To sell a business with an exit plan is simply good business.  A business is a ball of energy, never sitting still but reacting and moving in different directions as the economy changes, new tools and innovations come to market, the stress and strain from competition and the ever changing demands of customers.  The challenge to succeed, feed their family, help and create happy customers and other individual motivations are what gets a business owner out of bed every morning.  It also includes the chance to do something different, learn something new, to see the rewards of hard work, to plant new ideas and watch them grow or to help someone do something they thought they may not be able to do.

If the business owner loses the hunger to learn, be the vision and leader of the business, it’s time for a change.  Because a business is so dynamic, it requires leadership.  If this doesn’t happen it will shrivel and die.  Capital, time and energy must keep moving otherwise it will slowly die and fade away.
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Owning and operating your own business is very much a part of the American Dream.  Not everyone is qualified to live this dream but to help qualified buyers, the US Congress through the Small Business Administration (SBA) has put together a third party lending program.  The SBA itself does not lend money direct to would be entrepreneurs, rather they allow qualified banks to manage and execute loan programs that meet criteria set by the SBA who will in return, underwrite a portion of the loan to lessen the risk of the banks.  The rules are complex and change in reaction to the economy.  However, a prospective borrower needs to put their best foot forward or their loan will not be successful.  Here are 10 reasons your request for an SBA loan more than likely will be declined.
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Not everyone will agree but I am sure it’s closer to the truth than one might think: buying or selling a business is unlike anything else of value. To support my argument there are a number of reasons. Let’s look at some of them.

The price of a business is determined by a valuation. The rules of a valuation come from the law and then legal cases as well as the Internal Revenue Code and custom. The price for most other items of value are determined by market comparables (for example, when valuing a house), looking up a book or some online site such as Kelly Blue Book (for cars) or results from eBay or some other online service (for any item you can think of). That is, there is no legal interference with the value of any these items except a business.
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The law requires us to put on a seat belt when we get into our car and drive. The law also requires us to have car insurance in case we have an accident. Perhaps we do not like the government telling us what we can and cannot do but one thing the government does not tell us to do is put together a sound personal financial plan.

For those of us closer to retirement than the early stages of our career, if we do not have a sound personal financial plan then our chances of enjoying our retirement are becoming less by the day; or as now seems more and more likely, the date we start our retirement will be pushed out further.
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There is a US Court of Appeals judge by the name of Judge Learned Hand and he lived from 1872 to 1961 or until he was almost 90 years old. Originally from upstate New York, Hand graduated from Harvard Law School and became a lawyer. At 37 years of age he became a judge appointed to the Federal District of Manhattan and he became well known and respected for the quality of his judgments.

What caught my attention was one of the best quotes I’ve read regarding the paying of taxes. His quote is “…over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do it right, for nobody owes any public duty to pay more than the law demands.”
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One of the services I provide is a valuation to an owner that wants to sell their business. Almost without exception, the owner of the business overvalues their business. There are many reasons this happens but I think it mostly comes from business owners seeing shares trade on Wall Street based on the gross sales or gross revenue of the business. I have recently done valuations where the company value was just over $1,000,000 but the owner thought it was closer to $10,000,000.

Just as most business owners are unaware of the true market value of the business, most business owners are not sure how their business creates value or more importantly, how to calculate the value of the business or even the return on the investment made over the years of owning and operating the business.
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So many small business owners are buried in the minutiae of running their business they forget to step back, question where they have come from and why and then make sure they know where they are going. I am not talking about the direction of their business; I am talking about one of the most important assets of the business and that is, themselves. If something serious was to happen to them, what would that mean for the business? Can it continue? What steps are in place to replace themselves or any other key employees? If the business supports their immediate family what would happen to them and how would they survive? Perhaps the joy of running the business is declining and so it’s time to think about handing the business off to some fresh blood or find a new owner?

To help formulate an approach there are two key components to use. The first is an Estate Plan which can be a standalone process, or an Exit Plan which can include as one of its components an Estate Plan.
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In most business transactions it is standard to include a Covenant Not To Compete. The logic is simple. The current owner of the business decides they want to sell and a buyer wishes to buy the business. As one of the conditions of buying the business, the buyer stipulates that the seller cannot open the same type of business that the seller currently operates as the buyer is concerned the existing customers will want to do business with the seller rather than transfer their loyalty to the buyer.

When used as a part of a change of ownership on a business between a buyer and a seller, the seller agrees not to engage in the same business or a similar business in a particular area for a period of time. Both these items form part of the negotiations. Generally the buyer wants the geographic area to be as large as possible while the seller as small as possible. Additionally, the buyer wants the time period to be as long as possible while the seller wants it to be as short as possible. Obviously, if the seller is retiring and no longer wishes to be active in a business, the time and geographic area may be of little concern and so they are willing to accept whatever the buyer wants.
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For many small business owners, the single most important document for their business is the lease. Unfortunately a lease is generally a long and fairly complicated document. Because of its complexity, many small business owners either accept what they receive or do the bare minimum. Here are some suggestions for you, in no particular order.

• If your lease is coming up for renewal and you wish to continue operating your business, you have a choice. Stay in your current location or move. If you are seriously thinking about moving, do an analysis to weigh up the costs and lost time to move. Landlords are very motivated to find new tenants so it’s definitely the right time to review your options.

• If you plan to move, consider getting a qualified Commercial Real Estate Agent that specializes in negotiating leases to help you. I am a member of the Association of Commercial Real Estate Agents or ACRE and they have experts in different market segments.

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If you own a business and receive an unsolicited offer to buy your business please be careful. If your business is currently for sale be even more cautious. There are con artists that have developed a clever process of taking your business from you and leaving you not only with absolutely nothing, but totally destroying your business and leaving you in debt.

Here’s a basic breakdown of their process.
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If you own a business and have a partner and have not put a legally binding Buy-Sell Agreement together it is probably the most important document you need to accomplish as soon as you can.  Hopefully you never need to put your Buy-Sell Agreement in motion but if you do, you want to execute what’s important to you and your partner so it saves time, money and provides the peace of mind it is supposed to provide.

Who needs a Buy-Sell Agreement?

The answer to this question is very simple – any business that has two or more partners.  To put together an effective Buy-Sell Agreement consider three things.  First, it requires all main parties to agree to it.  That often takes time and discussion so make an agreement to start now.  Secondly, where possible, try to formulate the Buy-Sell Agreement so that any loss is measurable and an insurance policy can cover any losses.  Third, for the best Buy-Sell Agreement, put it together when emotions are low.  Something I repeatedly see in business is that when emotions are high, clear thinking and intelligence are low.
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One of the questions I am asked from entrepreneurs going in to business for the first time is what legal entity do I think they should use. My suggestion is that they simply open their business as a sole proprietor and once the business becomes established, then look to research and understand the different options and their costs so they create the right legal entity.

For some situations there is no choice but to move to a specific legal entity. For example, if two friends wish to create a business and they want it to be a partnership, then a legal entity that serves that need is required. In other cases, some professions require a legal entity, for example, an accountant, attorney and a medical practitioner. However, for a retailer, distributor, restaurateur or manufacturer it probably does not have that urgency and can wait. Most small business owners believe they need the legal protection of a separate legal entity to protect their personal assets but you can solve this problem with a good business insurance policy; which you will need for your business anyway.
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All businesses have two classes of assets. They are either tangible or intangible. A tangible asset is property or something you can touch, for example a piece of land or a building. Other examples include a photocopier or desk and chair and these are collectively called Fixtures, Furniture and Equipment. Intangible assets cover a range of items and include goodwill, covenants not to compete, trademarks and trade names, licenses and permits and more. So a good question at this point is “Why do I want to know this and why do I care?”

The answer to the above question whether you are a buyer or seller is that when you are buying or selling a business, there are tax implications you need to know about. And this especially applies if you are the seller as it will affect the amount of money you put in your pocket once the business sells and eventually catches up with the buyer when they sell, plus during their ownership of the business with the depreciation they are able to take as a tax deduction. READ MORE

Most business owners have or understand the value in business insurance. It protects the business in case an insured event happens and rather than the business owner wasting time and losing business by addressing the problem, the insurance company takes care of things. Business insurance makes good business sense.

A good form of insurance but one only the business owner can handle is creating a Disaster Recovery Plan. It doesn’t sound very attractive and it doesn’t sound like a good use of time but let’s consider the following.
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One of the hidden and sometimes very surprising scenarios which buyers and sellers of a business experience, comes when there is a need for both parties to agree on the Purchase Price Allocation. The surprise comes into play as most buyers and sellers have not heard of the Purchase Price Allocation and when it needs to be agreed upon, both buyer and seller can find it emotionally challenging, especially if the negotiations have been long and difficult.

So what is the Purchase Price Allocation? The Purchase Price Allocation is a tax reporting requirement on the sale of a business. Both the buyer and the seller must report their own understanding of the Purchase Price Allocation and the IRS can and does check to make sure both parties report the same information.

So where does the challenge come into play? The challenge comes into play because the buyer has a different tax need to the seller. That is, it’s the sellers preference to sell his stock of the company to the buyer as he does not need to pay back any taxes they have claimed as a deduction when operating the business. The buyer wants the exact opposite in that they want to buy assets, not stock, so they can start to depreciate the assets and thereby lower their tax bill.
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