Business Planning and the Holiday Season
The retail and online stores are now in full swing with their TV advertisements for the Christmas Holiday season to try and finish 2013 on a successful business note. As this is my last newsletter for 2013 I would like to simply state that I hope you have a remarkable Christmas Holiday season and you take time to slow down and enjoy your family and friends which is the reason we go to work each day in the first place. There’s no better time than this time of year to remember what it’s all about.
2013 has been a remarkable year for my business. Incredible growth and helping lots of people either sell their business or buy a business or franchise. If January is the time to make new resolutions and start new habits and ways of doing things, December is the time for planning to make sure that we complete the year as best we can and just as importantly, create new and well thought through plans to achieve good things in the new year.
I hope your 2013 has been your best year ever. If you’re wondering what to do to finish out the year and get ready for 2014 here are a number of suggestions to help you.
Tax savings and strategies if you own a business
- For 2013, the maximum amount of Section 179 depreciation on equipment is $500,000. Move quickly on this as in 2014 this goes all the way down to only $25,000.
- If you’ve had a great year and want to do some tax planning by lowering your tax bill, one way to do that is by deferring income. To lower your tax bill, send out your invoices for payment later in December so when you receive any payments it will be in 2014 and form part of your 2014 income. This only applies if you are on accrual accounting.
- If your income or compensation has been good and want to lower your tax bill, look to defer your compensation by buying tax deferred treasury securities or some specific certificates of deposit that allow for deferral of interest income.
- You can save taxes by deferring income and also by bringing forward some of your expenses. Check the bills you normally pay in January or February and see if you can pay them in December. If you have time and feel inclined, call and see if you can get a discount by making an early payment. Along the same lines, go and buy some office supplies you’ll always need so it lowers this years tax bill. If you use accrual accounting, you can even make the purchase now and deduct it from your 2013 taxes but pay the bill in January 2014 by using your credit card.
- Pay off your investment expenses early or in full including any mortgage interest, real estate taxes plus any state and local taxes.
- If you wish to make a tax gift of up to $14,000, make sure it’s done by December 31 for it to qualify for 2013.
Sell your business
If you plan to sell your business in 2014, now is the time to report all the income from all your sales. If cash sometimes doesn’t make it onto your financial statement it could cost you big with the final purchase price you get for your business. It’s real simple to understand. A business as a going concern is attractive to a buyer due to its cash flow. If a buyer is willing to pay, say, $2.50 for each $1 of earnings you make, then for every cash sale you report as opposed to put in your pocket you will make $2.50.
Here’s how it works. If your business earns $80,000 per year and its value is based on a multiplier of 2.5 it will sell for $200,000. If your business earns $100,000 and its value is still based on a multiplier of 2.5 it will now sell for $250,000. By simply reporting the additional $20,000 per annum in cash sales you just earned an additional $50,000 when you sold your business. It doesn’t get any better or simpler than that.
Buy a business or franchise
Is 2014 your year to buy your own business or buy the rights to a franchise? If that is the case then now is the time to start doing some planning and put things in order. This includes the following:
- If you plan to borrow money to help buy your business or franchise a critical step is to make sure your credit history is in order. A poor credit history will discourage too many lenders from offering you finance. Don’t run up credit card bills you cannot pay and more importantly, run some free credit checks to make sure there are no blemishes on your history that should not be there. If so, start the action now to have it removed or corrected.
- While you are checking your credit history, check your credit score to also make sure there are no unpaid bills or other negative marks that are pulling down your credit score.
- A resume may seem an unusual item to worry about if you plan to work for yourself but if you get an SBA loan it’s a document the lender will want to see. Put your resume together and as much as possible, highlight your management experience and also the industries you have business experience. The SBA loan process has become very sophisticated. If you plan to buy a business or buy the rights to a franchise and want a loan, the lenders want to see you have experience in that industry as they found too many borrowers bought into a new industry and their business subsequently failed.
- To buy an existing business or the rights to a local franchise you will need to have a downpayment. If you plan to get third party finance such as an SBA loan, you’ll need a total downpayment of about 20% of the purchase price. If you haven’t put the downpayment together, now’s the time to talk to family and friends to see if they will help you put a downpayment together. Just be careful, when you start talking to family and friends about your interest in becoming a business owner, it’s amazing how everyone has an opinion and most of the opinions you get will be that it’s not a good idea. Your family and friends will mean well but don’t let them kill your dream.
The Christmas Holiday season is a special time of year. Slow down and take the time to remember the reason for the season and enjoy the moment and I hope the 2013 Holiday Season is your best ever.
If you are looking for a gift idea for a business owner or someone that wants to become a business owner then one of the books I’ve written may be what you are looking for. For the ‘would be’ entrepreneur there is a choice of three books – Successfully start your business; Successfully buy your business or Successfully buy your franchise. The business owner that is thinking it’s time to sell then a good fit would be Successfully sell your business. If you would like more information please visit my website Business Advice Books.