How can I recapture excessive options?

November 2011

"I was way too generous about handing out stock options when I launched my company. Now I've ended up with a couple of executives who don't contribute much but stand to collect an unfair share of our option pool when we sell the business. How can I readjust their shares"

Mike: There's not much you can do about shares that have vested. That's water under the bridge.

But you have a good deal more leverage with any options that are still unvesteds. Take a look at the employment contracts you have with these guys. It's likely you'll find some contract language about negotiating "changes" in compensation. That usually means raises, but it can also mean pay cuts. In other words, if they want to keep their jobs, you can require them to give up their unvested options.

How can I get tax information from a free-lancer?

April 2011

"Last year I hired a free-lancer online to do some work on my Web site. Now she refuses to give me her Social Security number or address so I can send her a 1099 form. She claims she's a 'business' and I shouldn't report what I paid her to the IRS. Advice?"

Mike: There's not much you can do about this situation. Go ahead and prepare a 1099 anyway, and try to find the free-lancer's mailing address on the Web. The IRS will probably charge you a small penalty (about $50) and may hold you responsible for taxes not withheld (28%) if your free-lancer is deliberately under-reporting her income--which seems likely.

In the future, you should insist on getting a completed W-9 form from every contractor you hire, no matter how small the payment. It's a lot of red tape, but the little exceptions are the ones that always seem to create the worst hassles.

How should I deal a payroll emergency?

November 2009

""Help! My largest customer just told me they need more time to pay me, so I won't be able to make next week's payroll. What do I do now?"

Mike: First, put a freeze on all outgoing payments--no exceptions. Then review all possible cash sources, including your investors, bankers, factors, customers, creditors, and even your employees. You may be pleasantly surprised to find an "angel" who can float a bridge loan that gets you through the crisis.

If you can't come up with a quick infusion of cash, immediately let your directors and your CFO know about the problem (if they aren't already aware of the situation). Legally, you and they probably have some personal liability for net employee payroll plus federal and state taxes. Chances are, your board members will decide that it's better to lend money to the company than to get stuck with tax and payroll liabilities. But they won't be happy about the situation--or with you.

Since this kind of problem is likely to happen again, you need to reduce your company's overall financial vulnerability. That probably means some layoffs and serious cost-cutting. If a single delayed payment puts you in a financial tailspin, your company is severely undercapitalized.