Thursday, December 30, 2010

A New Year's resolution list for small business owners......

In the spirit of the holidays I've decided to give small business owners a ready made, no assembly required, New Year's resolution list. It's only 5 items and it's designed for every business owner.

Here's your list............ yes that means you!

  1. Smile more - business life is never as bad as it seems when things aren't going well. From a business perspective there is always a way out...always.
  2. Read more - I don't care how long you've been in business nor how smart you think you can learn something from someone else. I suggest that you read things that are not directly related to your industry. Skimming your trade journal every month to see who got fired is not real reading.
  3. Plan more - Set aside specific blocks of time, away from the office, where your only job is to think about your business 6 -12 months in the future. In spite of what you may believe, planning is not the same as updating a to do list.  
  4. Say thank you more - to your spouse, your parents, your kids (yep, I said kids), to your customers, to your employees, to your vendors, etc. You get the idea, right?
  5. Wish less, Do more - I recently read (see #2 above) that the best productivity tool in the world is to do something. Makes sense to me, we can talk about doing something or we can actually do something. If we're talking about doing something it's still on the to do list, if we actually do golly the list is shorter.
There's your ready made, easy to use list. And by the way it's my list also for 2011. And... thank you for reading this blog, I'll try to make it better than ever in the new year.

If you don't use this list I'd love to see your list! 

Happy New Year!!!

Sunday, December 26, 2010

Holiday Reading Ideas for a Better Business

My New Year's resolution (well, one of them anyway!) is to provide more tools for small business owners to start or buy a business, then grow it profitably and sell it! As part of that I am kicking off the New Year with a specific book recommendation. Although I can't say I agree with everything in this book it is loaded with ideas that might help get you focused on creating a business that you run, instead of a business that runs you.

Making Money is Killing your Business contributes greatly to the argument that running a business by the seat of your pants is not always a great idea.

A core and unique concept of the author Chuck Blakeman is that a business should throw off money and time. If you start thinking about your business this way I think it will change some of your decision making. In an earlier post, 'Tis the season...  I warned about creating an atmosphere in your business where you are cynical about your business and you lean on an "it's me against the world" view of ownership.

This book gives clear ideas and examples of how to mange that natural tendency.
Don't get hung up in the references to a specific industry. Analyze the concepts and I think you'll be able to apply improvements to your business quickly. Good luck and let me know what you think about the book.

Friday, December 24, 2010

‘Tis the season for presents…..want to give yourself one?

This post is for all the hard working business owners and those who one day hope to become business owners.

Far too many business owners live in a constant state of stress. Their reasoning is “it’s a good stress”. I’m no doctor but I doubt that stress 24/7 is really good for your health.

What do small business owners worry about most? Here’s my list based on discussions with thousands of business owners:
  •  Cash flow – too many bills at the wrong time.
  •  Employees – too many need baby sitters, not bosses!
  • Customers – Is perfection a reasonable expectation?
  •  Family – Why doesn’t my family appreciate me working 7 days a week? After all, I’m doing it for them.

Ok, here goes. You knew it was going this way didn’t you. The Uncle Joe talk… know, the uncle who told you exactly what he thought about your hair brained thinking when you were 12 years old. Well, I’m your Uncle Joe.

Here’s my recommendation for your New Year’s resolutions for 2011.
  1. Stop feeling sorry for yourself.
  2. Stop using your business as an excuse for not doing the family things that you just don’t want to do. Helping your family hate your business is not a good plan.
  3.  Start thinking about your cash flow problems before you have them instead of waiting until you have them.
  4.  Give your employees written and detailed systems so they know what you expect and how to do it. Believe me, they’d rather not listen to your rants any more than you claim you don’t want to give your rants.
  5. Only promise your customers what you KNOW you can deliver… then do it. Most unhappy customers are created by you. Did you tell the customer what to expect? Did you deliver? Did your employees deliver (see #4 above)?

There’s your simple 5 step program to giving yourself a Christmas present that will benefit you, your family, your employees and your customers.

Merry Christmas and Happy Holidays!

Tuesday, December 21, 2010

M&A Due Diligence from Seller Perspective

Here's an article that shows how M&A Due Diligence preparation can dramatically improve a seller's position.

Saturday, December 18, 2010

Uh Oh... 13 million people have a surprise tax bill coming.....

Here's an article about confusion and mis-calculation for another overly complicated Federal Tax process of the governments re-distribution of income. Might want to keep this article to show to your employees when they blame you, the employer, for the problem!  CLICK HERE

Friday, December 17, 2010

New Tax Law is ready to go but.......................

The new tax law extending current tax rates and spending a couple of hundred $$Billion$$ more is headed for the president's desk.

However, FYI - the bill does not rescind the obligation for businesses issuing 1099s that was passed in the Obama care bill. Soooo............. unless something changes look for small businesses being burdened with many 1000s of 1099s to be issued. I saw an IRS estimate that they would get over 1 BILLION more 1099s under the new law!  By example, for my business I'll need to go from about 15 issued 1099s now to about 300 required under the new law. Geeeezzz..............................

Wednesday, December 8, 2010

Are you a business owner that wants to grow? Part 1

This is Part 1 of what will be several posts about growing your business. I'll cover some free ways to grow and I'll also talk about growth opportunities that aren't free.

I meet many business owners who want to grow but very few know how to grow.  Let's look some common ways to grow your business.

Low cost/no cost growth.

Train your people better so they get the most sales out of every customer encounter. 

        Example - How many times would you have ordered dessert in a restaurant if someone would just ask? At a restaurant that is missing opportunity, the server sees that I am finished with my dinner and the server walks up and asks "Would you like anything else?" My response, "No thanks."

At a different restaurant, the server sees I've completed my meal and asks "how would you like a slice of blueberry pie or a hot fudge sundae?"  I don't know about you but for me it's a lot easier to say no to the first server than the second one.

What's it mean to the business owner? If a dessert costs $5 and the restaurant serves 100 people per night, getting just 4 more people out of 100 people per night to order dessert means $7,300 per year in additional sales and the cost on that sale is the lowest you can have. All the help is already paid, rent doesn't go up, light bill is the same, etc. So the owner of that business could make $7,300 more per year because his servers just asked the same question a different way. That's as close to free money as a business owner can get.

Every business has these kinds of opportunities regardless of the industry. Take a close, a very close, look at your business and you will find opportunities to increase sales to your existing customers. Often the secret to good selling is knowing how to ask good questions. Are your people asking the good questions?

Thursday, December 2, 2010

Small business owners and risks related to employees work claims

This morning at a meeting I was talking to an employment attorney I know and the topic got around to small business employment practices and the risks that small business owners might not realize they are taking.

Among many items we discussed 3 stood out. Many small business owners we meet with are unaware of the consequences that could result from their lack of attention to human resource (HR) legal issues. Here's my list and my take on each one of the topics the attorney reviewed. Obviously seek competent legal advice before taking any actions:

  1. Getting Confidentiality Agreements from employees - I rarely see businesses that have taken this step but I have seen many, many cases of businesses who were damaged and could not go after the offender. The more important the employee the more important this could be.
  2. Documenting overtime practices, payments and procedures - failure to properly pay employees for overtime can have expensive and painful consequences. Those painful consequences could, in some cases, go to the business owner personally, without the corporate shield so many depend on.
  3. Making sure that employees who are not paid by the hour are classified, managed and have responsibilities that are appropriate for the hourly exemption requirements in employment laws. According to the attorney, just because a business owner and an employee agree to weekly pay, instead of hourly, it doesn't necessarily mean the business owner is not obligated for other expenses and claims which may include back pay for overtime and the significant penalties that could be assessed.
This is a good time of year to start reviewing your employment practices and get good advice from an HR professional or attorney. Also, this is not just an issue for big companies. If you have employees you have risks, generally it's wise to spend a little money now to avoid a bigger problem later.

Tuesday, November 30, 2010

Small Business Taxes..the Whole Enchilada for Year-End Planning

 Guest Post by Carol Olson, CPA  - DRDA, LLC

Small Business Jobs Act of 2010

The Small Business Jobs Act of 2010 includes a number of important tax provisions for businesses large and small. While a few of the provisions take effect in 2011, the majority of the provisions are effective retroactively for the 2010 tax year.  Following are some of the major provisions:
Bonus Depreciation. Bonus depreciation has been extended for 2010.  You can deduct 50% of the cost of qualifying new business assets as well as depreciate the remaining basis of the asset.  Bonus depreciation of up to $8,000 may be taken on passenger automobiles.
Section 179.  The Section 179 deduction has been increased to $500,000 for property placed in service in 2010 and 2011.  The $500,000 deduction is limited if a business acquires more than $2,000,000 of qualifying property.  The Section 179 limit for large SUVs ($25,000) remains unchanged.   Normally, Section 179 expensing only applies to tangible personal property used in a trade or business.  For 2010 and 2011, a taxpayer may elect to treat up to $250,000 of qualified real property as Section 179 property.  Qualified real property includes qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.

Interesting Small Business Tax Information

Time to start [preparing for 2010 and 2011 tax issues...the IRS never sleeps! Here are a few small business tax items that may apply to you. Talk to your CPA about them.

Deduction for Start up Expenses Increased.  For 2010 only, the amount of start-up expenditures deductible in the current year increased to $10,000.  Any remaining start-up expenses can be deducted ratably over 180 months.
Self-Employed Health Insurance Deduction.  For tax year 2010, health insurance costs for a self-employed taxpayer and his family are deductible in computing 2010 self-employment tax.
Small Employer Health Insurance Credit.  For 2010 through 2013, the health care act provides small employers with a tax credit for providing health insurance for their employees.  The credit is limited to businesses with no more than 25 full-time employees with annual full-time equivalent wages averaging no more than $50,000.
More to come. It's time to start your tax planning.

Consult with your CPA before making decisions.

Sunday, November 28, 2010

When is 95% less than 20%? When the 95% is wrong!

In my day to day activities I meet with 250 - 350 small business owners a year who are considering selling a business for one reason or another. In discussing their business the topic of customer service is brought up by me. The reason it is discussed is because significant value is added to a business with a loyal and happy customer base.

Friday, November 19, 2010

New 1099 Rules effect on Small Business

    This post provided by Paul Ikard, CPA

March 17, 2012  - Some of the below rules may have been modified, check with your CPA before taking any action.

Businesses and not-for-profit organizations are accustomed to IRS rules that require them to report certain payments on annual Form 1099 information returns. However, the recently enacted healthcare law imposes surprising new Form 1099 reporting requirements. Complying with them may add significantly to your organization's paperwork burden. While the new rules don't apply to payments made before 2012, it's not too early to start gearing up to deal with them.

Current Rules in a Nutshell

Background: For many years, businesses have been required to report various payments on different versions of Form 1099. For instance, when a business pays $600 or more during a calendar year to an independent contractor for services, the business must issue the contractor a Form 1099-MISC that reports the amount paid that year. The business must also furnish a copy of the Form 1099-MISC to the IRS. This reporting procedure helps contractors remember to include the payments on their tax returns, and it helps the IRS ensure that income is reported. Under rules now in effect, other types of payments that businesses must report on Forms 1099
1. Commissions, fees, and other compensation paid to a single recipient when the total
amount paid in a calendar year is $600 or more.
2. Interest, rents, royalties, annuities, and income items paid to a single recipient when
the total amount paid in a calendar year is $600 or more.
When a Form 1099 is required, it must show:
The total amount for the calendar year;
The name and address of the payee;
The tax ID number (TIN) of the payee (For privacy reasons, it's okay to show a truncated
TIN on a 1099 issued to an individual);

Contact information for the payer; and

The payer's TIN.

If your business doesn't have a payee's TIN, you may be required to institute backup federal income tax withholding at a 28 percent rate on payments under Internal Revenue Code Section 3406. In most cases, the rules summarized above apply to payments made by not-for-profit organizations since they are generally considered to be businesses for Form 1099 reporting purposes. If a payer inadvertently fails to issue a proper Form 1099, the IRS can assess a $50 penalty. The penalty for each intentional failure can be $100 or more.

Tuesday, November 16, 2010

The Bush tax cuts debate and the real small business story

It's hard to avoid the politicians ranting either for or against the extension of the Bush tax cuts. Like many issues in life, for every complex problem there is a simple solution that is absolutely wrong.

Those opposed to the extension often try to separate the issue of "who" gets the extension. The theory is the high income earners should not get the extension and therefore pay more in taxes because they can afford it.

Those in favor of extensions for everyone say if the extension of the cuts isn't done it will cost jobs and be a drag on the economy.

In this case the unfortunate truth is they may both be right. So if they are both right how do we decide which policy is best.

Let's take the case of Mary who owns a pest control business. Like many small business owners her income can vary wildly from year-to-year. For the sake of this discussion let's say that she and her husband, who also works in the business, make $300,000 combined. Since many politicians have said that the tax cuts should not be extended for those who make over $250,000 let's use that as income above which the Bush tax cuts expire.

So let's go with that, Mary and Bob currently make $300,000 per year and, if the Bush tax cuts are eliminated, they are going to get a 10% tax increase on income over $250,000. I'll use round numbers again..their new tax rate goes to 40% from today's current 36%.

Now Mary and Bob have a good idea. They think they can grow their business next year and increase their income by $50,000 to $350,000 but they will need to hire someone for $32,000 a year to do the job. Seems like a good idea right? Spend $32,000 and make an extra $50,000..easy decision. Well, maybe not. Here's the math if the Bush tax cuts expire for her:

  1. Mary pays an employee $32,000.
  2. Mary makes additional $50,000 before tax and $30,000 after taxes (40% tax rate)
  3. Mary pays additional tax of 3.6% (difference between old rate and new) on the $50,000 she already makes above the $250,000 tax increase line. That's another $1,800 in taxes

So what happened here? Mary made $50,000 more and has $3,600 less in cold hard cash. (The math is $50,000 - $32,000- $20,000 - $1,600 = -$3,600)

What would you do? Take the risk of hiring someone for $32,000 so you can lose $3,600?

The same situation if the tax rate for Mary is extended:

  1. Mary hires and pays an employee $32,000
  2. Mary makes additional $50,000 before tax and $32,000 after taxes (36% current tax rate)
In this case if her plan works Mary is break-even. Remember from above, if the tax increase goes into effect Mary will lose $3,600 if her plan works perfectly. Without increasing her taxes she's break-even.

What's the difference? If the tax increase goes into effect and Mary decides not to hire the new employee
 the tax effect to Mary is $1,600 and the new employee doesn't have a job.

If the tax increase doesn't go into effect what happens? Mary hires the new employee, Mary pays $18,000 MORE in taxes because she made $50,000 more taxed at old rate AND the IRS gets to tax the new employee on his $32,000 salary. Mary makes more money, another person has a job and IRS gets more money. But Mary had to be willing to take the risk! None of this happens unless Mary takes the risk. It's not the government taking the risk, it's Mary that has to take the risk. 

There are millions of people like Mary and Bob in the U.S. today making these same decisions every day.

The point of this is that nearly all financial decisions are made at the margin not based on the overall. Mary didn't make her decision based on the $300,000 she makes, she made the decision based on the next $50,000 she might make. 

Saturday, November 13, 2010

5 Reason to get a business appraisal

There are many good reasons to get a business appraisal valuation on your business. Here's a list:

  1. So you can keep track of what business value you are building not just what income you are generating.
  2. So you would know if someone made you an offer to buy your business that you should take. Don't rely on a buyer doing a business appraisal, you need to have one.
  3. So you know what the Small Business Administration would value your business for if you applied for an SBA Loan. 
  4. So you know how much life insurance you need to buy-out a partner's interest if something bad happens.
  5. So you know how much you could lose by not properly segregating your personal and business risks. 
Please read number 5 again...........

Thursday, November 11, 2010

Is the small business owner world upside down?

This post falls under the category of "what the heck is going on"!

The following is from a small business consultant who talks to small business owners several times a week and has done so for about 10 years. Their name is being with held for obvious reasons.

They say, many of the following are found to be true for abut 75% of small business owners:

  • Business owners who sleep very well ....probably shouldn't.
  • Business owners think because their employees don't complain the employees are happy
  • Business owners whose employees complain blame it on the government
  • Business owners personal spending is often unrelated to their personal income, some spend a lot more than they make and some spend a lot less.....very few are break-even
  • Business owners who are chronically behind in paying suppliers are often right on time replacing their boat.
  • For every one minute a business owner spends talking to an employee (shouting instructions doesn't count) they spend 54 minutes talking to sales people about a new copier.
  • Whenever a customer says "your price is too high" the business owner believes it.
  • Whenever a customer says "your price is too high" the business owner grumbles about how his competitors are losing money.
  • A business owner would rather pay 5% more to a vendor than lose his invitation to the vendor's hunting trip.
  • For every one minute a business owner spends getting expert advice they spend 92 hours giving it.


Monday, November 8, 2010

Ready to Buy a Business - Your 401(k) could be your best friend!

If you are considering buying a business don't overlook the value of your 401(k) as a good source of financing. According to CPAs who specialize in this investment vehicle the IRS code currently allows you to access your 401(k) without triggering income tax or early withdrawal penalties when used to purchase a business.

Your 401(k) and an SBA Loan from the Small Business Administration could help you buy a business and build the wealth that is often created when you own and operate a successful small business.

Could there be a better investment than investing in yourself?  For free information and complete details click here.

Tuesday, November 2, 2010

Don't Let the Doom and Gloom in the Media Distract You!

If you are a small business owner the "psychology" of the day-to-day these days can be discouraging. Don't let the doom & gloom specialists get you down. Here are a few things to keep in mind that might help you get your mojo back:

  • If your business is down don't be lulled into thinking that every business like yours is down. There is opportunity in more places that you might be currently considering.
  • If the "economy" is down 10%, so what? If your biz has 1% share of market then you only need to get .2% of the other 99% to be back to even. If your small business is off you can do something about it.
  • Down markets are GREAT times to expand. If your competitors are hiding in a bunker there is a lot of room to grow.
  • Want to be more optimistic? Then stop watching the news or reading the newspaper. Instead study up on marketing....especially new ways to market. Believe it or not........ every business owner can be a better business owner but only if we let someone teach you something.
You can make your business better, more fun, more profitable and more valuable. Get to work.

Monday, June 21, 2010

What is an "S" Corporation?

An S Corporation is a form of business classified for federal income tax purposes as a corporation that has elected to be taxed as a pass-through entity, in a manner similar to a partnership or sole proprietor.  Unlike a regular corporation, or a C corporation, an S corporation (both names derive from sections of the Internal Revenue Code) generally is not subject to federal income tax.  Instead its income is reported on the tax returns of its shareholders, and they have the responsibility for paying the tax.  If there are losses suffered by the corporation, they also pass through and are reported on the shareholders’ income tax returns.
               Because only the shareholders, not the corporation, are taxed, S corporations avoid the problem of double taxation associated with C corporations.  This is the biggest draw for creating an S corporation, particularly for closely held corporations.
               Shareholders in an S corporation, like shareholders in a C corporation, generally have limited liability arising from corporate matters, even though they pay taxes as if they were partners or sole proprietors.  In addition, when the corporation is eventually sold, there can be reduced taxable gains, as compared with the sale of a business operating as a C corporation.
               On the downside, the limitation on classes of stock in an S corporation provides less control over the company and the value of its stock.  Potential outside investors likely will not be attracted by the pass-through tax characteristics of an S corporation, nor by the limit on the number of shareholders.  Although corporate taxes are avoided, there is still a requirement for filing an informational tax return every year for a corporation with more than one owner.  Finally, if avoiding formalities is an important consideration, it should be noted that, like any other corporation, an S corporation must follow the requirements for having regular meetings and keeping company minutes. 
               The balancing of the advantages and drawbacks of S corporation status in any given case is sufficiently complex that it is advisable to seek professional advice before making this important choice.  

Note: This article provided by Craig Welscher a Houston, TX based attorney. You can contact Craig through

Sunday, June 20, 2010

Document My Systems?.....Which Systems?

Recently I wrote a post about how businesses should document their systems to improve their profits and value.

I received some feedback that went something like this..

"Which systems, there are a million systems in my business!"

Well, you're correct. Even a small business has many different systems. How you answer the phone, how to install the widget, how to log into your QuickBooks, it goes on and on.

So where should you start?

My advice is to make your first written/documented system the one that is most critical to the success of your business. That means you can rule out how to log on to your computer, how to check voice mail, how to refill the paper in the copier.

Here are some examples of critical systems for various businesses:
  • If you have a staffing firm you need a great system for interviewing potential hires.
  • If you  have an auto repair shop you need a great system for diagnosing car problems.
  • If you own an ice cream store you need a system to make sure the ice cream temperature is always perfect.
What's the most critical system for your business? You'll need to decide, then write it down, diagram it, draw it... do whatever you need to do to make sure that someone can do it if you're on a sail boat in the middle of the ocean.

If it's in your head it's only useful to you, if it's documented it's valuable.

Saturday, May 1, 2010

Why are sytems for your small business so valuable?

Documented business system are far more important than most small business owners believe. I believe that the reason too many small businesses stay small is because they don't have systems.

When I meet with small business owners and this topic comes up the conversation inevitably sounds like this:

Me, "Do you have your systems documented in writing?"
Business owner, "no, I'm here everyday so I can just tell the people what to do."
Me, "what if you weren't here everyday?"
Business owner....... blank stare....

Documented systems are the key to growth. If your business does not have documented systems you can not grow at any meaningful rate for very long and your costs will be needlessly higher. Documented systems cuts down on training and turnover of personnel, both of these lead to higher profits.

If you want to really improve your business and your day-to-day work life..... start today and write out one system.  Choose one that's easy and that you can immediately review with your employees (after you've written the system check with your employees so they can tell you how it is actually being done vs. how you think it's currently being done).

Writing out systems seems like hard work, and it is...but not nearly as hard as having to make every decision, every day for your entire business.

For some books that might help you get started click here.

Get those systems in place, I promise your business will be better for it.

Saturday, February 27, 2010

Increase your small business profits without spending a dime......

I see and analyze hundreds of businesses every year. What I have found is small business owners (generally businesses with less than $3,000,000 in sales) have a consistent weakness that costs them dearly.

The Problem.......

A terrible lack of effort and intelligence in determining the correct pricing of their product or services. In my practice I often see the exact same type of businesses that are often only a mile or two from each other and their pricing is wildly inconsistent and illogical.

Here's a real life example:

I am changing names and details to protect the guilty.

Bill's Auto Service does $950,000 in sales and net profits to the owner, yep Bill, of about $75,000 (it varies quite a bit from year to year)..

Bill called me. He's considering selling his business and would like me to give him my opinion of his business value. Bill is getting ready to retire and is in pretty good shape but he needs to sell the biz for a certain amount to retire. I meet with Bill and go through the usual stuff. Bill has a nice clean biz with no real "deal breakers" that I can see. When I get to the part where I ask Bill about his pricing he gives me a common answer....
Me, "Bill, how do your set your pricing?"
Bill, "after all these years I have a feel for what my customers are willing to pay for certain kinds of repairs".
Me, "do your customers ever complain that your prices are too high?"
Bill, "all the time"
Me, "do they ever complain when your prices are too low?"
Bill, "Are you kidding?"
Me, "How would you know if your prices were too low, let's say on a timing belt change for a Honda?"
Bill, "I guess I'd be losing money, so I'd know."
Me, "how many timing belt's for Honda's do you do in a year?"
Bill, " I'd say 1 every other week..about 25 a year."
Me, "If you were $100 too cheap on that for a whole year would you notice not having that $2,500?"
Bill, "Probably not"
Me, "That's exactly my point."
Bill, "How do you think I should set my pricing?"
Me, "Let's do it right now. What would you charge for replacing a timing belt in a Honda Accord?"
Bill, " $550"
Me, "let's back up 15 minutes. Since I'm not a customer of yours and you said you know what your customers will did you decide on $550?"
Bill, "I get your point, what's next genius?"
Me, "let's get out the trusty phone book and start calling repair shops in your area and Honda dealers."

After about an hour we have 9 prices.. lowest to highest - $425, $475, $520, $550, $575, $590, $600, $675, $800. Remember Joe is $550. The $675 price is the Honda dealer.

Me, "Bill based on this info do you still feel that your price should be $550?"
Bill, "No way, I should be able to get what the Honda dealer gets, I can have the customer in and out in half the time and my warranty on our work is better!"
Me, "What about this strategy? Why don't you price the job at $650 and every time you quote the job you say to the customer..My price of $650 is less than the Honda dealer, I can have it finished in half the time and my warranty is better"
Bill, "that sounds good but what if they go to the other cheaper guys?"
Me, "Bill, those people are already cheaper than you, what difference does it make? Plus if you are making $100 more on each job you can do fewer jobs and make the same amount. You can afford to lose some jobs to the lower price guys."
Bill, "I guess you're going to tell me I should do this for all my work."
Me, "Either you do it or the smart guy who buys your biz will do it and guess what? He will get a bargain because the business is more profitable than you are letting it be. You will sell the biz based on profits lower than what the biz can generate if managed properly, no offense."
Bill, "Maybe I need to do some work if I want to get full value for selling the biz."
Me, "I agree, because I would rather sell your business for more money since I'll make more money!"

The point of this is as a small biz owner you owe it to yourself and your employees to get your pricing right! It's important and it's easy.

I am not kidding, the above is no exaggeration, too many small business owners simply pull out of thin air the prices for their products or services.  Are you that owner?


Friday, February 26, 2010

Special Small Business Administration program for loans under $35,000

Take a look at an SBA ARC loan if you want/need a small loan. Very favorable terms and good flexibility read here 

Monday, February 15, 2010

Small Biz alert ..We're from the Government and we're here to help you!!

Employers should be aware that the Department of Labor is increasing its Wage and Hour Division's enforcement efforts. The Department of Labor has stated that protection of workers' rights is a "top priority" for the DOL. As evidence of that, DOL has added 250 additional wage-and-hour investigators. The intent is to pay prompt attention to complaints about wage-and-hour violations. According to the Secretary of Labor, in the past three months alone, the DOL has collected more than $2 million in back wages owed to more than 500 workers.

Areas of concern to employers include:
  • federal minimum wage, overtime, and record keeping requirements;
  • how to determine which work-related activities are considered "hours worked" and consequently hours for which employees must be paid overtime pay;
  • whether a particular employee is exempt from the Fair Labor Standard Act's minimum wage and overtime pay requirements; and
  • contract labor or employee status.

This post written by Attorney Tom Solomon - Houston, TX

Sunday, February 7, 2010

Is Your Small Business Worth Anything?

In my discussions with hundreds of small business owners, the conversation inevitably turns to the value of their small business. Unfortunately, and far too often, the business owner has no idea why the business has little or no value.

Here's an example (names and details changed to protect the guilty).

Small business owners, Mark and Sue (husband and wife team) call me because they are considering the possible sale of their business.
After much discussion we get around to how the business is doing financially. They have revenues of $550,000 and say they are "taking about $100,000 per year out of their business". Sounds o.k. I ask them if I can have their financial statements and do some analysis to determine what a likely selling price for the business might be. They give me their financials and I head back to the office.

After some analysis and a few calls to Mark and Sue for clarification I determine the following:
The good news......Yes, they are "taking out about $100,000 per year"
The bad news....... The way they are taking out the $100,000.

Here's why:
The business is earning a profit, before Mark and Sue take out anything, of $85,000 per year. But, Mark and  Sue take out that $85,000 profit plus $15,000 more! Where does the $15,000 come from? They owe $15,000 more to their suppliers this year than they did last year! Mark and Sue paid themselves $15,000 of their suppliers money. So how much did Mark and Sue really make? $85,000 not $100,000 because they now owe their supplier the $15,000 as a debt.

So is $85,000 a good profit? Is this case no. Why?
During our interview Mark and Sue said they are working 60 ours a week each and hardly ever get any time off. Let's do the easy math:
60 hrs per week x 50 weeks = 3,000 worked each per year
2 people x 3,000 hours worked each per year = 6,000 hours worked
Their $85,000 income divided by the 6,000 hours worked = $14.17 per hour worked

Does it make sense for Mark and Sue to take the investment risk of owning their small business to make $14.17 per hour? Can't they make more than that working for someone else without the risks?

What would a buyer pay to buy a business where they would make $14.17 per hour? Not much!!!!

Small business owners need to take an honest look at what their business economics really are. Although owning your own small business holds the allure of hitting it big one day, you shouldn't let the dream overwhelm the reality.

The analysis I did above is not rocket science and is very easy for a small business owner to do but I almost never talk to a business owner who's actually done it. Why? Maybe they are afraid of the answer.

Saturday, January 30, 2010

When buying or selling a business....timing matters... a lot!

I am often asked when is the "right" time to buy or sell a business. Unfortunately the answer is complicated. When I'm asked that question my response is "as compared to when?".

Below is an example:
Mary wants to buy a business and John thinks he wants to sell his small business.

The Biz: In 2009 John's business struggled like many businesses. He was down about 30% in gross sales and earnings. For 2009 his sales were $600,000 and earnings $100,000. John wants to know if he can get his business back up to earnings of $125,000 can he sell it for more money in 2011 (he'll need full year 2010 results to get credit for any increased earnings).

The buyer: Now there's Mary. Mary has $100,000 for a down payment and she need's $60,000 per year in salary from the business to live on.

Let's quickly figure how much Mary can afford to pay John for his business:

Mary has $100,000 for down payment
Current interest rate used for Mary's loan 9%
Biz earnings today- Mary's salary of $60,000 leaves $40,000 ($100,000 - $60,000) left for debt service.
An SBA lender would, today, loan Mary about $197,000 based on the available $40,000 for debt service.
So Mary can pay John $197,000 + her down payment of $100,000 = $297,000.

What if John's earnings increase to $125,000 but interest rates 18 months from now are 11%
Then the bank would likely loan $237,000, add that to Mary's down payment of $100,000 = Selling price of $337,000.

So even though John's earnings increased 25%, his selling price only goes up about 11% because of the increase cost of financing caused by higher interest rates.

So when the right time, hard to say? If John waits, what happens if his earnings stay at $100,000 but interest rates increase? Then his selling price would drop!

Usually the best time to sell is when earnings are up and interest rates are down, but that doesn't always coincide with the events of the buyers and sellers lives.

Friday, January 22, 2010

Top 5 things you can do in 2010 to increase the value of your small business

Big improvements often come from small changes. What could you do in 2010 to build the value of your small business?

  1. Get professional small business accounting advice and follow it! Get your books set up in a way that makes your profit/loss statement a tool to run the business not just a piece of paper.
  2. Stop trying to avoid taxes the risky (read...illegal way) and start taking advantage of small business tax breaks that are legal. First step, set up a small business retirement plan.
  3. Decide to learn something new this year. You may have been doing the same thing for 20 years and you THINK it's right...but that doesn't make it right. No matter how good you think your business is... you are probably wrong. Do you have the nerve to find out?
  4. Hire someone smarter than you this year. Do you have the courage for that?
  5. Tell your employees thank you when they do a good job. Don't assume they only care about the pay check, they deserve recognition and you have to be the one to deliver it...sincerely. 
Nothing above is too difficult, unless you make it difficult. Now get going, it's a new year.

Monday, January 11, 2010

Guest Post on SBA Lending

Why SBA Loan Production is Down
Sheila Spangler, CBI, Capital Strategies, Boise, ID
There was an article recently on that said SBA loan production is down 36 percent from 2008. As business brokers, many of us have felt that pinch first hand, but have you wondered why SBA loans have waned along with the rest of the credit market? After all, don’t those loans have a guarantee? Why won’t the bankers make them? I decided to do a little research.

As a former commercial banker, banking school graduate and business broker, I am a big fan of SBA loans. I’ve originated many in the last 20 years. Without these loans, my main street business clients would not have been able to sell their businesses to new owners or expand.
We are suffering through the worst economic crisis since the Great Depression. During the Depression, interest rates were too high and no one could afford to borrow even though there was plenty of liquidity. Today, the problem is different. Rates are low yet liquidity is even lower for banks. Here’s two reasons why banks aren't willing to open the credit spigot:
1) Unhealthy balance sheet. Just because a bank may have paid back TARP, it doesn’t mean the bank is “healthy.” In many cases, problem loans are not being addressed because doing so would cause write-downs, which erode bank capital. The regulators are stepping softly in many cases encouraging bankers to term out loans for longer than normal periods to avoid losses, business closures and panic. But in many cases, the bankers are using a “head in the sand” approach and not addressing problems.
2) Fear of making the wrong decision. Bankers are running scared. The lack of capital and unaddressed time bombs on the balance sheet has made them even more cautious than normal. They are playing a waiting game: waiting for things to get better. But it’s a catch 22. Eventually, someone has to step forward and lead the charge. Of course, just like the eager lieutenant on the battle field, there is always a chance they’ll get shot in the back, too.
You’re probably thinking “Okay, but why don’t banks make SBA loans since they have a government guarantee? Aren’t they completely safe for the banks?  What have they got to lose?”
Here are my top four reasons why SBA loan production is down. These reasons are based on experience and conversations with bankers, regulators and debt buyers.
• Laid off their experienced SBA business development officers and underwriters when the market melt down happened last year.
• Don't want to learn the program because they perceive the return to be low, and for many, what they don’t understand, they fear.
• Know that even if they get the SBA loan done properly, there is really no assurance that the bank will be able to collect on the guarantee to get “paid back” should the business fail. The loan must be properly underwritten and serviced in order to maintain the guarantee for the life of the loan.
• Don’t like unknowns and right now everything is an unknown. Is the seller’s business really able to withstand a transition now? Does the buyer really have the skills to manage and lead? Is there a hidden problem?

It’s going to be awhile before the credit market loosens. In the meantime, buyers and sellers of businesses have to get more creative and flexible. This means sellers will have to self-finance more of the transaction. That’s good for buyers but not so good for sellers that want to exit the business and not worry about it any more.
In some cases, the business owner may not be able to sell the business at all. So he or she will have to continue to work longer. This is heartbreaking for many business owners. Some have worked years to build their businesses and now see them falter just when its time to retire.
The only thing I can say is this: business owners are the toughest people in the world. Just like everything else in your business life, you’re going to have to find a way to fix this yourself. Perhaps we can form a business owner’s co-op and provide loans to each other to take the banks out of the picture. Now wouldn’t that be something?

Wednesday, January 6, 2010

Good Article on Corporation vs S Corporation in Sale of Business

Tax Issues, Benefits and Risks.


Click Here for Source Article.

All Small Business Owners will Leave Their Business - I Guarantee it!

The question is, will you leave your small business the smart way or leave it the dumb way?

Having an exit plan for your business is smart. A formal plan will look at your options, devise efficient tax strategies and create an estate plan that eliminates any disputes that might result if you suddenly passed away.

Here's a good article on what to consider when looking at your Exit Plan . Take a few minutes to consider how a plan can help you, your family and your business.

And I will leave your business one day...100% Guaranteed. If you gotta go, at least go out on your terms.