Buying, Selling and Managing a Small Business

Interesting Article on getting farmers help

2012-01-30T06:37:00.000-06:00

Some creative Entrepreneurs are on the case CLICK HERE

Big Ideas for your business? A lesson from Burger King's new big idea.....

2012-01-22T13:15:00.000-06:00

Is your new big idea simply an attempt to escape your poor execution of your last big idea?

I often see business owners trying to do too many things and they don't do any particularly well.

Today I read a news report that burger king is experimenting with home delivery. My first reaction was...what a terrible idea. Then I gave it some additional thought and decided yep, it is absolutely a terrible idea.

Burger king has been an under performing biz for as long as I can remember. They seem to go from one idea to the next in an apparently useless attempt to hit the jackpot.

When i read the article I said to myself "really? Home delivery? How about you focus on getting me hot French fries at the drive in window. That would be outstanding!"

How good would it be know that every time you pulled into the BK drive-in you got fresh hot fries? I think that would generate real biz.

When I think about home delivery for BK I think..."why on earth would I want to wait for mediocre BK food when I can wait the same amount of time for decent food?"

The question for you is this. Does your business do a few things very, very well or many things all done poorly?

Interesting Article on Small Business........ Cold Hard Facts

2011-11-29T06:05:00.000-06:00

Why do businesses fail? How many businesses are there? Where do businesses succeed?

Click here for the article.

Running a small biz is tough, but good and free advice is available!

2011-11-26T13:01:00.000-06:00

Excellent info about employment practices for small businesses. The very best medicine is preventive medicine!

Take a look at this blog article by Attorney Alan Bush about overtime perils and pitfalls.

Click Here

Confidentiality in the Sale of Small Businesses

2011-07-17T08:21:00.000-05:00

Business sellers and buyers often look at confidentiality requirements in different ways. However, in the end, they both have the same interests.

The reason to maintain confidentiality is to protect the business from the possible negative impacts of a sale.

Read more here............

Circular Money and the U.S. Tax System

2011-07-14T19:00:00.000-05:00

Listening to a financial radio station today I heard something that caused me to say..."what?" Here's the outline:

First the Cash Source:
China has gobs of U.S. dollars that they get from selling us incredible amounts of stuff.
China is catching heat for owning so much U.S. Treasury debt, so they want to use the US Dollars for something other than lending it back to the US Treasury. So why not loan it to U.S. companies?

The Use of Cash:
A big U.S. company, that will remain nameless, pays 1.8% dividend on it's stock. Note, this is important ...Dividends for biz are not tax deductible, meaning companies pay dividends after they pay their tax obligations.

So what to do?
This company borrows US Dollars at 1.7% interest from China. The 1.7% interest is tax deductible which means the effective cost of the interest is about 1.2%...and remember the effective cost of dividends is 1.8% because dividends are not tax deductible. So the cost to the company for borrowing from China is 33% cheaper than the dividend cost.

The solution, borrow US Dollars from China, deduct the interest from taxes and use the cash to buy back the stock which eliminates the 1.8% cash dividend cost and replaces if with an effective $1.2% cash cost.

Incredible but true, another case of the perverted U.S. tax code. Borrowing is more tax effective than returning cash to shareholders as dividends.

Small Business - Management and Leadership Myths and Truths - Small Businesses and Good Employees

2011-07-06T07:50:00.001-05:00

Why do so many small business owners say "I can't get good employees?"

The business owner's assumption seems to start from the premise that good employees are either no where to be found or will only work for big companies. In my experience I find both of these assumptions to be incorrect.

There are many small businesses with good employees and I believe there are many people working in large companies who would rather be working in small companies...if....they could find the circumstances that permit it. What's the problem? There are too many small business owners who have poor to terrible management and leadership skills. I meet with hundreds of business owners a year, I know small business owners.

If you want your small business to attract high quality employees here are the things I would focus on:

Your integrity - Say what you'll do, then do what you say.
Always be respectful to employees and customers, even when you're angry. Whatever anyone hears you say is what they assume you'll say when they aren't near.
Even if you know the answer, help the employee figure it out.
Let your employees make little mistakes and then show the leadership compassion when you unscramble the problem.
Focus local for employees, a short commute is high value these days.
Don't be afraid to hire people smarter than you...and...when you do hire someone smarter than you let them help you.
Focus on total compensation not just the salary. Put in place bonus plans so that when the business does well, everyone does well.
Hire slow, fire fast.

That's a start. Get focused on getting better people and you will have the opportunities. Now the real question is, how do you become a business owner who deserves better people?

Using Tax Logic to Manage the Value of your Business

2011-07-05T07:54:00.002-05:00

In the real world of business management ownership you can only create income in 2 basic ways. These two income methods are taxed differently by good 'ol Uncle Sam.

The first method income is "earned" income. Let's say I'm a graphic artist and you hire me to create a logo. I design the logo and you pay me $250. That is earned income to me (assuming it goes to me and not into a corporation). The $250 goes into my gross income and I pay tax on it as high as 35% federal and depending on what state you live in, it could be over 45%. So your $250 of earned income (assumes no state tax) is worth only $162.50 in your pocket.

The second method is capital gains income. Capital Gains can be generated in many ways. Let's look at a simple example. You get on Ebay and find a great bike for $100, you buy it. Then a year later you're riding around the block on your $100 bike and a guy stops you and offers you $350 on the spot. You take it and walk home! You made $250 (same as if you designed a logo above) but this is capital gains and your tax on that is only 15% of your gain ($350 rec'd - $100 paid = $250 gain). Your tax for this is $37.50 and your net in pocket is $212.50.

You get to keep $50 more if you earned your money through capital gains income. This is just another reason why accumulating capital is important to long term wealth...if you have capital you can manage your taxes a lot better than if you only have earned income.

When running your business think of all the ways to build value that is taxed at 15% instead of 35%...over time it could be a lot more money in your pocket. Talk to your CPA to see if you have opportunities to maximize the availability of the capital gains tax rates.

So You're Sitting Around the House and You Decide..I want to....

2011-06-30T06:35:00.000-05:00

I got it...I think I'll build a small business being a consultant/trainer for people who want to build sand castles!

Yep, here's someone else who figured out how to make something most of us never thought of into an interesting small business.

Read Here...

Time to start thinking, maybe a trip to the beach would help.

Good article on getting work done - 7 steps to Better Personal Productivity

2011-06-28T15:33:00.000-05:00

These ideas for getting more done make a lot of sense to me, I think I'll keep them handy so I can stay on track for the big projects. I've done #3 successfully and I've victimized myself on #6.

Read the article here.

When I first got into the workforce I had a boss tell me, the distance between good and great is not as far as we like to use for an excuse. I've always tried to remember that.

Business Owners...Save Your Life...Now!

2011-06-28T07:48:00.002-05:00

This post is a bit in left field for me but I ran across this study that is compelling and struck a nerve with me. Business owners often have way too much stress in their lives and the demands of the business can cause them to ignore their personal health while they slave away at keeping their business healthy.

Here's an article on how meditation can dramatically improve heart health and even save your life...and I believe it! Think about it.. 50% reduction in heart attacks.

Read Article Here

20 minutes twice a day to save your life? That's a great investment.

I am going to start this program and I'll let you know my progress. I hope you decide to try it, please let me know how you do.

Do the Math, IRS boosts Mileage Allowance to 55.5 cents!

2011-06-27T20:23:00.000-05:00

The mileage deduction for business use has gone up. I'm not an accountant but my math is pretty good. At 55.5cents and 15,000 biz miles that's a reimbursement of $8,325 per year.

You can have the company own the car and you reimburse your company for your personal use or it might make more sense to own your vehicle personally and charge your company the 55.5 cents.

Here's an IRS article with details, check with your CPA before making any decisions.

Hmmm...Bad news for road-side businesses?...The tax man wants your customers too!

2011-06-27T14:59:00.000-05:00

At least someone in government thinks having government employees running gas stations and C-Stores is a good idea..... I have my doubts..

Here's a story on a politician trying to reverse a 50 year old law that prohibits the government from setting up retail businesses on the interstate highway system.

Read Here..

Another example of why Buy Sell Agreements are so important

2011-06-27T09:32:00.000-05:00

This may be an extreme example but the fundamentals are in many business problems we see on a regular basis.

Just because your business partner is your spouse it doesn't mean business judgement should be suspended.

Read about the Los Angeles Dodgers bankruptcy soap opera here.

Why are Entrepreneurs Better for the Economy than Bureaucrats?

2011-06-24T09:00:00.004-05:00

Entrepreneurs, "My business will lose a trillion dollars this year if I don't do something. I'm cutting back on everything right now!"

Congressman, "We'll have a trillion dollar budget deficit this year...we need committee meetings for the next 8 months."

I rest my case.

Time to Look at Smart Growth for Your Small Business?

2011-06-23T20:43:00.000-05:00

Business owners often get caught in the squeeze between seeing opportunity to grow but not having the resources to hire people or get more space. Managing a small business needs to be a creative process.

If you find yourself in this position (and if not now you certainly will if you grow) spend a few minutes looking at a 3rd party fulfillment service. Think of it as an expansion that you can make without hiring people or signing a big lease.

Take a look here.

What Does Patricia Kluge Bankruptcy teach us about business ownership?

2011-06-23T05:11:00.001-05:00

A messy business failure can always be learned from. The Patricia Kluge bankruptcy has lessons for small business owners with partners, both known partners and unknown partners.

I once heard a wise man say, "Pick your business partners twice as carefully as you pick a spouse..because a spouse can only take half of what you have."

If you are going into a partnership in a small business make sure you set up the proper buy/sell agreements so that you don't wind up with a partner you don't want. How could that happen?

You and you partner are 50/50 with no buy/sell agreements in place. You've known your partner since high school and trust him completely but..... after you two are in business he goes thru a divorce and his wife winds up being your 50/50 partner. Now what? But wait it could get worse...she remarries and now you have another partner, kind of. You get the picture.

Get your buy/sell agreements in order before you go into business with a partner. A good business attorney can help you avoid a terrible situation, one which we see way to often out in the real world. You'll even find businesses for sale solely because of partnership issues that weren't planned for at the beginning and now selling the business is the only way out.

Here's a good video post regarding buy/sell agreements.

Uncertain Times, Reason to Act or Reason to Wait?

2011-06-16T19:54:00.000-05:00

I am often asked "when is the best time for someone start a business?". As you might imagine, the answer is different for everyone and even then, the answer is never 100% evident.

If you wait until the risks are minimal the time might may never come, if you leap when the risks are huge your chances of success are reduced. So what to do.......................

My advice is to make sure you have thought about the opportunity and the risks. Knowing that you can never really quantify the risk. Here are a few questions:

If the business takes a year to get going what happens?
How much of my own money am I willing to risk?
How much of others people money am I willing to risk?
Am I as smart as I think I am?
Do I have a bullet-proof plan for the first 6 months? If not, why not?

The last item is critical, if you have a bullet-proof, well thought out plan for 6 months...and you can execute that plan, your chances of success go up dramatically. The reason is simple. A great and accurate 6 month plan means you know enough about your market and your customers to give you time to adjust to changes. The ability to adjust is an essential survival skill in business.

If you really want to start a business, focus on a well thought out 6 month plan. Review it with people who are in business, be honest and do your homework. If you've done all that and the opportunity still looks good...jump in..and welcome to the world of the entrepreneur.

Radio Interview with important industry information - Industry Security and Surveillance Companies

2011-05-15T10:33:00.000-05:00

Listen to Industry experts discuss buying, selling and operating security and surveillance companies.

Click here for the interview

Interviewed are Security firm CEO Alan Gilmore and George Abraham - Business Appraiser.

What is Working Capital and why is it Important?

2011-04-20T18:07:00.000-05:00

Many small business owners don't understand or appreciate the need to have a good handle on working capital and how it is generated or consumed by the business. Let's take 2 examples on opposite ends of the business spectrum.

First a Day Spa. At a day spa the customer comes in, pays for the services and then gets the services - no accounts receivables to collect...no money, no service. Also, a Day Spa sell lots and lots of Gift Certificates. With gift certificates the biz collects $100 for a gift certificate and has the cash for weeks, months, years or even forever before the service is delivered. That's called negative working capital. I get your money before I incur the cost of providing the service.

Now lets look at an office supply business. A customer calls up, orders 5 cases of paper for delivery at a cost of $200 and the customer wants you to "bill" them. Which means they will pay in about 30 days. This $200 order requires a lot of working capital...you had to buy the paper, pay the driver, pay the person who took the order all BEFORE the customer pays you the $200. All those expenses you had to pay out before the customer paid you needs working capital to pay.

That's why understanding working capital is critical, if you are in a business that needs working capital to grow you'd better figure out where the working capital is coming from before you start to grow. Many. many profitable businesses have gone out of business because they didn't account for, and plan for, the working capital needs of the business.

We're proud to support the Cystic Fibrosis Foundation

2011-04-03T09:00:00.000-05:00

Sunbelt sponsors CF Great Strides Walk to support research to find a cure for this terrible disease.

Please visit our Sunbelt Fan Page to support us!

Don't Forget to Visit our Facebook Fan Page

2011-04-03T08:51:00.000-05:00

We love fans!!!! Hope to see you often.

Niche Manufacturing Business for Sale in Texas

2011-04-01T06:49:00.000-05:00

Outstanding, fast growing manufacturing business with provisional patents for sale in Texas.

Where can I find information about buying a business in a specific industry?

2011-03-09T09:34:00.000-06:00

As we all know the web has a lot of information but often it is hard to sort through the mass to get to the finer topics.

Every Friday, on internet radio, there is a 1 hour broadcast that deals with buying a business in a specific industry. This week's show (1pm cst, noon eastern) is about trucking companies. These shows feature industry specialists who can provide true insights into the good and bad to look for in a business.

Also, on the Entrepreneurial Insights website there is a menu of many previous shows and the industries they cover. You can replay those shows at your leisure.

Take a look.......and listen to Entrepreneurial Insights , you can visit and replay the broadcast anytime but the live broadcasts are Fridays at 1pm central.

The hard work of un-fooling yourself...........

2011-03-06T08:44:00.000-06:00

As I've written before, during the 1st quarter of the new year I find myself trying to take extra time to plan and evaluate. Some of this is an natural reaction to reviewing the financials in preparation for filling taxes. Some of it is just my reaction to something I've heard or read somewhere.

During a recent walk I was thinking about something I read in a blog article by Michael Hyatt, by the way, if you are unfamiliar with him I recommend his blog. He writes a lot of good stuff about business and some interesting stuff about managing life. In one of his articles he hinted at something that I reformulated for my own use. What I'm talking about is trying to identify the business and personal habits, processes or practices that I automatically assume make sense but on closer investigation I'll find out the idea either was never a good idea or it's an idea who's time has passed.

Once I decided to take a look I couldn't believe how difficult it is to then decide which things to look at! I decided I'd look back at the prior week for some clues or direction. I had thought that the prior week was really pretty uneventful and not very interesting nor complex. But then I started breaking down the events and connecting the dots it got messy. I'm now convinced that many things are simple but few things are uncomplicated.

I then made the leap of logic that goes like this, "If I'm trying to figure out what I'm fooling myself about, then obviously I've already fooled myself and how will I recognize it?" Now what do I do?

It wasn't nearly as difficult as I thought. Here's what I did. I went to someone in our office and asked the brilliantly insightful question, "What do we do that's dumb?" Much to my surprise (and a bit of disappointment) they didn't need to think about it at all, nearly before the words came out of my mouth the person had listed 3 things.... bang..bang..bang!

To shorten this post I won't bore you with the details but here are the results of looking into the 3 things identified for me:

#1 - I didn't realize we were even still doing it, it was a policy I had put into effect a few years back and it was absolutely redundant. Cancelled.
#2 - This was an item a service provider required and it is very important, except we had dropped the vendor long ago but kept the process. Cancelled .
#3 - This is something that actually makes sense but the person didn't understand why we needed to do it. Once I explained it better the person was on board.

There you have it. This entire process took about 20 minutes and the result - eliminated 2 things that we were wasting money on and helped an associate understand a process they thought was a waste of time. All in all a pretty good return on my investment of 20 minutes.

Moral of the story... If you want to "unfool" yourself you're probably going to need an opinion other than your own.

Starting a Small Business - What's the most important question to ask?

2011-03-03T11:28:00.001-06:00

There are many issues to deal with and questions to ask when thinking about starting a small business.

Should I incorporate? LLC? C Corp? S Corp?
What name should I use?
How do I get or set-up my website?
How do I find a CPA? Do I even need a CPA?
How do I get a license to do biz in my state?
What accounting? Quickbooks? Excel?

And the list goes on and on...
But the real most important question is this...................

If I start a small business, how do I get out of my small business?

What is your exit plan? Your goals, time frame, limitations?

If you will think through, with honesty, this question - How do I exit my business? You will make a better decision about how you go into your business. Do you want to sell the business? If yes, then there are things you need to do when you set up your small business...Want an example?

If you want to sell your business don't name your business after yourself. Believe me, Wizards A/C and Heat Service is easier to sell, and at a higher price, than John Q. Smith, Inc.

Send me your start up questions that relate to your exit plan, I'll take a shot at getting you useful answers.

What is CRM and does my small business need it?

2011-03-02T09:15:00.001-06:00

Hard as it is to imagine, there was a time not terribly long ago when a sales or service person for a small business would go out into the field without a PDA or Smart Phone—or any phone at all. The reason for the current ubiquity of the communication devices in small business is obvious: it makes customer service or the new term, Customer Relationship Management (CRM), easier and more effective. The success of any small business is built around this engine and the latest innovation in the field of CRM is also the most powerful yet seen, primarily because it is among the simplest-to-implement of all emerging information technologies. We speak, of course, of Cloud-Based Solutions.

Until recently any information gathered by, say, a serviceman sent into the field would have to be relayed through a series of data channels, each administered by an individual working within his or her own cataloging system, until it eventually found its way to the appropriate sales rep who is ultimately responsible for the client's satisfaction and continuing patronage of the business. Meanwhile, the client is already calling the rep and asking about progress on the issue. And the rep has no idea there was an issue to begin with.

Now, due to advances in Cloud-Computing—a networking principle based simultaneously in the local and the virtual world—the sales rep has been alerted instantly when the client contacted customer service, and also has received real-time updates from the serviceman in the field—all via apps on mobile devices and simple web interfaces.

Among the most compelling advantages of the Cloud-Based CRM Solutions offered by companies such as HighRise.com is the ease-of-implementation and low cost for even the smallest of small businesses. In the case of, for instance, a pool maintenance company where a staff of only a few individuals act as both the customer-service and sales teams while collectively handling their client base, a Cloud-Based CRM System would effectively sync every client's contact information to the entire staff—all through a simple web-based interface on both the office's computer and each employee's mobile device—while providing appropriate notifications for any due follow-up calls, at the same time indicating any pertinent information on recent service needs. Additionally, redundancies in calls to clients will be eliminated and all interactions with the client will be streamlined and tailored to the particulars of that relationship. There will no longer be any waiting for the phones to ring; rather, the staff is now guided along a more proactive path, armed with all the personalized information to make the calls extremely productive. Meanwhile, the maintenance team of the company will be able to go on-site with the entire history of the job at immediate hand, reducing the likelihood of unnecessary diagnostics on, say, a problematic motor, or time wasted returning to the office to find a replacement valve that had already been identified as due for an upgrade.

Unlike previous technological breakthroughs that were meant to—and often did—revolutionize customer service, like the barely-navigable automated phone systems that are widely-known to increase a client's dissatisfaction with a company, Cloud-Based Solutions have the ability to re-humanize client interaction while, at the same time, making the small business more nimble and responsive. And, importantly, scalability is scarcely a concern—just as the small business grows in response to its improvements in CRM, the Cloud organically grows along with it. Since there are no investments in local servers or hardware to be replaced, since there are no IT employees to be hired, since there is no local software to be updated or reconfigured, it could be easily said that the Cloud is the simplest, most natural technological innovation small business CRM has ever seen.

Want to Know How a Business Appraiser Looks at Small Business Value?

2011-02-26T09:37:00.002-06:00

Factors that Increase or Decrease Business Value

By: George D. Abraham

CEO & Chief Appraiser

Business Evaluation Systems

There's a range of key factors that can affect the value of a business. While some of these factors are outside of the owner's control, steps can be taken to make the business as valuable as possible. Start planning well in advance and consider inserting an exit strategy into your original business plan. Then start implementing the factors that increase value and eliminate the factors that decrease the value.

Financial Statements

Just how good are your financials. Are they minimal or do they show an in-depth look at your business. Can you easily track the flow of revenue and expenses flowing from the invoice to the financials to the tax returns? Can your track the sales of your top 5 customers? Can you easily prove all of the perks you receive from the company? Today's accounting software easily lets you do all of this and much more. When a buyer is interested in a company, the ease at which the owner can prove the financial performance of his or her business has a direct impact on value. Incomplete or inaccurate financials tells the buyer that no one is watching and tracking the Company's performance and therefore the future performance (of real importance to the buyer) is unpredictable. Value is created or destroyed by the ability to see the Company's future. The longer the buyer can see that the Company will perform in the future as represented, the more secure they are and less risk is perceived. To the contrary, when the future is a guess, risk is increased and value is decreased.

Performance

Obviously, small increases in revenues over the year's shows a different picture than equally decreasing sales and the same is true with large increases and decreases. The key to value is the owner's ability to explain the precise reason. Many times declining sales, if explained does not affect value as negatively as one might expect. Retiring doctors decide to work less, firing unprofitable customers and price increases that result in increased earnings do not impact the value of the business as negatively as one may think. Again, the key is the explanation of why revenues and/or earnings have dropped.

Management

The big question is what would happen to the business if ownership changed. Obviously, if the Company's management and sales department are you, the owner, expect a decrease. On the other hand, if the sales are made by the sales department and the Company has department managers that report to the owner, value increases. Another factor is the longevity of the management team and in general all of the employees. Have the managers and employees been with the Company for several years, or is constant turnover the norm? These people have key knowledge of the internal workings of the Company, products and services and relationships with suppliers and customers. A well trained (and cross trained) knowledgeable management team and employees with longevity greatly reduces risk to the hypothetical buyer and thus increases value.

Appearance

When you look at your operation, do you see a busy, organized facility with well maintained equipment? A facility that is busy, appears to be unorganized, with dirty equipment, reflects the same image for the management and employees. Well maintained, clean equipment and vehicles tells the buyer that regular service and good maintenance records are the norm and this increases value. The opposite portrays, short lived equipment and vehicles with higher amounts of capital expenditures in the future that reduce earnings and lowers value. One has to imagine that the kind of appearance the Company has, may represent the kind of customers it has.

In General

First impressions are important! A clean organized business with well maintained assets and good financials portrays a good well managed, solid business and reduces the risk level in buyers. It reduces the depth of the financial due diligence process, questioning asset and inventory values and creates a more secure atmosphere for the buyer.

Good financials, formalized business and marketing plans, well trained and knowledgeable management and employees with longevity add up to value.

Competition is always a risk to a buyer. The more you know about your competitors and why they will not affect you is extremely important to a buyer. If your company has intellectual property, valued or not, be able to explain (even better to calculate it) the advantages your company derives from it. Start an exit plan a couple of years in advance, to address any of these factors that may pertain to your business. A business owner that knows the strengths of his or her business and can reasonably prove it, has a large effect on the appraiser and the buyer.

Landscape Business for Sale in Texas

2011-02-26T09:35:00.003-06:00

Recognized for excellence, this landscape business is known for its variety of designs which utilizes native Texas and low maintenance plants. Excellent reputation with outstanding and growing plant nursery to supply plants. Business has operated successfully for more than 12 years. The well trained staff is ready to help the new owner succeed. Business is located in growing area with excellent demographics for landscape design services. Excellent real estate included in the sale of the business. Asking price below includes the real estate valued at $475,000 (1 .6 acres including improvements). Client N1293-KT


Price:	$1,400,000
Annual Sales:	$2,445,000
Seller's Discretionary Earnings:	$279,000 (profit benefit to owner)
Inventory:	$50,000 (Included in Price)
Real Estate:	$475,000 (Included in Price)
Financing:	Business is pre-qualified for SBA loan with 15%-20% down payment

Year Established:	1997
Number of Employees:	9 full time -
Mgmt. Training/Support:	Seller will provide training
Reason For Selling:	Retirement
Facilities:	1,200 & 500 sq. ft. buildings; included in sale price

Email: info@sunbelttexas.com
Phone: 281-440-5153

Click Here To View all our Businesses for Sale

Ever wonder what an Accredited Investor is? And why it matters......

2011-02-22T10:10:00.001-06:00

Under the Securities Act of 1933,any company that sells securities must register with the SEC or file for anexemption if they so qualify. The Actprovides companies with a number of exemptions from federal registrationrequirements. One of these exemptions isthat the company may sell its securities to AccreditedInvestors. Selling securities to Accredited Investors is deemed to be anexemption because the assumption is that AccreditedInvestors have the skill and knowledge to evaluate and determine the riskof the investment.

The term Accredited Investor is defined by the Securities and ExchangeCommission (SEC) and is used to describe investors whohave achieved a level of financial sophistication that eliminates or diminishesthe need for protection that some government filings may provide.

An Accredited Investor is:

A bank, insurance company, or other similarcompany;
An employee benefit plan if a registeredinvestment advisor is involved in the decision making and the plan has assets in excess of $5 million;
A charitable organization, corporation orpartnership with assets in excess of $5 million;
A business whose equity owners are allaccredited investors;

For an individual to qualify asan Accredited Investor he mustachieve one of the following:

A yearly individual income in excess of $200,000per year or a joint income of $300,000 in each of the last two years and canexpect to adhere to this standard in the future.
Have a net worth in excess of $1 million (thiscan be individual or combined with a spouse).
Have a trust with assets exceeding $5 millionwhich was not formed to acquire securities.

These categories were created toattempt to evaluate whether a company or individual has adequate knowledge todetermine the risks and rewards of investments.

Some investments may only beavailable to Accredited Investors. Because AccreditedInvestors can avoid many of the filing requirements most other companiesare subject to they are often singled out because of convenience andprivacy. Selling securities to anon-accredited investor is much more difficult because the disclosurerequirements are much harder to meet. There are certain rules that businesses must follow when sellingsecurities to raise capital. Rule 506(of SEC Regulation D) allows businesses to raise an unlimited amount of capitalthrough securities sales to AccreditedInvestors, whereas they can only sell securities to 35 non-accreditedinvestors who must meet certain standards. On top the standards being rather hard to meet, the company will oftenhave to spend thousands of dollars in legal and accounting fees during thisprocess because of the rules of disclosure. This is often why companies will choose to sell securities to Accredited Investors in order to avoidthis hassle.

It's a new year, winter is raging and opportunities await....

2011-02-10T14:57:00.001-06:00

This time of year I like to take several days away from my day-to-day business, hide out somewhere cold but with a good fireplace and sort through the current opportunities and challenges of my business. I make it a point to seriously limit email and phones so I can think more clearly without the usual "noise" of day to day activity.

I'm always curious about how (or if) other business owners do the same and what approach they take to an annual review or plan. Please let me know your routine and your success with it.

Here's my approach:

I spend very little time comparing what I planned to do with what I actually did. This seems to be an exercise with little benefit. What I do is focused on what surprises I had last year and try to figure out if I could have done something so that the surprises weren't surprises
Next, I try to forecast areas of my business that could create surprises, both good and bad, this year. For example, I've spent some time on interest rates. Interest rates are low now but if they suddenly jumped up it could have a bad effect on my business. Is there anything I can do now to mitigate the effects if higher rates do materialize? I think so.
Next, I look at changes in my industry during the last year to try to determine if our people need training or education in areas where the industry has gotten a little ahead of us. For this year, I'll be doubling our efforts in SEO and social media...but we'll need some help.
Another area I look at is my personal productivity. Have I gotten sloppy anywhere, in what areas can I support our people better?
Lastly, I try to focus on approaching opportunities and try to figure out if we can get ahead of the curve. There are huge advantages in all businesses to be first..but not to early. That's a delicate balancing act.

Drop me a line on how you approach the strategy side of your business and what you do to make sure your thinking is clear.

Do you know yourself? Do you know your clients? What Kind of business owner are you?

2011-01-14T14:42:00.004-06:00

I had a chance to meet with John Warrillow recently. He's the author of an excellent new book that talks about business owners and how they think. It's titled Built to Sell

If you have a dream of selling your business or growing your small business into a bigger business that one day can be sold, this book should help you.

If you're a business owner, or hope to one day be a business owner, this book is important for you...if you are an advisor to business owners this book is critical!

What kind of business owner are you? What kind of business owners are your clients?

Mountain Climber
Freedom Fighter
Craftsperson

Take the time to figure it out, it could be worth a lot of money to you one day soon.

Give it a read, I'll bet you'll be glad you did.

Click here for the link to the book.

Thinking about buying a business? Here's a way to figure what is possible

2011-01-04T14:10:00.000-06:00

If you want to own your own small business there are really only two ways to get into business. You can start a business from scratch, often called a start-up. Or you can buy an existing business from a business owner who is ready to sell their business.

There is much written about starting a business. The biggest problem with a start-up is in the time it takes a start-up to become cash flow positive and unfortunately many never become cash flow positive and they fold.

Buying an existing business is often a good choice. If you do it right you can be cash flow positive immediately and financing for purchasing a business is often very favorable. In a previous post I wrote about "Why would someone sell be their perfectly good business?" and it talks about why business owners choose to sell good businesses.

If you want to buy an existing, profitable, business you need to answer a couple of questions about your situation before you begin your search.

First, how much money do you have available for a down payment before borrowing any money from any banks, credit cards, etc. It will be very, very difficult to buy a good business without a down payment.

Second, what's the minimum amount of money you need to make from the business to live on once you buy the business.

If those two numbers are reasonably close to each other you have a decent shot at buying a business.

Here is a "typical" deal:

Business earnings (Seller's Discretionary Earnings) $75,000
Selling Price of business $200,000
Down payment $50,000
Earnings/Salary you need $50,000
Get an SBA Loan for $150,000
Annual Payments for your SBA Loan $20,500 (10 years @ 6.5%)

Business earnings $75,000 - $20,500 (debt payments) = $54,500 to you the new owner.

Also, when thinking about your down payment there is a mechanism to use you 401(k) funds to buy a business without incurring early withdrawal penalties nor tax obligations.

If you want to be in business for yourself it's always a good idea to get informed and look at all your options.

Why would someone sell me their perfectly good business?

2011-01-02T16:25:00.001-06:00

Often small business buyers wonder about this. There is an all too frequent buyer attitude that says "If it is a good business they wouldn't be willing to sell it to me!"
Here are some reasons we see business owner want to sell:

Divorce of husband and wife owners
Partnership disputes
Owner health issues
Kids don't want the business
The business has gotten bigger than the skills of the owner
The business needs professional management
The industry is changing faster than the owner wants to change (in this case the owner is always convinced the market is wrong and he is right).

There are many other reasons that make sense to the seller, even if it doesn't always make sense to the buyer. the tricky part is, because confidentiality is so important it takes some work to locate a good business to buy. Finding a good business for sale and buying it from a seller who has a good reason to sell could be a formula for success in a business acquisition.

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

2010-12-30T09:16:00.000-06:00

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!

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.
Read more - I don't care how long you've been in business nor how smart you think you are...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.
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.
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?
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 it...by 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!!!

Holiday Reading Ideas for a Better Business

2010-12-26T10:33:00.000-06:00

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.

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

2010-12-24T09:50:00.000-06:00

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

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

What do small business ownersworry about most? Here’s my list based on discussions with thousands ofbusiness 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 7days a week? After all, I’m doing it for them.

Ok, here goes. You knew itwas going this way didn’t you. The Uncle Joe talk…..you know, the uncle whotold you exactly what he thought about your hair brained thinking when you were12 years old. Well, I’m your Uncle Joe.

Here’s my recommendation foryour New Year’s resolutions for 2011.

Stop feelingsorry for yourself.
Stop using yourbusiness as an excuse for not doing the family things that you just don’t wantto do. Helping your family hate your business is not a good plan.
Start thinkingabout your cash flow problems before you have them instead of waiting until youhave them.
Give youremployees written and detailed systems so they know what you expect and how todo it. Believe me, they’d rather not listen to your rants any more than youclaim you don’t want to give your rants.
Only promise yourcustomers what you KNOW you can deliver… then do it. Most unhappy customers arecreated by you. Did you tell the customer what to expect? Did you deliver? Didyour employees deliver (see #4 above)?

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

MerryChristmas and Happy Holidays!

M&A Due Diligence from Seller Perspective

2010-12-21T19:12:00.001-06:00

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

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

2010-12-18T09:36:00.001-06:00

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

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

2010-12-17T09:29:00.000-06:00

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..............................

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

2010-12-08T21:35:00.000-06:00

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?

Small business owners and risks related to employees work claims

2010-12-02T10:44:00.000-06:00

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:

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.
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.
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.

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

2010-11-30T14:20:00.000-06:00

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.

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.

Deduction for Startup 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.

100% Exclusion of Gain for Small Business Stock. For qualified small business stock acquired after September 27, 2010, and before January 1, 2011, the excludible gain is increased to 100% if the stock is held for more than 5 years.

Rental Property Owners Required to Issue 1099s. In 2012, rental property owners will be required to issue Forms 1099 to service providers paid $600 or more. Beginning January 1, 2011, rental property owners should begin keeping adequate records of payments made to service providers such as plumbers, painters or accountants, in order to issue correct 1099s for 2011 payments. There has been opposition to this new filing requirement.

Other Provisions

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.

Standard Mileage Rate. The standard mileage rate for 2010 business miles is 50 cents per mile.

E-file Mandate. Tax preparers must electronically file tax returns beginning January 1, 2011, for 2010 individual and trust tax returns. E-file was already required for corporations with assets > $10 million.

Estate Tax Exclusion. The estate tax was repealed for 2010 but will reappear in 2011 unless Congress acts before then.

Gift Tax Exclusion. The gift tax exclusion is $13,000 for 2010.

Payments to Corporations for Good and Services. After December 31, 2011, payments of $600 or more made to corporations for goods or services must be reported on Form 1099. (Prior to this change, most payments to corporations were exempt from reporting requirements.) The law also extends reporting requirements for businesses to file a Form 1099 for any goods purchased from an outside vendor valued at over $600. This information-reporting provision will increase the paperwork burden on all businesses. However, Congress is currently considering legislation that would repeal this reporting requirement.

American Opportunity Tax Credit. For 2010,this education credit remains in effect for up to $2,500 (100% on the first $2,000, plus 25% of the next $2,000) for qualified tuition and related expenses including books. The credit is available for the first four years of the student's post-secondary education. The credit is phased out at modified AGI levels between $160,000 and $180,000 for joint filers and between $80,000 and $90,000 for other taxpayers. Forty percent of the American Opportunity Tax Credit is refundable, which means that you can receive up to $1,000 even if you owe no taxes.

Non business Energy Property Credit. The non business energy property credit remains for 2010 only. Property qualifying for the credit includes windows (including skylights), exterior doors, insulation, metal roof, advanced main air circulating fans, natural gas, propane, or oil furnace or hot water boilers, and other energy efficient building property that meets certain energy standards. The credit is 30% of the cost of the improvement(s) up to a maximum credit per year of $1,500.

State and Local Sales Tax Deduction, Additional Standard Deduction for Real Property Taxes, Above-the-Line Deduction for Educators. These deductions were not included with the Small Business Jobs Act of 2010 which passed September 27, 2010. However, Congress may consider extending these deductions before year-end.

Retirement Savings Rules for 2010

401(k) Contributions. The § 401(k) elective deferral limit is $16,500 for 2010 and 2011. If you will be 50 years old by December 31, 2010, you may contribute an additional $5,500 to your §401(k) account, for a total maximum contribution of $22,000 ($16,500 in regular contributions plus $5,500 in catch-up contributions).

IRA Contribution Limit. The IRA contribution limit remains at $5,000 for 2010 ($6,000 if you're over 50).

Roth IRA Conversion Rule. Funds in a traditional IRA or other retirement plan may be rolled over into a Roth IRA (earnings and distributions are tax-free). Such a rollover is treated as a taxable event, and you will pay tax on the amount converted. In the past, a taxpayer's AGI for conversions (whether married or filing jointly) was limited to $100,000. This limit has been repealed, and taxpayers are now able to make the conversions without regard to their AGI. (However, the AGI income limits still apply to current contributions to Roth IRAs.) If you are eligible to convert to a Roth IRA in 2010, you will have the option of spreading the income ratably over two taxable years (2011 and 2012). This deferral and two-year spread for distribution income applies to 2010 distributions only.

Interesting Small Business Tax Information

2010-11-30T11:34:00.000-06:00

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.

More to come. It's time to start your tax planning.

Consult with your CPA before making decisions.

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

2010-11-28T09:34:00.001-06:00

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.

It is extremely rare (I can only remember 1 instance is last 5 years) when the business owner actually has any real data to determine their performance. In most cases the owner doesn't even track the number of complaints the business receives each year. Nor do they track repeat customers.

So therefore, in my discussions with the business owner what I am told about customer service is what the business owner thinks is true as opposed to any evidence it is true.

When I ask the question "How is your customer service?" about 95% of the time the answer is "good" or "great"!!

In thousands of discussions with business owners over the years I have never had a business owner answer, "Our service is really lousy but we're the cheapest in town so some customers put up with it." I may not have gotten that answer from business owners but it has been true for many, many businesses.

So..... 95% of the business owners think their service is good or great. Hmmmm, I consistently see customer surveys whose results state that customers get good or great service less than 20% of the time. I wonder which is closer to true?

Why don't most business owners track their customer service results? My guess is they really don't want to know the answer. If they knew the answer they would be faced with the choice of ignoring the issue or doing the hard work of fixing their customer service problems.

If you are a small business owner which category do you fit into:

You know (through reliable data and survey results) what your customers think and you manage your business to improve your customer service?
You don't really know what your customers think about your service and you really don't want to find out.

If you are serious about increasing the value of your business and your profits it's time to take customer service issues seriously.

New 1099 Rules effect on Small Business

2010-11-19T06:43:00.003-06:00

This post provided by Paul Ikard, CPA

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
include:
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.

Reporting Payments to Corporations

Under the rules that currently apply, most payments to corporations are exempt from Form 1099 reporting requirements. However, there are a few exceptions. For instance, payments of $600 or more in a calendar year to an incorporated law firm must be reported on Form 1099-MISC.

Example: our business makes $30,000 in monthly payments to rent office space from a corporate lessor. Under the current rules that apply today, there is no 1099 reporting requirement for the payments, because they are made to a corporation.

Reporting Payments for Property

Under current rules, there is also generally no requirement to issue 1099s to report payments for property (such as merchandise, raw materials and equipment).

Example: Your business buys a delivery van, display shelving, and computer equipment. Under today's rules, there's no 1099 reporting requirement for these purchases.

What Will Change in 2012 and Beyond?

The healthcare legislation makes two big changes to the existing Form 1099 reporting rules and a third change that is hard to assess without further guidance from the IRS.

First Change: Payments to Corporations Must Be Reported. Starting in 2012, if your business pays a corporation $600 or more in a calendar year, you must report the total amount on an information return. Presumably, Form 1099-MISC will be used for this purpose, or the IRS will develop a new form. (Payments to corporations that are tax-exempt organizations will be exempt from this new requirement.)

Examples:
In 2012, your business pays $30,000 to rent office space from a corporate lessor. Under the new rules that take effect in 2012, the $30,000 must be reported on a Form 1099. Your business pays $2,000 for four employees to attend a seminar in 2012 put on by a corporation. Under the new rules that go into effect that year, the $2,000 must be reported on a Form 1099. Several employees go on a business trip in 2012, and your business pays $1,500 to a corporate hotel. The $1,500 must be reported on a Form 1099 for that year.
In 2012, your business spends $1,000 at a local restaurant for an employee holiday dinner. The restaurant is operated by a corporation. Under the rules scheduled to become effective that year, the $1,000 must be reported on a Form 1099.

Second Change: Payments for Property Must Be Reported. Starting in 2012, if your business pays $600 or more in a calendar year to any party (including an individual) as "amounts in consideration for property," you must report the total payments on an information return for that year. The term "property" means computer equipment, office supplies, raw materials, and just about anything else you can put your hands on. Again, Form 1099-MISC might be used to reported affected payments, or a new IRS form might be created.

Examples:
In 2012, your business buys cash registers from a supplier for $25,000. It also spends $1,000 at a food and beverage store to buy refreshments for a company party. Later that year, the company pays an individual $1,500 for an old pickup truck and spends $750 at an office supply store for copier ink and computer paper. Under the new rules that are scheduled to go into effect in 2012, all these transactions will require your business to issue 1099s. As you can see, the new requirements to report corporate payments and amounts to buy property will undoubtedly result in the issuance of many millions of additional Forms 1099 each year.
(Presumably, payments between related corporations will not be exempt.)

Another Burden.

Your business must also obtain a TIN from each affected payee to avoid the requirement for backup withholding of federal income tax. On the other side of the coin, if your business sells property or you operate a corporate business, you will have to supply customers with your TIN to avoid backup withholding on payments made to you.

Third Change: Payments of "Gross Proceeds" Must Be Reported. Here's where the new upcoming rules get more confusing. Under a third new rule that will take effect in 2012, payments of $600 or more in "gross proceeds" to a payee in a calendar year must be reported on an information return. At this point, it is unclear what this new reporting requirement is meant to cover. The best guess is that it is meant to cover payments add to non-corporate payees, such as restaurants and other small businesses. We are awaiting IRS clarification on this issue.

Action Plan

Dealing with the new Form 1099 reporting rules is going to be difficult for many organizations -- resulting in an avalanche of paperwork. Your business will likely have to modify its accounting procedures to capture payee information that will be needed to comply with the new requirements.

Remember: TINs must be obtained from your vendors to avoid having to institute backup federal income tax withholding on payments made to them. By the same token, your business must ensure that your customers have your TIN to avoid backup withholding on payments made to you. What if backup withholding does occur on payments made to you? You must be prepared to track the withheld amounts so you can claim edit for them at tax return time. If your business winds up on either side of the backup withholding rules, it can be a real mess. And with lots more 1099s flying around, the odds of errors rise proportionately. To compound the problems with the new reporting requirements, many businesses use accounting methods other than the cash basis. In addition, a number of businesses file their returns using reporting periods other than calendar years. In an audit, imagine your business and the IRS attempting to reconcile 1099s with these complications.
Fortunately, the new Form 1099 reporting rules (including any backup withholding implications) don't cover payments made before 2012.

Click here to visit the website for Mr. Ikard.

The Bush tax cuts debate and the real small business story

2010-11-16T20:13:00.000-06:00

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:

Mary pays an employee $32,000.
Mary makes additional $50,000 before tax and $30,000 after taxes (40% tax rate)
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:

Mary hires and pays an employee $32,000
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.

Need an SBA Loan? Here's a list of SBDC locations

2010-11-14T08:35:00.000-06:00

Here's a list of the Small Business Administration's Small Business Development Centers.

Contact one of these offices to see if your business qualifies for an SBA Loan

List of offices.

5 Reason to get a business appraisal

2010-11-13T08:52:00.000-06:00

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

So you can keep track of what business value you are building not just what income you are generating.
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.
So you know what the Small Business Administration would value your business for if you applied for an SBA Loan.
So you know how much life insurance you need to buy-out a partner's interest if something bad happens.
So you know how much you could lose by not properly segregating your personal and business risks.

Please read number 5 again...........

Is the small business owner world upside down?

2010-11-11T14:40:00.000-06:00

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.

Ouch..................

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

2010-11-08T15:29:00.000-06:00

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.

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

2010-11-02T13:11:00.001-05:00

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.

What is an "S" Corporation?

2010-06-21T13:16:00.001-05:00

An S Corporationis a form of business classified for federal income tax purposes as acorporation that has elected to be taxed as a pass-through entity, in a mannersimilar to a partnership or sole proprietor. Unlike a regular corporation, or a C corporation, an S corporation (bothnames derive from sections of the Internal Revenue Code) generally is notsubject to federal income tax. Insteadits income is reported on the tax returns of its shareholders, and they havethe responsibility for paying the tax. If there are losses suffered by the corporation, they also pass throughand are reported on the shareholders’ income tax returns.

Because only the shareholders,not the corporation, are taxed, S corporations avoid the problem of doubletaxation associated with C corporations. This is the biggest draw for creating an S corporation, particularly forclosely held corporations.

Shareholders in an S corporation,like shareholders in a C corporation, generally have limited liability arisingfrom corporate matters, even though they pay taxes as if they were partners orsole proprietors. In addition, when thecorporation is eventually sold, there can be reduced taxable gains, as comparedwith the sale of a business operating as a C corporation.

On the downside, the limitationon classes of stock in an S corporation provides less control over the companyand the value of its stock. Potentialoutside investors likely will not be attracted by the pass-through taxcharacteristics of an S corporation, nor by the limit on the number ofshareholders. Although corporate taxesare avoided, there is still a requirement for filing an informational taxreturn every year for a corporation with more than one owner. Finally, if avoiding formalities is animportant consideration, it should be noted that, like any other corporation,an S corporation must follow the requirements for having regular meetings andkeeping company minutes.

The balancing of the advantagesand drawbacks of S corporation status in any given case is sufficiently complexthat it is advisable to seek professional advice beforemaking this important choice.

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

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

2010-06-20T09:37:00.002-05:00

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.

Why are sytems for your small business so valuable?

2010-05-01T06:41:00.001-05:00

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.

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

2010-02-27T17:42:00.000-06:00

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 pay...how 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?

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

2010-02-26T20:51:00.000-06:00

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

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

2010-02-15T15:31:00.000-06:00

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

Areasof concern to employers include:

federal minimum wage,overtime, and record keeping requirements;

how to determine whichwork-related activities are considered "hours worked" andconsequently hours for which employees must be paid overtime pay;

whether a particular employee is exempt from the Fair LaborStandard Act's minimum wage and overtime pay requirements; and

contract labor or employee status.

This postwritten by Attorney Tom Solomon - Houston, TX

Is Your Small Business Worth Anything?

2010-02-07T09:25:00.000-06:00

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.

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

2010-01-30T17:30:00.000-06:00

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.

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

2010-01-22T20:47:00.001-06:00

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

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.
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.
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?
Hire someone smarter than you this year. Do you have the courage for that?
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.

Federal Capital Gain Tax Rates: Where are they headed?

2010-01-14T06:52:00.004-06:00

Guest post by: Business Transaction Strategist, Monty W. Walker

Since 2003, the top tax rate on most capital gains has been 15% for people in the 25% or higher tax bracket. Although a lower level tax rate has also been in place since 2003 for people in the 15% or lower tax bracket, this rate is only applicable until a person has enough income to cause him / her to enter the 25% tax bracket. As a result, for people incurring a capital gain from selling a business, most of them are in at least the 25% tax bracket so the top 15% rate is generally the rate they experience.

The current capital gain rates are scheduled to expire effective December 31, 2010 due to a time lapse built into the regulations associated with the 2003 gain reductions. This time phase-in is known as a sunset provision. Thus, starting in 2011, the top 15% rate is scheduled to revert to its former pre-May 6, 2003 level of 20%.

President Obama made a pledge to the American people that he and his administration would not raise taxes. Well, he was able to make this pledge with confidence regarding the tax on capital gains because the sunset provision was already going to cause the rate to increase.

The big question now is; Will the top rate only rise to 20% or will congress raise it higher?

Background:

For the past 30 years, the top tax rate on long-term capital gains has been below 30%.

The top tax rate on most long-term capital gains was reduced from around 35 percent to 28 percent in 1978 and was further reduced to 20 percent in 1981. It was raised to 28 percent in 1987, reduced to 20 percent again in 1997, and further reduced to 15 percent in 2003.

The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) extended the 15% rate through 2010. But, in 2011, the top long-term capital gain rate for most long-term capital gains is scheduled to revert back to the 20% rate that applied prior to the Jobs and Growth Tax Relief Reconciliation Act of 2003 (2003 Tax Act).

The pending tax change is well within the range of changes experienced in the last 30 years.

What to Expect

On September 25, 2009, in a letter to Representative Brian P. Bilbray (R-CA), the Congressional Budget Office (CBO) stated that when assessing the impact of the increased tax rates on economic growth, it is important to keep in mind that taxable capital gains account for a small portion of all capital income. Much capital income is paid as dividends, interest, rent, and proprietors' profits. In addition, most capital gains are not taxable because they are held in tax-exempt accounts or are held until death. As a result, CBO does not anticipate that the pending increase in the capital gains tax rate alone will have a large enough impact on the rate of return to capital overall to change significantly the magnitude of saving and capital investment.

But the CBO did further state that higher capital gains taxes could have an additional effect by discouraging innovation and risk-taking, but there is insufficient evidence on which to base a quantitative estimate.

Congress depends on the CBO to help corroborate the financial and tax results of congressional decisions. In this case the CBO is uncertain as to the full impact to be realized by an increase in capital gain rates. This indecisiveness is exactly what Congress wants in order to support that an increase in capital gain rates will not be harmful.

Also it is important to keep in mind that with the pending Health Care Reform, people classified as wealthy will experience an additional tax levy or surtax. In the House Bill, the surtax will apply to families earning more than $350,000 a year and individuals earning more than $280,000. The surtax will start at 1 percent and rise to 5.4 percent on income exceeding $1 million. In the Senate Bill, families of more modest wealth - over $250,000 - will experience a payroll tax hike of 0.5 percent.

Take notice that the surtax in the House's Bill of 5.4%, when combined with the Year 2011 expiration of tax cuts enacted during the Bush administration, the surtax will drive the top federal tax rate to 45%, the highest level since lawmakers rewrote the tax code in 1986. That's right, in Year 2011, along with an increase in capital gain rates, the top federal tax rate returns to 39.6%.

As previously stated, the sunset provision on capital gains will cause the top capital gain rate to increase to 20% on January 1, 2011. When considering the financial impact resulting from the War on Terrorism and the overall increase in congressional spending, it is very likely that the issue of raising capital gain rates even higher will be introduced by some member of Congress.

Assuming a final Health Care Reform bill is submitted to the President, which it certainly appears will be happening, and likely before the end of January 2010, a person with a capital gain which causes his / her total income to be above $280,000 will already pay more that 20% because of the surtax.

So, should a person trigger a capital gain in Year 2010, such as selling a business, if at all possible?

Since most business sales include a blend of capital gain and ordinary income, when considering the known capital gain rate increase, the potential for additional capital gain increases, the pending surtax and the fact that the top federal tax rate returns to 39.6% in Year 2011, a clear answer certainly emerges.

If an entrepreneur wants to experience the lowest tax impact possible from selling his / her business, selling before the tax rates increase is the way to go.

Based on current regulations, 2011 capital gain tax rates will be at least 20% with the health care surtax likely causing some people to exceed a 25% aggregate rate. If congress decides to implement further increases, anyone who waited until 2011 to sell a business will wish they could go back in time to 2010.

Guest Post on SBA Lending

2010-01-11T14:53:00.001-06:00

Why SBA Loan Production is Down
Sheila Spangler, CBI, Capital Strategies, Boise, ID

There was an article recently on CNNMoney.com 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.
Banks:

• 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?

Good Article on Corporation vs S Corporation in Sale of Business

2010-01-06T16:10:00.000-06:00

Tax Issues, Benefits and Risks.

Click Here for Source Article.

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

2010-01-06T07:00:00.000-06:00

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

Good article on why you need to do more than cost cutting

2009-12-29T13:20:00.003-06:00

As the saying goes......a small business can't save it's way into prosperity.

Here's an article on how to focus on the things that will help your small business succeed in good times and bad.

CLICK HERE

Is 2010 the year you make your small business work for you?

2009-12-22T17:24:00.004-06:00

If you own a small business, or considering starting or buying a small business, this article could give you a path to make your life as a small business owner more enjoyable.

Let this be the year you finally change your relationship with your business.

It will be difficult, you have habits and assumptions that won't be easy to set aside. If you adopt a few principles the day-to-day, hour by hour decisions will be easier, more predictable and less stressful . Many small business owners are so bogged down in the details of their business they have never really given much thought to the principles that guide their business. Even though they haven't thought much about their business principles rest assured the business is being run by certain principles. For instance, is your pricing based on cost plus? Or based on competitive position? Is your business principle is to always recommend what is best for the customer or is your policy to recommend the the customer what is most profitable for you?

Here are a few principles I suggest you consider in 2010:

Start every business day by spending 30 minutes planning your day. Do this first every day.
Commit to recommending what's best for your clients and customers, not what's best for you.
Treat your employees respectfully. Good employees won't work long term for you if you are disrespectful. Employees who will work for a disrespectful manager long term are not employees you want.
You have to be fair and honest with your employees but you don't have to be friends with them.
Treat your suppliers and vendors respectfully and fairly. You can be tough without being a jerk.

There it is 5 principles that might help you run your business without interference from "situational ethics". If you apply the above principles in every situation you reduce the number of decisions you need to make, your employees will be easier to manage, your suppliers and vendors will more cooperative and your customers will trust you more which will lead to more long term customers.

The Myth of..... "If I had more capital I could grow faster and be really, really profitable."

2009-12-10T20:26:00.004-06:00

Here's a request we often hear from small business owners:

"Can you find me an investor? If we had more capital we could grow like crazy and make a ton of money!"

My next question to the business owner is "What would you do with $100,000 if someone wrote you that check today?"

Wow, you should hear the answers I get to that question. Here are a few examples:

"I'd pay off my debts so I could get a new loan." Huhhhh???

"I'd lower my prices so I could sell more stuff." Huhhh?

"I'd pay off some of my personal debts so my wife would stop yelling at me." That one I understand!

Even for the biz owners with answers that sound reasonable the exchange often goes something like this:

Me, "What would you do with $100,000 if someone wrote you that check today?"
Biz Owner: "I would expand my business."
Me, "How would you expand it and when would your expansion turn into additional profits?"
Biz owner, Blank stare.

The bottom line is, in all my encounters (and there are very, very many) with small business owners who say they want or need additional capital less, than 5% have a plan that makes any sense whatsoever. And then they wonder why a bank won't give them small business loans.

The vast majority of small business owners are really very bad at planning. The reasons for it are many but I think the primary reason is they have little or no idea what pieces of their businesses create the results.... good or bad.

Most small business owners are hard working, they show up for work every day and hope that working hard will result in success. Unfortunately there is very little correlation between hard work and financial success. What you need is hard and smart, not just hard work. If you own a small business spend more time on detailing out a logical and well thought out business plan. A business with a good business plan is much more profitable and infinitely less stressful than a business that wings it day-to-day. Start now, create a 1 year plan for 2010. Simple 1 year plan, week by week. Do it NOW, your deadline is to have it done by January 2, 2010. Give it a shot, what if I'm right?

Once you have a plan have someone who is successful in small business look at your plan. Don't worry about being wrong. Worry about getting better, your health and your bank account will thank you.

Have questions about what should be in your plan? Shoot me questions related to your business in the comment section and I'll try to answer them.

To paraphrase a famous business saying "A weak plan with mediocre execution will always beat no plan over the long term. A good plan well executed will always beat a great plan poorly executed."

Small Business owners need to build and preserve wealth

2009-12-06T09:38:00.004-06:00

Here's a good book to help you understand what it takes and an option for protecting the value of your business once you've created value from your business. It's worth the time if you're serious about your business. Click here

Steps to Starting a Small Business in a Difficult Economy...Part 2

2009-12-02T18:41:00.003-06:00

In Part 1 Steps to Starting a Small Business in a Difficult Economy I gave you 6 things to nail down before starting or buying a small business. Assuming you've done your homework on those 6 items (or more likely you've probably decided to ignore at least 4 of the 6) it's time to move to the next phase... THE BUSINESS PLAN!

My job here is to give you the real world, not the theoretical text book version.

Here are some things to consider when putting together a business plan:

The more you lie to yourself the more likely you are to fail.
The business plan is for making good decisions not making good presentations.
Don't act on your business plan until it has been reviewed by and you've received comments from a successful small business owner. Ignore their recommendations at your own peril.
Know the numbers inside and out. If you can't recall from memory your sales, costs, working capital requirements, inventory, cash, etc, then you've haven't worked on your plan long enough.
Your business plan is not a tool to figure out how successful you can be, it's tool to make sure you don't fail.

Too many small business owners think the business plan is a necessary evil for banks and lenders. If you're smart you'll make your small business plan your best friend, a friend that can keep you from making dumb or careless mistakes.

How to save money the expensive way...

2009-11-28T16:20:00.005-06:00

I see small business owners who will spend $5,000 making sure their pick-up truck has the best sound system and wheels. Expenses that are, in all probability, money down the drain.

Then I see the same business owner sign an important contract without having their attorney even look at it. Now I'm not an attorney and I don't like spending money on an attorney any more than the next person but here's what I do know, for certain:

1. I like to sleep well
2. I buy insurance for a car wreck, hail storm, hurricane, boat sinking, etc

Why should you have your attorney review all your material contracts?

1. You'll sleep better. At least if you have any sense you will. If you sleep fine now and don't have a good attorney reviewing your contracts then you don't know what you don't know.

2. Having an attorney review your contracts (oh yea, did I mention the attorney should review them BEFORE you sign it... attorneys right now are nodding their heads. They see more contracts from clients with the request .."get me out of this contract", than they see contracts where client a says "should I enter into this contract"?) is like buying insurance. I buy insurance because I want to spend some money now to protect me if there is something that really, really goes wrong.

I had a client once who was having some significant business problems. Problems like ...she was losing her shirt. It was a mall based business. When I started asking her about the situation I got to the lease. Here's how the conversation went:

Me, "what's your lease like?"
Her, "I can't remember, the leasing agent said they didn't make changes to their leases so I needed to take it or leave it. I took it."
Me: Do you have the lease?
Her: Yep here it is.
Me: Whoa this is pretty tough.
Her: I don't know why you say that, it's only $6,500 per month
Me: "Well, it's $6,500 per month now and it goes up every 2 years and it's for 10 years and you have personally guaranteed the lease. By my quick back of the envelop calculation the value of this lease is about $1,000,000"
Her: What????????????
Me : You didn't know this?
Her: No, they said that what they gave me was the standard lease and they didn't make changes, so I signed it.
Me: They didn't make changes or they didn't like to make changes?
Her: Uhhhh........
Me: I have another client in this mall and their lease is much more favorable.
Her: Oh no.

When she signed the lease she saw $6,500/month, and said toe herself "sure I can swing that." When I saw the lease I saw $1,000,000 contingent liability and she's on the hook for $1,000,000 personally if things in the biz go badly.

How do you know which contracts you should have your attorney look at? Figure out what the costs or damages are if something (or everything) goes wrong. For some people the threshold is a few hundred dollars, for others a few thousand. However, if your practice has been not to have your attorney review all contracts then I suggest you start now with basically every contract. Especially those that are recurring contracts like contracts with customers or vendors.

Stop looking at attorney review of contracts as an expense and start looking at it as insurance.

Should I find a job or I buy a job? Eight important questions.

2009-11-23T17:43:00.003-06:00

Many people get fed up with working for someone else and consider starting a small business or buying a small business. If you are considering being your own boss please give consideration to the following questions. Can you ask yourself these questions and answer them honestly? I'm serious, can you answer them honestly?
1. Are you really as smart as you think you are?
2. Are you willing to work harder for yourself than you do for someone else?
3. Can you live with a high risk/high reward life?
4. Can you make good decisions with limited information?
5. When you're wrong can you admit it, correct it and move on?
6. Can you resist the urge to spend like a fool in good times so you'll have reserves for the bad times?
7. If the toilet needs to be cleaned will you do it?
8. Which would you rather have, a big image or a big bank account?

If you answered yes to at least 7 you have a chance to succeed. Now go back and take the test again. Remember be honest with yourself, it could make you wealthy or it could make you broke.

Steps to Starting a Small Business in a Difficult Economy

2009-11-21T07:40:00.002-06:00

It seems obvious but unfortunately it's rarely considered by people starting a small business. Here's my pearl of obvious wisdom: "The key to having a successful small business is surviving long enough to be successful."

The key word...survival. Below are the Big 6 list of items that you have to consider and plan for. The lists assumes you are actually in the serious planning stages and you've done some basic research. Here's my list:

1) Know for certain how much liquid cash you have to dedicate to starting your small business. Not how much you think you can borrow from a bank nor how much you think your aunt Mary, who thinks you're perfect, will give you. Your money! If it's $0 it's $0 but know this number for certain.

2) Decide if your business will be something you want to "have fun" with or if your small business is a tool for you to achieve your goal of financial security and control.

3) Find at least 2 small business owners who run successful businesses and ask them the mistakes they wish they hadn't made. This step is more helpful if you interview relative strangers.

4)Know for certain how much money you or your family needs to live on each week, month, year. Your plan needs to assume your business will not generate a profit (free cash flow you can use) for at least 9 months.

5) If you've never worked in a small business go get a part time job in one or even work for free if you can't find a paying part time job. Do this for at least 3 months.

6) Don't read any books about starting or running a small business that aren't recommended to you by a successful small business owner. Here's my recommendation Click here

You didn't really think there were ONLY 6 things did you???

I'll post soon on how you can figure out what kind business might work for you.

Hidden Costs of Doing Things You Shouldn't Be Doing

2009-11-19T20:24:00.003-06:00

Outsourcing is a much discussed topic but I rarely see it focused on the primary strategic issues facing a small business owner. What I too often see is "Outsource and save money". This is rarely true. However, what I think the outsourcing industry should market is...."Outsourcing = spend more money and make even more money."

When I talk to business owners I ask them "what does your business do best?" I get all kinds of answers, some make absolutely no sense. I once had a guy who owns a auto repair shop say "I have a great website". My reaction... what??? I may look at things differently but I'd prefer that my auto repair shop was best at...well, I know you see this coming, I'd like my auto repair shop to be best at auto repair.

But in other instances I get business owners with the right answer but....

For example, I asked a staffing business owner what her company does best and she says "we're really good at matching the right person to the right job." That makes sense. So then I ask... "In what area does your business need the most improvement?" Her answer, "sales". Makes sense, so then I ask, "What area of your business do you spend most of your time in?" Her answer "bookkeeping and accounting". What???? I see this all the time, all the time. The business owner knows what they are good at and what they need to improve but they spend a very scarce resource, their time, doing things that don't contribute to the improvement of the business in any strategic sense.

Business owners who spend time on "non core" activities think they are saving money but they aren't. What they're doing is making themselves feel good by being busy.

The reason to outsource is not solely to save money because often times it's hard to see a dollar for dollar return on peoples time when outsourcing. But what outsourcing does is a) provide more professional, complete and reliable task accomplishment and b) frees up the scare resource of owner time so that the small business owner can concentrate on perfecting what the business does best and improving on the core areas that need improvement.

Want to have a better business that is more focused, more profitable and easier to operate? Try smart outsourcing.

Soon I'll add a post on how to begin the analysis of what you should outsource and what you should control directly.

Should you have your small business books audited?

2009-11-17T15:50:00.007-06:00

For the vast majority of businesses with revenues under $2,000,000 the answer is no. Unless, you have external requirements from bonding company, shareholders, finance companies, etc.

However, even if you don't have those direct external requirements for Audited financials you should have your books at least "Reviewed" by an independent CPA. A Review is not just "hey, take a look". A Review is a formal process that is less expensive than an audit but with many of the same benefits. What are the direct benefits to the business owner?

1. A look at your business through the eyes of business experts not involved in your small business day to day. These fresh eyes can show you how to improve profits, better manage cash, reduce risk, etc.

2. A reviewed statement will reduce the impact of "on the fly" accounting treatments that are often made by internal bookkeeping staffs. The review will add discipline which will make the financials more useful. For instance, do you now account for your cost of goods sold the same way every year, every month so that you can compare the information and make decisions accordingly?

3. It is much, much less expensive to get reviewed statements if you've committed to the review BEFORE the year begins. Going backwards is more work, much more work.

4. You may not think you need Reviewed books now but what if 18 months from now you are approached by a buyer who is willing to make you a great deal to buy your business but they only buy businesses with at least reviewed financials for 3 years. You could miss the opportunity of a lifetime. You need to commit to accurate reviewed books before you have any idea you will need them.

5. I assure you that a bank will be more likely to approve a loan to a business with reviewed books than a business without reviewed books. And what if having reviewed books means you don't have to sign a personal guarantee for the loan? Big advantage there!!

If you want a small business that is easier to run, more profitable to own and more valuable to sell then start NOW to get your books reviewed by a qualified CPA.

Run your business like you'll own it forever..and remember it's always for sale..

2009-11-12T19:53:00.002-06:00

Sounds like a contradiction right? Well it isn't.

You never know when the opportunity to sell will present itself. The best course of action is to run your small business like a a buyer will determine how much they are willing to pay you for your business tomorrow. Run it well, do the right things and have all your books and records in excellent condition.

But...... then why run it like you'll own it forever?

Because you can't out guess what a particular buyer will value. The best you can do is, as always, do what's best for your business.

Your decisions and actions as a business owner will determine what your business is worth, tomorrow or 5 years from now.

List of Common Problems We See in Small Businesses

2009-11-10T13:11:00.004-06:00

Below is a list compiled from talking to and evaluating hundreds of small businesses. Small business opportunities to improve are often very easy and inexpensive, it just takes a little attention to detail and a commitment to improvement. Here is my list:

1. Detailed written procedures for critical or repetitive tasks. Most small business owners struggle with "finding good employees" the problem is usually not that the employees are not "good" it's that new employees learn differently and written instructions can get new employees productive faster and less likely to get frustrated and give up.

2. No system to follow up on sales opportunities. It's incredible how often we see this. Customer calls, asks a few questions then says "I'll call back", business doesn't even ask for a phone number much less check back with the customer.

3. Poor accounting makes the financial statements essentially useless for operating the business. The lack of accurate financials makes budgeting very difficult and consequently we often ask the question "How's the business doing?" The answer, "Seems pretty good, I guess my accountant will tell me in March." Not good.

4. The small business owner really has no idea how his pricing is compared to competitors. They don't do any "research". Their only feedback is when their customers tell them "Your price is too high!" Duh, most customers will tell them that even if it's the lowest price they received!

5. Failure to seek expert advice until they have a problem. You know the saying, an ounce of prevention....... Often small business owners do not want to pay an attorney, CPA, financial planner because they think the issue won't be a problem....but when it is a problem... it costs them 10 times as much as it would have if they had done a little up front work.

How to Make an Offer to Purchase a Small Business

2009-10-26T18:30:00.002-05:00

Buying a small business is a unique process in many ways. Here is a list of "elements" of a contingent offer that might make sense when considering a purchase.

Contingencies are very important when making an offer. A buyer is not likely to get full access to all of the business books and records without first agreeing to a purchase price and terms CONTINGENT on full due diligence. Contingencies to consider when making an offer:

Small Business Financing - If you will need financing include a contingency for obtaining small business loans on terms and conditions acceptable to you.
Include a contingency for buyer and seller to agree on a specific training and transition plan.
Contingency for any agreements to be assumed by buyer to be on terms acceptable to buyer (example, facility leases, copier contract, machinery leases, etc)
Contingency for background check on the business and the seller's themselves. It's important for buyer to know who they are buying the business from.
Contingency for full review of all business records including tax returns, sales tax reports, bank statements, etc.

As always, reassure the seller that you understand the confidential nature of this information. Those 5 contingencies above are a start to buy a business, some specialized businesses require more specialized contingencies. For instance there could be a case where a particular supplier is extremely important to the business, a contingency might be for the vendor to approve buyer and agree to continue to supply the buyer after closing.

These kinds of 3rd party approvals can be very tricky, get good advice before heading down this path. Think through your small business ideas and build your contingencies to make sure that you've covered all the bases.

Due Diligence when Buying a Small Business - Part 4

2009-09-11T07:58:00.004-05:00

In a previous post, Due Diligence Part 3, we talked about how to deal with tax returns, in Due Diligence Part 2 we talked about Sales Tax issues. Here in Part 4 we'll talk about a background check you might considered getting when you are in the due diligence process of buying your small business. Do diligence is not just about investigating the small business accounting, it's about the entire business..

A business background check might turn up nothing, which is probably good. Or a business background check could turn up everything from tax liens, lawsuits with suppliers or customers or even criminal activity. Basic background checks can be very inexpensive and are available online. One possible source is Background Now.

Due Diligence is supposed to give you comfort, if you check everything and there are no deal killers you can complete the purchase of your small business and sleep a lot better.

SBA Loans have new underwriting policy

2009-09-09T19:33:00.005-05:00

A few days ago the SBA came out with a new lending policy to be used when buying a business. Business brokers are very excited about this change since it will facilitate more financing for small business purchases. About 15 months ago the SBA made a draconian change in their underwriting that eliminated business acquisition financing for goodwill in excess of $250,000. This 2008 policy change effectively dried up SBA lending for buying a business sales. Small business financing is a unique problem since the loans are usually not large enough for lenders to make much profit.

SBA loans are a very important part of the small business financing options. The newly released SBA business loan policy allows up to $500,000 in goodwill financing or if the buyer puts up at least 25% in equity the goodwill limit is uncapped.

This policy change is important because the goodwill value in the transaction is an indication of a highly profitable business.

SBA loans are back and business buyers and sellers will be more able transfer business ownership to retain jobs and help their communities grow.

Teaching a course at Lone Star College

2009-09-09T19:25:00.003-05:00

I have agreed to teach a course on "how to find the right business" at Lone Star College. Course will be at 4 different campuses. For info go to http://bit.ly/4gQtlx.

How to deal with a Business Broker if you are trying to buy a small business

2009-08-28T16:01:00.002-05:00

Business Brokers are not all alike nor are their processes. Here are 5 Dos and 5 Don'ts when working with a Business Broker:

Dos

Make sure the business broker tells you, in writing, who they represent. Usually it is the seller.
Make sure you know what your financial situation is before you meet with the broker. How much of your own money do you have to invest? Not how much you think you can get, not what your golf buddy says he'll back you for... YOUR money!
Make sure you know the minimum amount of income you need to support yourself when you buy a business. Not the most you'd like to make and not what you think you deserve...the amount you need.
Be open minded about the kinds of businesses that might fit your financial situation
Do your homework but do it quickly. Clear your calendar so you can take care of what needs taking care of in a timely fashion

Don'ts

Don't expect the business broker to re-arrange his whole world to accommodate your schedule.
Don't assume you know more than the broker ( you might, but don't assume it)
Don't bad mouth a seller. If you're not interested just leave it at that and move on.
Don't try to convince the broker you have resources and skills that you don't have.
Don't be maybe, maybe, maybe.... a fast no is better than a slow maybe. Move through the process efficiently.

Keep these tips in mind and you'll have a better chance of seeing the good businesses.

When buying a small business - Allocation of Purchase price is important!

2009-08-25T19:44:00.006-05:00

Allocation of Purchase Price is done for tax purposes when buying the assets of a small business. The allocation is important because it effects how the person buying a business and the person selling a business will be taxed and what deductions are possible.

Always do the allocation of purchase price before closing the transaction, it's real money! Business brokers should be able to provide you details and the appropriate IRS form 8594.

Here are the issues:

Buyer wants shortest depreciation schedule for acquired assets.
Seller wants tax treatment at capital gains rates, not ordinary income
Buyer wants to write up value in hard assets so buyer can deduct more in depreciation
Seller does NOT want to write up assets because it triggers depreciation recapture and tax at ordinary income rates
Goodwill and intangible assets are 15 year write off for buyer and cap gains rate for seller.

A good allocation of purchase price can reduce the total amount paid for a business after tax, and after tax is all we really care about, right? Same issue for seller, a good allocation of purchase price can maximize the after tax benefit to seller.

For buyer the difference is WHEN they can deduct the price, for the seller it's the difference between cap gains rates and ordinary income! Big difference!!

Talk to your business broker about how to address this issue in any offers.

Due Diligence for Buying a Business - Part 3

2009-08-23T18:55:00.004-05:00

Assuming you've read Part 1 and Part 2 here we go with Part 3.

Sales Tax and Due Diligence in a small business purchase: Make sure the seller provides you with the Sales Tax Reports for at least 3 years. Double check those with the reports filed with the state. It is pretty unusual for small business owners to over-report sales and pay taxes they don't owe ,so this is a good source for determining the minimum sales level. If the sales tax reports and payments are not up to date seek legal advice on what effect that could have on you if you purchase the assets. In some states the sales tax "chase" the assets and you could be in for a surprise when the tax man shows up for old taxes on the assets you just bought.

If you are working through a business broker they probably already have the sales tax reports an can provide them to you in due diligence. But as always, trust but verify. Cross reference with the official state reports.

Financing the Small Business in Today’s Environment

2009-08-20T14:24:00.001-05:00

Guest post from Mr. Tim Stamps DRDA, PC

Most of us have encountered a budding entrepreneur who has spent the majority of his/her career in the corporate world and then finally musters the courage to step out on a limb and start their own small business. They face a few problems, though: despite his long-standing corporate career and a nice 401(k) for retirement, they have very few liquid assets and are in need of some capital for their business start-up.

For many small business owners the prime source of funding comes from personal savings, or by refinancing their personal residence with a home equity line of credit. Even so, entrepreneurs still often use outside sources such as friends and family, capital markets, or private equity groups. Funding from third parties can prove undesirable, though, because outside sources usually expect a lion’s share in the business in return for equity financing.

BORSA: A compelling, yet widely unheard of source of equity is the Business Owners Retirement Savings Account. BORSA, for short, is a tool which allows entrepreneurs to fund the purchase or recapitalization of a franchise, business start-up, or business property using their holdings in a 401(a) pension profit sharing 401(k), 403(b), 457, or IRA rollover. By utilizing the BORSA these purchases can be accomplished without distributions, taxes, penalties, or the use of retirement plan loans.

DRDA, P.C., a CPA firm, designed the BORSA (c) in 2005 as a result of extensive research for a tax and penalty-free solution for clients with the need to access their retirement accounts to start a business. They analyzed the provisions of the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act (ERISA), as well as professional publications and court cases that they felt were pertinent. Additionally, DRDA sought the expertise of a nationally recognized ERISA attorney to solidify the legality of such a solution. Today, the BORSA is recognized and is available in all 50 states.

There are three basic requirements for setting up a BORSA for a business venture. First, the business owner must have an existing retirement account such as an IRA or one of the other aforementioned accounts and have the ability to transfer or rollover the funds in the BORSA. Second, the business must be an eligible “active trade or business” that will have at least one employee. Third, the individuals need to work with professionals familiar with BORSA rules and governing laws.

To clarify, a BORSA is not a loan, nor a self-directed IRA. A direct investment into an “active trade or business” by a self-directed IRA is prohibited. The federal government does recognize the use of money from a 401(k) plan as an equity investment. In fact, the Small Business Administration SOP 50-10(5) that was released August 1, 2008 stipulates the SBA will not require a 401(k) plan owning more than 20% or more of a company to guarantee the loan. What’s more, unlike other sources of funding such as credit cards, SBA or asset-backed loans the BORSA plan does not generate additional debt for the business owner.

For additional information on the BORSA plan visit www.borsaplan.com or contact Tim Stamps at DRDA, P.C: 1521 Green Oak Place, Ste 198, Kingwood, TX 77339; telephone: 281-852-3131; email tim@drdacpa.com.

Buying A Business: The Business Plan as a Guidebook

2009-08-19T20:57:00.004-05:00

I am always amazed at what little effort goes into a business plan when business buyers are looking at a business. The buyer will spend more time trying to figure out how to make the office bigger than they will trying to build a business plan the will improve the business.

When considering the purchase of a small business here are the 6 elements I think should be in a well written plan:

Cash flow forecast: It's not enough to be able to make a profit, the business plan template should include a cash flow element, first 90 days week-by-week, after that monthly for 1 year.
A detailed step by step, minute by minute plan for exactly what you need to get done in the first 60 days.
A marketing section that deals with two elements a) what are you going to do to keep the business that is already there b) what are you going to do to get new business
A detailed plan for personnel, what you will discuss with each employee and a well thought out plan for anticipating the employees questions (insurance, benefits, pay, etc)
A detailed description of where you see the business in 3 years, bigger? Smaller? New products? New geography?
A detailed plan for keeping current vendors happy and a separate plan for identifying and nurturing back-up or new suppliers.

There you have it. A basic no frills look at what issues are important in the new business. The are many resources on the Internet for ideas on how to write a business plan. Many of those can be modified to serve your purposes. This business plan should mean something not be just a fluff piece to to use to apply for small business loans. This document should guide you and give confidence to your employees, customers and suppliers.

Take the time to make it make sense and avoid the common trap of convincing yourself you're a genius and then create some pie-in-the-sky plan that is useless as soon as you hit the print button.

Confidentiality in the Business Sales Process.. why it's important to buyers, sellers and business brokers...

2009-08-17T05:53:00.006-05:00

One of the most misunderstood aspects of selling or buying a business is the confidentiality issue.
Why do owners who are selling a business want to maintain confidentiality? Why is everyone so paranoid?

Here's a short list:

If employees find out the business is for sale they often assume the worst even though it's not true 99% of the time. For some reason most employees assume that if the business is being sold they will lose their jobs. That uncertainty between the time the employees hear the business might be selling and when it does sell leads employees to try to protect themselves by looking for another job. The irony is that business buyers are worried that the employees will quit, while employees worry a new owner will fire them. If the first any employee hears about the business being sold happens after the sale the new owner can say to them "I bought the business and I want you to stay with the business, you have a job ." Confidentiality helps the buyer and seller.
If competitors hear about a business being sold they will talk to customers and spread rumors and try to scare customers into leaving the company. Comments to customers like "XYZ Co is for sale, they aren't able to fill your orders" can sometimes, even though not true, disrupt the business prospects. The buyer wants those customers after the business purchase so protecting confidentiality helps the buyer and seller.
Vendors - Supplier's get antsy if one of their customers is being sold because they have a fear of not getting paid or losing the volume. So vendors sometimes will put a business on c.o.d. terms if it fears a sale will jeopardize the credit it has extended the business. Again, if buyer can tell vendor after the sale. "I've bought the business and I look forward to continuing to use you as our primary supplier" the vendor at least knows they still have a customer. Confidentiality is good for business buyer and business seller.

The above are just 3 examples of why maintaining confidentiality when buying or selling a business is important. Your business broker will have confidentiality agreements that outline in detail the specific terms that bind the parties to confidentiality. Read it, understand it and respect it because if you buy the business you'll be glad to did.

If you find this article helpful you may want to look at Part 1.

Due Diligence for Buying a Business - Part 2

2009-08-15T21:42:00.003-05:00

When working through a business broker to buy a business the due diligence process should be more efficient than when working on an acquisition without a business broker involved.
In Part 1 we talked about doing due diligence for the Sales Tax issues. Now in Part 2 we'll talk about the business income tax return issues.

When conducting due diligence to buy a business we talked about "trust but verify". Income tax returns are no different. In most cases the seller will provide the business buyer with tax returns for the business. The assumption is that the tax returns accurately reflect the results of the business operations, right? Well, sometimes they do and sometimes they don't. However, your first step at this point is to ask the seller to sign an IRS Form 4506. This will allow you to get a copy of the tax return the seller actually filed with the IRS. The vast majority of the time the returns you received from the seller and the returns the IRS has are the same, sometimes they aren't. If they aren't the same there needs to be a really, really good reason.

If the seller was just trying to deceive you...run for the hills and find another business to buy from a seller that's less deceptive. And don't forget to tell the business broker, he will no doubt be just as surprised as you are.

A Business Buyer's Guide to Working with a Business Broker

2009-08-15T13:09:00.005-05:00

When looking to buy a business often the business seller has retained a business broker to represent the seller, locate a buyer, assist with negotiations, guide the due diligence efforts and coordinate the closing process.

If you are seriously trying to find a business to buy you will come in contact with a business broker at some point. Here are some tips that might help you:

Make sure you know who the broker represents and get it in writing. In small business sales it is most common for the broker to represent the seller (but the broker still usually has a duty to treat you fairly and honestly). Know the standard the broker is working under.
Even though the business broker may represent the seller don't automatically assume he/she is your enemy
If you don't feel like the broker is treating you fairly and honestly...go somewhere else.
Make sure you understand the source of any information provided to you by the business broker. Did the seller generate the info? Accountant? Broker? Always ask.
When you receive information live by the old saying "Trust but verify." If there is a reluctance to allow you to verify certain information... that should be a warning sign.
Move deliberately through the process but at a decent pace... time kills deals. A fast no is better than a slow maybe.
Be responsive to all parties, return calls promptly, check your emails, etc. If you are not interested that's fine, tell the broker and move on, but don't just go "radio silent" without advising the parties that you have lost interest.
Finally, treat all information received as confidential, do not try to get cute with this. I've seen many buyers get themselves into a pinch because they failed to comply with confidentiality agreements. Immediately return to the business broker any information requested that is bound by the confidentiality agreement you sign.

Buying a business is a grind but the rewards are great for those who can get through the process with thoroughness while maintaining the goodwill of all the parties.

Due Diligence when selling a business Part 1

2009-08-13T21:27:00.004-05:00

First in a multi-part series on due diligence.

When selling your business .... know your buyer.

Even in the rare instance of an all cash deal it is a good idea to do a background check on a potential buyer. They'll be getting your employees, customers and the good name you've built in your industry. Background checks are very inexpensive relative to the transaction price. Simply asking a buyer for information to perform a background check will tell you something... if the buyer opposes a background check you know something!

When you sell a business and close the transaction the deal is not over. There is a transition period when you'll be working with the new owner and you'll have to explain to customers, vendors, etc why you chose to sell to this person.

Choose your buyer as carefully as the buyer chooses your business!

Due Diligence for buying a business Part 1

2009-08-12T21:02:00.002-05:00

The due diligence issue when buying a business is a long topic with many items. I will break them down into a series of steps that when completed will make a reasonable starting point for due diligence when buying a business. Since all businesses are different this list may not be appropriate for every situation but it is (or should I say will be) a good check list.

A critical element is examining the sellers business tax returns.......BUT after you examine the tax returns and before completing the business purchase make sure you ask the seller to sign an IRS form 4506. This form will allow you to pull a transcript of the tax returns from the IRS that will confirm that the tax returns filed by the seller are actually the same as the tax returns you received! If they are different you need to get a good explanation as to why (and I'd like to hear the reason as well!)

As always, trust but verify!

Tax Law Changes effecting Biz Sales

2009-08-11T19:11:00.003-05:00

The new benefits offered by congress allow small businesses to reduce their tax bill which makes the business sale more appealing for the sellers.

S Corporation Built-In Gains Tax Relief. For tax years beginning in 2009 and 2010, ARRA shortens, from ten to seven years, the amount of time that an S corporation that has converted from a C corporation must hold on to its assets to avoid taxes on any built-in gains at the time of the conversion.

Deal Closing!

2009-08-11T18:20:00.002-05:00

This past Friday we completed a sale transaction. Buyer was an east coast Private Equity group funding a strategic acquirer. Lot of moving parts including a last minute hiccup with landlord but everyone pulled together. Seller is staying on for a smooth transition and buyer brings lots of support and buying power to the business - everybody wins.

We were retained by the Seller to locate a suitable buyer for the business and we're very pleased to have accomplished the mission in a difficult financing environment.

Is buying a business right for you?

2009-08-09T15:38:00.004-05:00

We often get to speak to people who are undecided about looking for a new job or, usually as a plan B, buying a business to replace the income they've lost when they left their previous employer. It is rare when these people have thought through the process of buying a business with clear lens. Here are 5 Dos and 5 Don'ts when considering purchasing a business:

DOs

Understand your current financial situation and resources thoroughly.
Be prepared to move through the process at a good pace but without skipping steps. For instance, don't plan a 2 week vacation in the middle of the process.
Understand that being in business has risks, few of which are as risky as having a job, but risks none the less. You will not buy a quality business without some risk.
Be prepared to spend money for good advice from people who are experts (not your buddy at the country club who once bought a margarita machine to rent).
Look at businesses that need skills you have, not just businesses that "seem like they'd be fun to own". Your skills will determine the biz future, match your skills with the right business.

DON'Ts

Don't assume everyone is out to cheat you. You can find reputable people to deal with.
Don't let your emotions run wild. This is a arduous process that rewards discipline and a stick to it attitude.
Don't fail to listen, you night actually learn something.
Don't be afraid to admit what you don't know.
Don't assume the seller is your adversary. Experience has proven that the buyers who get the best price and terms on a deal are the buyers who treated sellers with respect and courtesy. You can say no in a good way or a bad way, choose the good way.

Email as Productivity Tool

2009-08-07T09:19:00.005-05:00

We have been using gmail enterprise email system for about 6 months and I have to tell you it is a great system. Like most of what Google is known for, biz gmail is intuitive yet robust enough to handle a relatively heavy email user (I get about 150 emails a day). If you are looking for any easy to launch, low cost and full featured email system I think you'll find gmail for biz a good choice. Here's a place to start google biz email.

We have about 17 users on the system and although the email works great the google docs system has a way to go. We still have trouble with document conversions and I can't recommend google docs for any serious document management uses.

If you decide to try it let me know what you think.

Tax law changes and business sale net values

2009-08-06T10:16:00.003-05:00

Tax changes are on the way! What does it mean for a business owner who may wish to sell his business in the next 3 - 5 years? Here's a link to an article you might find interesting, click here.

Now What?

2009-06-14T17:44:00.002-05:00

The news about the national economy is enough to make us think the world is coming to an end..... it's not.

What should you do as a small business owner to protect yourself?

Don't be offended but... you should do what you should have been doing all along.

Focus on customer service and quality. Often these 2 things are FREE to you and increase profits. Want a simple example?

McDonald's, the food isn't very good but you know exactly what you're going to get. People go there for consistency - lots of food, at a low price at a quality that is predictable.

Consistent mediocrity beats erratic sometimes great, sometimes terrible.

Forget the news, get your business on track.

Customer service and consistent quality.

Running your business in tough economic times

2008-12-18T07:13:00.004-06:00

There have been many, many businesses that have taken advantage of difficult times and positioned themselves for the future. Running a business in good times is almost idiot proof. It's what you do in tough times that makes the difference between a great business and a business that you just ride along with the tide. My rules for managing in tough times:

Train your people in an area that could increase gross margins (moth dollars and %)

Outsource, outsource, outsource

Conserve cash, delay investments, avoid the "buy more for a sale" mentality

LOWER your break-even point while RAISING your gross margin %.

Focus on cash, conserve it and use it wisely.

Find a job or buy a business... a choice worth investigating.

2008-12-14T17:24:00.006-06:00

Buying a business could help you achieve your retirement goals. Today's economic problems have changed the future for many people who thought they had a job for life (or at least a job until they decided not to have a job). In times like these, finding a new job is not only difficult but maybe even unwise.

Have you thought about buying a job? You can if you buy a business.....but you're thinking "oh, but it's so risky"... I doubt it's any riskier than going to work one day and getting fired because some idiot in New York bet that oil prices would go up forever or bet that people who took out mortgages they couldn't afford would some how hit the Lotto so they could make the payments.

What's the risk in owning your own business? First you might ask... are you smart enough to run it? In my experience with thousands of business owners I can tell you, I.Q. and education have very little to do with success.

Why do small businesses succeed? Because the owners understand what it takes to get people to pay for the product or service they provide. It's not rocket science.

But you say, with the economy so bad nobody is spending money. Wrong, the economy looks like it will be down about 5 % in this last quarter of 2008. Guess what that means? 95% of the money spent last year is still being spent. Have you stopped spending money on EVERYTHING? Electricity? Food? Toothpaste? Beer? Gas? Internet? .....you get the idea.

Just look around your neighborhood. Even in this economy you will see many, many businesses whose owners are doing a lot better than an unemployed person who used to have a job.

What does it take to buy a business? Here's simple formula that can give you a general idea of the financial requirements of a business purchase:

Whatever salary you want to replace, you should have about that much money for a down payment. If you want to replace a $50,000 per year salary, you need about $50,000 for a down payment.... $100k salary...need about $100k down payment, etc.

Where do you get the down payment? There is a tax break for you! You can use money in 401(k) or I.R.A. to fund the down payment (see CPA or got to www.borsaplan.com) with no penalty or taxes for withdrawal.

But you say "that's my retirement money!". First it won't be if you need to withdrawal it to live on and secondly you have no idea if it will increase in value over time.

If you own a small business that could be your retirement..SELLING IT. In fact you are likely to buy the business who is retiring!

Where do you find a business to buy near where you live? First you can check www.sunbeltnetwork.com. There are other business brokers out there but Sunbelt is the biggest with about 250 offices in the U.S.

While you're worried about finding a job, also spend some time worrying about how you can gain the security of owning your own business. I do and you can to.

What effect has the credit crisis had?

2008-12-07T10:58:00.004-06:00

What effect has the credit crisis had on buying and selling small businesses?

As is usually the case the answer is...."it depends"!

If you are a buyer and you qualify for an SBA loan AND the business you are buying qualifies for an SBA loan, then little has changed from a credit availability situation. At this time interest rates are down a little and there are fewer SBA lenders active in the market but there are banks willing to make SBA loans.

The biggest change we will see in the short term is that the poor economy is hurting businesses earnings and when earnings go down.... prices go down. If you are serious about buying a small biz this could be a great opportunity. BUT do your homework. Make sure you know why the biz earnings are down, don't just assume it's the general economy. Sometimes (often times) the biz earnings decline because of mistakes the current owner has made. Even when the economy is good some businesses lose sales and profits.

Your job is to figure out if the earnings decline is caused by something you can remedy or has there been a fatal mistake made by the seller (i.e., moved to a cheaper location but customers didn't follow them? competitive landscape change? Regulatory restrictions?, etc.).

Do your homework, move quickly, eyes wide open and take advantage when you have a good opportunity.