Everyone is familiar with the Christmas song, The 12 Days of Christmas.  Without going into every verse of the song, the carol works forward with the first day of Christmas being a partridge in a pear tree, the second day of Christmas two turtle doves and so on.  The song is full of optimism and hope that the giver and receivers of the gifts will be thankful for life, the opportunity to share and hope for the future.

From researching the origins of the song, I came across something interesting.   One of the articles I read suggests the 12 days of Christmas is not about the 12 days prior to Christmas but in fact, the 12 days from Christmas until the beginning of Epiphany which begins on January 06.  When I thought further about this, it naturally combined with another favorite thing we do during the Holiday Season and that is to make New Year’s Resolutions.
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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 sales and marketing plan is a document that most entrepreneurs don’t have time to put together.  I’m not sure why that is as it’s just as important as the business plan and indeed complements it.

The business plan outlines the vision, strategic direction and business and financial goals of the business.  The sales and marketing plan breaks down the business plan to show how you are going to get there and the tactics to use to attract the right customers.

The sales and marketing plan can be as complex and as detailed as you wish to make it.  It can include a list of tactics you could deploy, it can list and detail only specific tactics you plan to use or a combination of both.  It’s important, though, that you understand how each idea is to be used but you have some idea of the expected results each tactic should bring to the business.  There is an old adage in business management: If you cannot measure it you cannot manage it.  There is also a famous quote that says “I’m convinced that 50% of my marketing is effective, I just can’t tell which 50%.”
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Intellectual Property can sneak up on some businesses as it may start from a “good idea” that helps the business survive then gradually become an integral part of the business and later become a critical part of its existence. Interestingly, Intellectual Property also comes in many shapes and sizes. A business owner therefore needs to recognize these different shapes and sizes so if they choose to sell their business, they have the right legal protection in place that protects an intellectual property asset and therefore rightly earns the owner the amount it is worth.

So what are the different types of intellectual property? The IRS recognizes the following when they are part of a business transaction.
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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

Small businesses are a critical part of the economic landscape. All the businesses on the Dow 30 started as small businesses, reached a critical mass that then led them to becoming a public company and grow to where they are today. Depending on whose statistics you use, small businesses make up 98% of all businesses in the US economy.
One of the benefits of being the owner of a privately held small business is that you get to take tax deductions that wage and salary earners are unable to claim. This is all part of the risk and reward scenario that comes from owning and operating a small business.

When it comes to selling the business, these tax deductions can get in the way as it reduces the true cash flow of the business, which affects the business valuation and therefore how much the buyer is willing to pay. To navigate this scenario, it’s important to understand how to deal with these legitimate tax deductions or as they are called, add backs.
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Most business buyers don’t have a shortage of questions they want to ask when they are looking to buy a privately held company or business. There are obvious questions about the level of sales, qualifications and motivation of the employees, the relationship with the landlord, if payment to suppliers is up to date and many other good and appropriate questions.

Apart from these questions, there are others that may help a buyer decide if the business is a good fit for them. These questions include the following:

1. Does the business have any tax liens in place and are there any tax liens against the owner?

2. Does the business have any lawsuits pending?

3. How diverse is both the customer and supplier base?
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There are two critical things a buyer of a business is looking for and these are cash flow and potential. They may be willing to compromise on almost any other thing but if the cash flow’s not there to provide an income to sustain their family and livelihood, service the debt of the business and include a buffer in case they need time to re-establish upward momentum in the business and the industry the business is in is declining, then it will be a challenge to close the sale.

If the cash flow and potential are good, consider the following 6 questions to help present the business to the market. And a Golden Rule I use when helping buyers and sellers is to put your feet in the shoes of the other party, that is, don’t see things from your perspective, see them from the perspective of the other party.
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On Monday, September 27, 2010 the President will sign into law HR 5297, the small business bill.  This bill has huge ramifications on commercial lending AND the economy.  Most people don’t realize how big this bill is and the ramifications of it on small business lending.

The key SBA provisions of HR 5297 are noted below:

7A SBA loans

• Increase to maximum SBA 7a loan amount to $5,000,000 (permanently)
• 90% guarantee through December 31, 2010
• Fee waiver for the rest of 2010 (subject to available funding)
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For most owners of a privately held company, when the time is right they want to sell their business for the highest price possible in the quickest time possible and live happily ever after. There is nothing too complicated in that and at a basic level, that’s perfectly fine. However, a question to ask is whether the business owner wants to sell the business or is their preference to transition the business?

The difference between selling the business and transitioning the business is as different as night and day. Selling the business simply means looking for the buyer at that moment in time who will pay the highest price possible. Transitioning the business requires the owner to step back, systematically review all the options available to the business then creating a plan to arrive at that outcome.

For example, the business owner may have other options other than selling the business and taking the highest or best price. If the business owner has immediate family working in the business the preference may be to continue the legacy of the current owner by transitioning the business to the immediate family members. If this is the case, this brings into play a number of actions that need to be carefully and fully researched. Answering questions such as tax implications, legal questions such as what liabilities and responsibilities move from the current owner to the new owner, finance questions such as how any current loans need to be handled and indeed, how much and where is any money coming from to pay the current owner for the value they have created in the business that will fund their retirement or next journey in life.
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The Small Business Administration’s 7(A) Loan Guarantee Program has recently gone through some modifications and changes. These changes include an increase in credit availability for owners of companies with purchase prices between $400,000 and $4,000,000.

The SBA 7(A) program helps small entrepreneurs start or expand their businesses with loans through bank and non-bank lending institutions. Previously the loans only allowed a maximum of $250,000 in intangibles (including goodwill) to be financed. However, under the revised rules, it is now possible to finance any amount of goodwill (even up to this program’s lending limit of $2,000,000), as long as at least 25 percent equity exists in borrower down payment and/or seller stand-by financing.

There is more good news, in that the SBA has temporarily increased its guarantee from 75 percent to 90 percent of the total loan amount, and currently waives the guarantee fee (2.6 percent of the loan amount) charged to borrowers.
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What are my options if I cannot sell my business?  This current recession is marked by how low the economy has gone, the increase in unemployment, but most frustrating of all, how long it has taken before the “green shoots” appear. If your business is struggling and you think your only option is to close the door and hand the keys back to the landlord, here are some things to consider.

First, it’s rarely as simple as closing the door and handing the key back to the landlord. If your business has a lease you obviously need to discuss the situation with the landlord. If you have a good relationship and feel you can handle it on your own to save hiring help, take care as you handle the issue. Bear in mind the landlord is no different to you. They lease the real estate to make money. If you close the doors, they need to find a replacement for you which may take time to achieve. This can be a talking point with the landlord as you may be able to bring a tenant to replace you. If this is the case, make sure this is correct as the landlord may become frustrated if the person changes their mind. Similarly, the landlord is not required to accept the person you bring so be aware the landlord has options.
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There is no doubt that the current recession is as long and as hard as we’ve seen for many years. And hopefully we will not get to see again for quite some time. If you are a business owner whose business is not making a profit and you don’t have the capital to invest and keep the business, going you may be wondering about your options.

The first option is to take a real assessment of where you are at. One of the best ways of doing this is to talk with your accountant. Make sure your accountant is not simply filing your tax return to meet compliance but actually helps you look behind the numbers and understand how your business is performing.
What do you need to know?

Most business owners understand their gross sales. Some are adept at using this number to explain the success of their business. For example, have you spoken to a business owner that said “Sales are up 20% on this time last year.” They say this with great pride but that doesn’t tell the full story.
Some business owners can tell you the net profit of the business. Net profit is simply what they pay taxes on or gross sales less cost of goods less expenses. Some business owners like to say “Our bottom line was up 10% compared to last year.” This is good news but that doesn’t tell the full story.
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An area that a lot of businesses don’t spend a lot of time measuring but is very easy, cost effective and critical to do is the key performance areas of the business.  These key performance areas or metrics can show whether the business has all the parts working together and in a healthy manner or is in need of a tune up or radical surgery.  There are a number of key areas to a Performance Plan so let’s break them down.

The first area to look at is the financial statements of the business.  The first and most readily used is the Profit and Loss Statement as it shows the income and expenses of the business with hopefully the income greater than the expenses.  Just as important, however, is the Balance Sheet as this document shows the wealth of the business.  With an up to date profit and loss statement and balance sheet, a trained business appraiser can then calculate what the owner of the business could expect to get if they decided to sell it on the market.
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The following article is re-printed from an email sent by Mike McGrane, an SBA lender with Wells Fargo based in Roseville, CA.

The Senate and the House have both passed various versions of the following improvements to the Small Business Admin 7a and 504 loan programs. This is a very good thing for Small Business, Entrepreneurs, Banks and Business Brokers and Developers. There is something for everyone in this Senate Bill outlines below. It still needs to be signed into law and the SBA needs to make their official guidelines public, but this should be what is coming.
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