The Entrepreneurs Advocate

Archive for the ‘Business Enhancement’ Category

As the in-house AVA and leader of the Central Florida Office for Bankers Advocate, business owners often ask me how to predict the right time to sell. I know from recent conversations, that many owners feel they missed their chance to exit a few years ago when the market was ripe for transactions. Now the question revolves around when the market will return.

Let me suggest that, as an entrepreneur, you have the opportunity to develop a more reliable approach to timing your exit, then attempting to predict the cyclical nature of the mergers and acquisitions market. There are simple steps you can take to gain control of your own timing, whenever that may be. These steps require a focus on what you, and only you, can control.

The first step is to know what your exit will look like when you arrive, regardless of when that might be. For instance, you should know at any given moment how much after tax “cash” you will need from the sale of your business to meet your goals. Do not just pick an arbitrary number out of a hat because it sounds good. Get specific and know why you have that number as your target.

This step is relatively simple if you hire a certified financial planner to help you update or create your personal financial plan (you can contact us for a referral to a trusted advisor in this area if you do not already have one). Be sure that your plan takes into account the lifestyle needs you are seeking, a reasonable rate of return you can expect from the investment of your after tax proceeds, and any required adjustments for taxes and inflation.

Now that you know your target amount of cash, you need to know your current business value. This is definitely a situation where you get what you pay for. While you could arrive at an estimate at no charge by contacting a business broker, or using an industry multiple for your own calculation, you will actually be doing yourself a disservice. More then knowing the value your business could fetch currently, you want to know why your business holds its current value, and the areas you need to improve to increase that value.

A third party valuation is certainly a worthwhile investment at this time. Think of your valuation, not simply as a number, but more importantly, as an analysis of your Strengths, Weaknesses, Opportunities, and Threats (SWOT Analysis). If you invest in a certified appraisal, you will gain the business intelligence you need to close the gap between your current value and target value.

Share your valuation with your trusted advisors including your financial advisor, CPA, attorney, and chosen transaction advisor. Enlist their help to interpret, identify, prioritize, and make a recommended task list that can help you build value and overcome weaknesses as efficiently as possible. It should be clear to these advisors from your financial plan and complete valuation report, what your objectives are, and the areas you need to address. Having this information available before you meet with your advisors keeps you in control and will save you a considerable amount of time and expense getting their help.

Finally, implement your task list. Be honest about what you can do for yourself while maintaining your business operations, and what you may need to hire out. If you schedule your tasks in a manageable way, hold your advisors accountable, and ask them to do the same for you, you will be well on your way to achieving your objective – timing your business exit on your terms.

At the completion of each tax year, have your valuation updated, which should only require a minimal investment. When you cross your threshold value you identified in step one, the timing is right for you. However, do not be surprised if you are still not ready to exit. The improvements you make that build value in the eyes of your future acquirer; fulfill the same needs you have to be a satisfied owner of your business as well.

“The B2B CFO people do good work. Here is an article from one of their consultants, Frank Gnisci.” Chris

Although every business wants to grow, some types of growth are certainly better than others. Consider the following 2 options:

1: Grow Sales by 20%, and net income increases 50%.        OR

2: Grow Sales by 50% (a lot more work and risk than Option 1), and net income only increases 20%.

The best way to grow is when net income growth out-paces sales revenue growth. For every additional unit of sales, we want to generate more profit, not less. How can we accomplish this?

Jim Collins, the author of Good to Great, found that the more an organization sticks to its core competency, the more opportunities the company had for the good kind of growth – the growth where net income increases faster than sales!

What is your core competency? It’s what you do well and, when you do it, you’ve proven that it can make money. If you are a trade contractor, then it is your trade. If you are an attorney, then it is the law. If you are a widget manufacturer, then – I think you get the point.

I have experienced many occasions when, in its desire to grow, a company strays from its core competency and involves itself in a business and industry it doesn’t know very well. Sadly, these new ventures begin to drain time and resources (and most importantly, CASH!) from the main business. In essence, the core competency of the firm subsidizes a less successful venture.

Sticking to your competency requires a great deal of discipline, but it is the best way to grow your company. By sticking to your core, you will find the most profitability and enduring growth opportunities!

“I enjoy Doreen’s work and writings. Here is an article from her. CC”

For firms to compete today, they must change to meet the demands of the business environment. In fact, change can be used to create a competitive strategy for your organization. Now picture Sheila the CEO of an organization that is concerned about changing her organization to reflect a competitive strategy in the organization. The strategy centered approach to change might reflect some of the following:

• Introducing a new produce or service
• Entering new markets
• Use of new forms of marketing
• Initiation of Internet sales to direct selling
• Forming alliances or joint ventures with other organizations
• Modifying relationships with suppliers

To be successful, changes in competitive strategy will require a consistent change in people, work roles, organizational structure, and technology. Internal changes in the organizational approach to improve human capability will require organizational learning, and an alignment of the strengths and values within the organization. By aligning the strengths and values within the organization, it will improve the overall success of the competitive strategy and meet with the long-term goals of the organization.

A common mistake is to implement a new program without first diagnosing the problems that are confronting the organization. Management programs and structural changes often fail to solve organizational problems and sometimes will make them worse. The benefits that can be obtained from change made in one area can cause problems for another. Before initiating major changes within an organization, senior management should be clear about the problem and the objectives of the program. The organizational diagnosis can be made by senior management, an outside consultant, or task force. It is often more successful when an outside consultant is involved because it offers an unbias decision to the diagnosis. Outside consultants trained in organizational development will bring more success to the project.

Doreen M. McGunagle, Ph.D. is a corporate organizational speaker and has a doctorate in Organization and Management with a specialization in International Business.  As CEO of Global Strategic Management Solutions, a consulting firm that specializes in assisting organizations grow and improve their performance, and brings 25 years experience working with Fortune 1000 companies.  Dr. McGunagle is the author of The Chinese Auto Industry: Taming the Dragon.   To find out more information about Dr. McGunagle corporate speaking engagements and consulting availability, please visit www.globalstrategicmgmt.com or call 561.208.1071.

In my talks with business owners and their advisors throughout 2009 and early 2010, I see one common theme - Survive. Business Owners who back in 2007 planned to fund their retirement by selling their business in 2009 were hit with multiple hurdles. “Those doing well enough to sell or want to sell are shying away,” says Mike Handelsman, general manager of BizBuySell in San Francisco. “If they sell, it’ll be based on cash flow and revenues, which are depressed now. In many cases, this is their nest egg, so they’ll put off retirement to wait out these uncertain times.”

A few bright spots are beginning to appear as 2010 comes to the half way point. Borrowing for good deals has slightly freed up and there is a great deal of  money on the sidelines (”dry powder”). Most American’s still see business ownership as the best path to creating personal wealth. What should an owner do in 2010?

Make sure your business stands out among the crowd of mediocre companies. How do you do that? One, make sure your books and records are immaculate. This is still the number one reason a business doesn’t sell or sells for a reduced price. Two, show a potential buyer that there is plenty of business in the pipeline and your have the systems and procedures in place to capture that business. Three, do any delayed maintenance before going to market. You get once chance at a good first impression, don’t blow it. Fourth, have a third party appraisal done of your business with pre-financing in place. This will allow you to move quickly on serious buyers. Don’t wait for them to arrange their own financing which might be inferior or from the wrong bank.

Plan, Plan, Plan… Whether you want to sell in six months or six years that is the key to monetizing the value you have built in your business.

“I enjoy Tom’s newsletter and this article on being humble and making time to learn hits home” , Chris

By Tom Reilly, the guy who wrote the book on Value-Added Selling

Former St. Louis Cardinal, Mark McGwire, is returning to St. Louis as a batting coach. Notwithstanding the controversy, McGwire could hit a baseball. Now, he’s returning to help other Cardinals hit baseballs. Albert Pujols, the most popular Cardinal first baseman since Stan “The Man” Musial, welcomes the help. The two-time league MVP said McGwire’s return was “awesome” A strong contender for his third MVP with a .327 batting average for 2009 said, “I’m looking forward to working with him.” One of the best, if not the best player in baseball, is looking forward to working with a batting coach!

That changes everything as far as growth and development. Unless you are more successful in sales than Albert Pujols is in baseball, you can get better. The obstacles are predictable—time and ego. Getting better requires time and effort, often more of each than many people are willing to invest. It also requires professional humility. To believe that you are as good as you can become smacks of arrogance. We cannot get better until and unless we believe and admit we can get better.

What are you doing to get better? What are you reading? What are you studying? What are you practicing? How are you training? How are you preparing? How are you getting feedback on your performance? How often are you asking customers how you can improve for them?

Join us on December 16 & 17 for two days of training and coaching on Value-Added Selling. This is your opportunity to get better and focused for the New Year. Visit us online and request an itinerary for this learning experience: www.TomReillyTraining.com

In these tough economic times, it is more important than ever to plan ahead.

That is why it gives me great pleasure to invite you and your clients to a seminar on Planning Your Exit from Business Ownership. This seminar is presented by the Stetson University Family Enterprise Center in partnership with Holland & Knight, LarsonAllen and my company, Bankers Advocate.

It will be held at the Stetson University Center at Celebration, Florida on Thursday, November 5, 2009.

Whether the exit from ownership is in six months or six years, this factual and hard-hitting seven hours will provide you with the information that you or your clients need for a successful Ownership Exit and/or Transfer.

Learn from Seasoned Professionals how to:

• STRUCTURE YOUR BUSINESS for a Successful Exit
• IMPROVE THE BOTTOM LINE Profits until you Sell
• DEAL with CONFIDENTIALITY ISSUES
• RECEIVE MAXIMUM VALUE for your Business
• KNOW the Types of Buyers and their Value Drivers
• HOW to Sell or Transfer to FAMILY/KEY EMPLOYEES
• AVOID TAX & LEGAL PITFALLS in the Process

This is an opportunity to participate in a valuable interactive seminar and a great networking event.

Can you afford not to attend?

You can view the brochure and register online by clicking on the links below.

To view a detailed seminar brochure : CLICK HERE

To register for the conference on line: CLICK HERE

We hope that you will join us. Please pass this on to anyone who you think would benefit.

Sincerely,

Chris Curtin
COO, Bankers Advocate
(561) 882-1331

PS: Reply to this blog and receive a special friends of Bankers Advocate deep discount.

(This is a great article by the legal editor of www.nolo.com, Chris)

The economic stimulus package (Recovery and Reinvestment Act) includes tax, loan, and investment provisions for businesses.

The American Recovery and Reinvestment Act of 2009 (commonly called the “stimulus package”) was signed into law by President Obama on February 17, 2009. The stimulus package contains several provisions aimed at helping small businesses, including certain tax cuts and Small Business Administration (SBA) loan provisions.

Stimulus Package Tax Provisions

Section 179 expensing. Section 179 of the Internal Revenue Code allows you to deduct a certain amount of new equipment or other assets in the first year they are owned, subject to a phase-out if you place a large amount of equipment in service in a year. Most depreciable business assets (like machinery, vehicles, and computers) qualify for the Section 179 deduction, though real estate, inventory bought for resale, and property bought from a close relative do not.

Higher limits for the Section 179 deduction ($250,000) and a higher phase-out ($800,000) were enacted as a temporary one-year measure, for 2008, under the Economic Stimulus Act of 2008. To encourage capital expenditures, the Recovery Act of 2009 extends the $250,000 deduction limit and the phaseout threshold of $800,000 for one more year.

Bonus depreciation. The Economic Stimulus Act of 2008 also put in place a one-year-only bonus depreciation for property placed in service in 2008.This special deduction allows taxpayers to depreciate 50% of the cost of new equipment or other assets during the first year the property is placed in service. The stimulus package extends 50% first-year bonus depreciation through 2009.

Carryback of net operating losses (NOLs). Under the stimulus package, eligible small businesses with net operating losses in 2008 can carry those losses back for the prior five years. This is instead of the current two-year carryback period for net operating losses. This will effectively give businesses a rebate on taxes paid in prior, profitable years. Businesses with gross receipts of $15 million or more cannot take advantage of this provision.

Reduced estimated tax payments. Small business owners often pay estimated taxes based on 100-110%% of their prior year’s taxes. The stimulus package lowers the amount of estimated taxes due to 90% of the previous year’s taxes.

Work opportunity tax credit. To encourage hiring, the stimulus package creates two new categories of eligible workers for the work opportunity tax credit — disconnected youth and unemployed veterans. Unemployed veterans are defined as military personnel who have been discharged or released from active duty during the five-year period before being hired and who have received unemployment compensation for four or more weeks during the one-year period before being hired. A “disconnected youth” is defined as someone between the ages of 16 and 25 who is not regularly attending school or employed during the six-month period before being hired, and is not “readily employable by reason of lacking a sufficient number of basic skills.” Businesses who hire these workers in 2009 and 2010 may be able to take advantage of this tax credit.

Stimulus Package Loan and Investment Provisions

Increase in SBA loan guarantees. To stimulate lending, the Recovery Act allows the Small Business Administration to raise its loan guarantees to up to 90% for loans under its 7(a) loan program. Currently, the maximum guarantees allowed are 85% for loans of up to $150,000 and 75% for larger loans. The 7(a) loan program provides government guarantees for loans made to certain eligible small business borrowers who can’t get credit elsewhere. The higher loan guarantees are in effect until the end of 2009, or until the funds are exhausted.

Elimination of SBA loan fees. The stimulus package also eliminates the up-front fee on SBA 7(a) loans that lenders pass on to borrowers. In addition, it eliminates the fees charged borrowers and lenders on 504 Certified Development Company loans. The 504 loans are long-term, fixed-rate loans for small businesses that need to purchase major fixed assets, such as land, buildings, machinery, and equipment. The fees on both these types of loans are eliminated until the end of 2009, or until available funds under the loan programs are exhausted.

New loan program for existing debt. The stimulus package creates a new SBA loan program that provides loans of up to $35,000 for small businesses who need to make payments on existing loans. It is a deferred payment loan, and no repayment is due until 12 months after the loan has been fully disbursed.

Expansion of SBA’s microloan program. The stimulus package provides increased funding to expand SBA’s microloan program. This program provides small loans of up to $35,000 to small businesses.

More surety bond coverage. The stimulus package expands SBA’s surety bond program by raising the maximum contract amount that can be covered by an SBA surety bond from $2 million to $5 million (and sometimes higher). SBA surety bonds help small businesses bid on contracts that they might not otherwise get.

Investor incentive provisions. The stimulus package includes a provision that excludes from taxation 75% of any capital gains an investor earns on small business investments that are held for five years.

by: Attorney Diana Fitzpatrick