The Entrepreneurs Advocate

Archive for June, 2008

We are getting more calls from potential Exiting clients wanting to sell part of their business; two stores, one clinic, a manufacturing plant, etc.

A big road block to this is that many times the books and records are not setup to reflect “subsidiary companies”. In addition, the CPA has been providing the client a compilation or tax returns with no regard for analyzing the different profit centers of your business.

There is good chance that the potential Entering party will need financing. Lenders typically want three years of tax returns plus year to date financials. How can this be overcome? Your CPA can go back and build three years of reviewed and YTD financials of the “subsidiary” you want to sell.

On a side note, what is the difference between a compilation, a review and audit? A CPA may provide a client with three distinct services involving financial statements. Each is designed to meet a different need.

A compilation is useful to small, privately held entities that need help in preparing their financial statements. A review, on the other hand, may be adequate for entities that must report their financial positions to third parties, such as creditors or regulatory agencies. Reviewed financial statements may also be useful to business owners who are not actively involved in managing their companies. An audit is the third and most extensive service. An audit is appropriate for entities that must offer a higher level of assurance to outside parties.

You would need to invest in at least a review to separate your company’s different parts. Also, it is very important that your internal accounting and record keeping be corrected so that going forward your company is not continuing to co-mingle the profit centers.

What about your employees-both direct and indirect? Who stays with what entity? How are the marketing and advertising dollars allocated? An Entering party is looking to buy a company with solid systems and procedures. Will splitting your company affect costs and synergies? Conceivably.  These variables need addressed before going to market.

If you are thinking about Exiting part of your company, a solid plan needs to be devised and implemented. If not, your efforts could be futile. I hope this short post gives you food for thought.

This was recently posted on the IRS website. Of course every little bit helps, Chris.

IR-2008-82, June 23, 2008

WASHINGTON  The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008, as set forth in Rev. Proc. 2007-70.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

“Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile,” said IRS Commissioner Doug Shulman. “We want the reimbursement rate to be fair to taxpayers.”

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2008-63 on the optional standard mileage rates.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Mileage Rate Changes

Later this week on June 19th in Ft Myers and June 20th in Ft Lauderdale, I am participating in two Planning Your Exit from Business Ownership Seminars. BB&T, Ruden McClosky and Richard Hall CPA are my gracious sponsors. Whether you want to Exit your business in six months or six years, this factual and hard hitting four hours of material will give you the information you need to make one of the more important decisions in your life.

Don’t worry, you won’t be sold or asked to buy anything. I half kiddingly tell all attendees that my only goal is that you will see that the Exiting Process is so complicated you dare not do it without professional help (of course I hope you consider Bankers Advocate). Some of the topics discussed will be:

STRUCTURE YOUR BUSINESS for a Successful Exit
IMPROVE THE BOTTOM LINE Profits until you Sell
SUCCESSFULLY SELL your Business
DEAL with CONFIDENTIALITY ISSUES
RECEIVE MAXIMUM VALUE for your Business
HOW to Sell to FAMILY or KEY EMPLOYEES
AVOID TAX & LEGAL PITFALLS in the Process

We have a few spots still available for both Seminars. Readers of this blog can still get the early discount rate if they RSVP by this Tuesday night. Call the office at (561) 882-1331. I hope to see you there.

Establishing a plan for sales to the government may be the business opportunity a company needs to turn around lagging sales or expand the scope of its marketing footprint. In the most recent Journal for Corporate Renewal (The official magazine of the Turnaround Management Association), there is an interesting article on looking to government sales to pull your company out of of a sales doldrums.

As someone who funded many minority and women owned companies selling to the government when I owned a factoring company, selling to government entities can be both profitable and fraught with peril. First, figure out what you want to sell. Second, compute your dead costs FOB where the government entity wants the product or service. Third, do a budget with a great deal of “fudge factor” included to know your total monies out of pocket before you get paid. Fourth, even if you don’t need working capital, find a funder who has government experience to act as your partner for the first six to twelve months of transactions. Lastly, make sure you have enough gross margin after all costs (including the cost of funds) to make it worth your while.