow the rare big business news such as the Facebook IPO, but we live and breathe the realities of everyday business. We’re more concerned with your business, your clients and your products and services.

Maybe you’re an M&A attorney or an accountant helping a client buy a business. Maybe you’re a business owner who someday wants to sell your business, but your biggest concern is making it more profitable now. You live in a more realistic world of day-to-day business.

You’ve come to the right place. We’ve put together another issue full of business, legal and financial insight to help you do better at what you do. The information in this issue will truly help you find and increase the value of your business. So sit back and enjoy another great issue of Southern California Professional Magazine! •

Jerri Hemsworth
Publisher

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