We are in the business of selling businesses for owners that are looking for a qualified buyer. We don’t charge an upfront fee to find a buyer, therefore, we don’t get paid until the business sells. That keeps us motivated to do a good job, working for the buyer.
Recently, I met with the owner of an auto parts store that we had been trying to sell. This is a family business, run by a husband and wife and two sons. Neither of the sons want to make the store their career. Before listing the business with us, the owner had received an offer from the distributor that supplied his parts inventory. He had rejected their offer as being too low.
Some of the problems I ran into was that buyers did not qualify financially. They didn’t have enough cash and could not borough enough for the purchase. The prospective buyer wanted a large percentage of owner financing which the owner was not willing to offer. I know owner financing is important, but in this case, I don’t blame him. Here are some of the reasons:
- The owner owned the building where the business was located. He was willing to give a long term lease to the buyer, which was great for the seller, but only if the buyer was successful in sustaining the business.
- This is a small town. People have been doing business with this parts store for twenty years. The business success was built on customer service. What if the new owner began to lose customers because of poor service?
- The owner did not want to get the business back if the new owner failed.
When I assessed all of the risk associated with the buyer prospects we had, and weighed it against the strength of the parts distributor buying the business, I told the seller that my recommendation was that he sell to the distributor. This essentially would cut us out of the picture, and result in no commission to us.
In view of the long term rent that the building will bring from the well capitalized distributor, verses gambling on the long term success of a buyer needing owner financing, I think I gave him the right advice that will result in more profit to the seller over the long run. It was the right advice and the right thing for me to do.
Fact Sheet on Fiscal Cliff Agreement
After two years of party wrangling, Congress has passed and President Obama has signed a permanent extension of the Bush-era tax breaks for individuals with annual incomes up to $400,000 and couples with annual incomes up to $450,000. Here is a look at the highlights of the new law.
Small Business Tax Breaks
Business Equipment Write-off: Retroactively increases 2012 maximum expensing amount from $139,000 to $500,000 and extends this amount through 2013. It also reinstates the $250,000 write-off of qualified real property improvements.
Bonus Depreciation: Extends for one year, into 2013, accelerated “bonus”depreciation of business investments in new property and equipment tax deductions.
Income Tax Rates: Rates remain the same for couples with taxable annual incomes under $450,000. Those with over $450,000 will see their top rate go from 35% to 39.6%.
Dividends and Capital Gains: The maximum rate remains at 15%, except for joint filers making more than $450,000. That maximum rate will be 20%. The President had proposed a top rate of 39.6% for dividends prior to the agreement.
Estate Tax: The amount of an estate exempt from the tax remains at $5 million for individual estates and $10 for family estates. The maximum tax rate increases from 35% to 40%. The sharing of unused exemption amounts between spouses is also still alive. Personal Exemptions and Itemized Deductions:The personal exemption and itemized deductions will be reduced for families earning more than $300,000.
Alternative Minimum Tax (AMT): The law provides a permanent patch to keep more Americans from being subject to the increased tax level, and indexes it for inflation. The change prevents a tax increase that would have affected an estimated 30 million additional taxpayers.
Unemployment Benefits: Unemployment benefits for the long-term unemployed are extended through 2013.
Tax Credits: A five-year extension of tax credits was given to the child tax credit, earned Income tax credit and the college tuition tax credit.
Medicare Doc fix: A 27% reduction in payments to Medicare providers is postponed for 2013.
Automatic Across-the-Board Spending Cuts: The sequester of funds will be delayed by two months and replaced with new half revenues and half targeted spending cuts.
Other Breaks: Deductions for educator supplies, sales tax, college tuition and exclusion for home mortgage debt forgiveness were retroactively included in the new law.
Payroll Tax: The temporary 2% cut to the employee payroll tax rate was not renewed.
William A. Robinson, III, CPA
Member The Crown Business Group LLC
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This is the story of a failed plan for the business owner to retire and exit the business.
Recently my business partner and I had an appointment with a gentleman in his mid seventies that had retired five years ago and turned the business over to his son. The family business was stared in the late 1920′s and manufactured speciality equipment used in the agricultural industry. Unfortunately, the father is now back running the business, trying to keep the business alive.
What was the problem? The son was not qualified to take over the company. He changed the primary product line to an unrelated catagory which had no customer base. He neglected the core business, didn’t pay attention to expenses, piled up unpaid bills, and even didn’t pay the State employment taxes. When the father returned, it cost him nearly six figures to clear up these delinquent accounts.
Things are slowly getting back on track, but with an owner that wants to retire. If you find yourself in a similar situation, give us a call. We’ll be glad to advise you and if you want, we’ll seek to find a qualified buyer so you can exit confortably.
I have writen before on the subject of ”owner financing”, but feel it is worth mentioning again. We meet a good number of business owners that fall into the catagory of owning a ”Main Street Business”. Most of these businesses we have listed are on the market for $1 million or less.
Recently, we have been working with some very capable buyers that I feel could really be successful in running a business. However, they don’t have a million dollars in cash for the purchase. The next logical thing they do is to go to their bank and try to borrow money . Our experience has been that buyers even with a good amount of cash for a down payment are not getting qualified for a commercial or SBA loan. The reason……. because the buyer and the business doesn’t have sufficient hard assets that are needed for collateral.
Even though a business has been growing and profitable through the down economy of the past four years, that hasn’t make any difference with lenders. The only people that can borrow money are those buyers or businesses that have sufficient collateral.
If you want to sell your business, the only other option is for you to agree to finance the difference between the down payment and the purchase price. This will mean that the buyer must have a good and acceptable amount of cash for the down payment, and you need to feel comfortable that the buyer will be successful as the owner.
There are many ways to structure seller financing, and we will talk about some of those in the next posting.
When you decide to sell your business, what price do you ask? Your business broker can help you by giving an “opinion of value”. Business brokers are not appraisers, but, based on comps and experience, a business broker can advise you based on market value.
On occasion, the business owners idea of value may be more than what is realistic. If the owner and his broker can not agree, I feel it is better for me to not take the engagement as their broker. The reason is that pricing a business is not like selling your house. You’ve probably heard people say when they know they are overpricing their house, “if they like it, let them make me an offer”. When selling a business, generally, the price is the price.
Buyers of businesses are interested in how much money they can put in their pocket after expenses. The first thing a buyer will ask is “how did you arrive at that price?” If the profitability doesn’t justify the price, the buyer loses confidence in our presentation and moves on, deleting your business from his consideration.
Pricing is a complicated process, and more time needed than you would want to spend reading this blog. However, if you would like to discuss this in more detail, please feel free to call me at our office 770-893-1460 or toll free 888-770-3369.
When selecting a business broker to assist you in the sale of your business, my recommendation is to select one that will co-op with other business brokers. There are some business brokers that will not share their commission even though another broker has a qualified buyer.
Why would a listing broker not want to co-op on commissions? So they can keep all of the commission paid. This hurts the seller by reducing the number of buyer prospects, but benefits the listing broker by putting more commission dollars in their coffers.
The only way it can help the business owner is if the listing broker cuts their commission in half, thus increasing the sellers proceeds at closing. However, the seller still reduces the chances of finding a buyer because of eliminating those prospects that can be brought by another broker.
You can decide what is best for you, but in my view, sharing the commission is a good thing for the seller, and in the long run, the listing broker as well. Submitted by Sam Naff
CHOOSE THE RIGHT BUSINESS BROKER
If you are fortunate enough to have a son or daughter to take over your business, you most likely will not need the services of a business broker. That transfer of ownership can be handled by an experienced attorney. However, like most of us, when it comes time to sell, we are going to need to find a buyer with the help of a qualified business broker.
Choose your business broker carefully. All business brokerage companies do not operate the same, and many have only a one person office. I feel a better option is to use a firm that has multiple associates, each having a different business experience. It makes sense to have a team of qualified business men and women that will be a good fit for your industry when it comes time to sell.
At The Crown Business Group LLC, we have associates that have had a variety of work experiences that can relate to your business . For example, one of our team members has manufacturing experience; another has sales and marketing experience in the medical equipment business. One has a financial background and has experience in selling businesses that have multi-unit locations. Another has a background in information technology and systems. Another speaks Mandarin Chinese fluently.
When choosing the business brokerage firm that is right for you, interview several. You can then weigh the strengths of each and pick the one you feel could best represent you.
#2. Make sure you have good financial records. When a prospective buyer looks at your business, the buyer is going to take some amount of time for due diligence. Nothing turns a buyer off more than financial records that don’t make sense. For example, if your Quickbooks P&L doesn’t match your tax returns, the buyer will automatically distrust all of the numbers. Another problem that makes income hard to figure is if you have unreported income. You and your business broker are going to have a difficult time convincing the buyer that everything is as you say.
Have a good accountant, whether it is in-house or an outside firm. Revenue and expense line items that are labeled the same from year to year allows a buyer to look at past expenses where there is some continuity. If one years expense on a certain line looks way off, have a good, documented explanation for it.
Your accountant can help you with a clear presentation of your companys past performance. A buyer will be impressed rather than suspicious and turned off. The objective is to sell your business, by presenting the business to a prospective buyer where the only conclusion they can make is that your company is being professionally run by a competenent owner, you.
For the business owner who wants to sell their business, there are some principles that should always be kept in mind. In the next several blog, I am going to outline important steps in how to impress a buyer prospect when they take a look at your business.
#1. Run your business as if it were for sale. I find that people will call us and say that they want to sell their business, but the business is not ready to sell. Things are not in order. Even if you have no plans to sell your business in the forseeable future, run it as if it were currently on the market.
Too often, owners a forced to sell due to an unforseen problem. One of the most common is poor health. Others include age, burnout, or losing a partner or key employee. For example, if you were selling your home, you would present it in the best possible light. You would want it to make a good first impression when the buyer prospect walked through the front door. The same is true for your business.
Don’t allow yourself to slip into being sloppy or complacent. Make sure you concentrate on increasing revenue year over year, maximizing profits, and customer service.
More to follow. Sam Naff
As a business owner, you probably take a lot for granted when it comes to how good a job members of your management team are doing. Their results may look good for now, but are they sustainable over a longer period of time.
You, as owner, may have developed a strategic plan that will take you to the next level of success; and, your product may be well positioned in a growing industry catagory.
But, what are your employees thinking. The people you are depending on, the employees that are actually making the product, doing the work, preforming the service. One way to tell what employees are thinking is to set aside some part of the day to interact with them, where they are. Not in some employee meeting, but in a setting where they feel comfortable.
Some of the things I did included taking a coffee break when they did, sitting with a different group each time. Or, walk around where they are doing the work and asking how things are going. It’s amazing what you can learn from them on how to improve your business.
One big red flag is when an employee tells you, “Don’t tell my supervisor that I told you so, but ………. “. It would become obvious to me that I had a problem with that supervisor’s ability to manage and I needed to spend more time concentrating on management training. What are some of the things that are critical to your management teams success?
More to follow. Sam Naff