When to use stock photos; how to minimize taxes when selling a business.
Q I bought a stock photo of a dog for my website and it has become our unofficial mascot. Recently, I discovered that another pet site is using the same photo. Can I stop the site from using it?
Chicago Ridge, Illinois
If your rival bought the stock photo just as you did, there's nothing you can do to keep her from using it now. And therein lies an important lesson about using stock images. Sure, they're cheap--as little as $1 per image from companies such as iStockphoto and Fotolia. But for marketing purposes, they're really only appropriate for quick-hit campaigns, warns Tim Pedersen, CEO of Right Brain Branding Consultants in Miami. True branding, by contrast, is like dressing for the Academy Awards: Off-the-rack won't cut it. Most stock photo companies will let you pay extra--starting at several hundred to a few thousand dollars--for a licensing agreement or a copyright buyout that will give you exclusive use of a photo going forward. But anyone who has already downloaded the image, including your competitor, can continue to use it fair and square. (Many stock photography services stamp each image with the number of times it has been downloaded, which can help you decide whether the exclusivity is worth the extra expense.)
Another option is to ditch your stock image, commission an original photo, and buy the rights in full. The cost of studio time, models, and sitting (or in this case, heeling) fees varies greatly, but you can probably get out for under a couple thousand dollars. Websites for the American Society of Media Photographers and the Professional Photographers of America should list photographers in your area who specialize in animal work.
However, your best bet may be to hire a graphic designer to create a line drawing or stylized image. Trying to duplicate the stock photo is dangerous territory, but you can specify the breed of dog and facial expression you'd like. Graphic art is a sophisticated branding option, says Pedersen. It's also easier than photos to update and reproduce. (The RCA (NYSE:SNE) pooch, Nipper, is still going strong after more than a century in people years.) For small businesses, creating a logo costs between $1,500 and $5,000, according to the Graphic Artists Guild. The American Institute of Graphic Artists has a searchable database of designers.
And don't worry: Swapping mascots won't cause loyal customers to turn tail. "Your customers have a relationship with your company," says Pedersen. "If you're building a good core business, they'll love you, not the logo."
Q I'm thinking about selling my retail store, but I'm worried about taxes. I've heard that I can defer taxes by buying another company with a "like-kind exchange." How does this work?
There are two ways to sell your company--you can sell the stock or the assets. Most small stores are sold as assets. Typically, the buyer purchases your real estate, inventory, and company name. Buyers love this arrangement because it reduces risk (you remain liable for past misdeeds) and they can write off the asset purchases as expenses, lowering their tax bills. But sellers pay taxes twice--first on corporate income (as high as 38 percent) and then on capital gains (15 percent).
Enter the "like-kind exchange" (a.k.a. a 1031 exchange), which allows you put off that bill. In essence, the IRS will let you defer taxes on the sale of an asset--such as your building or company car--if you buy a similar asset within 180 days. Unfortunately, this doesn't work with what are termed unlike assets. You can sell your store and buy another equally priced commercial property, but not, say, a new vacation home. Another downside: The IRS scrutinizes this kind of transaction closely, and fees to accountants and lawyers can easily reach into the tens of thousands of dollars. "The money you save will probably get chewed up," warns Steve Brodhead, a Los Angeles business broker. And remember: To defer is not to avoid. You'll have to pay those taxes the next time you sell.
A better approach is to talk the buyer into a stock sale, says Leonard Levine, an accountant in Boca Raton, Florida. With this arrangement, he buys your C corp. and assumes your liabilities. More importantly, you pay only capital gains tax. Try reminding the buyer that by purchasing your entire company, he avoids having to renegotiate contracts with suppliers. If he's concerned about lawsuits over your past sins, offer to indemnify him and place a portion of the sale in escrow.
If you do sell your company as stock, you can defer capital gains tax by buying another company, provided both meet the IRS definition of a "qualified small business" and you complete the transaction within 60 days of the first sale (it's called a Section 1045 rollover). That's certainly a time crunch, and you'd be swapping one business you know well for one you don't. Given that you're only paying 15 percent in taxes, consider the possibility that those 60 days would be better spent relaxing on a beach somewhere. After all, there are two certainties in life, right?
Visit the American Society of Media Photographers' website (asmp.org/commerce/buyer.php) for tips on buying photography. For an in-depth guide to selling a company, read Sell Your Business Your Way: Getting Out, Getting Rich, and Getting on With Your Life by Rick Rickertsen and Robert E. Gunther.