Effects of COVID-19: Is it time to value and sell your California business?
One of the lyrics from John Lennon of The Beatles’ fame says, “Life is what happens to you when making other plans.”
From March 16, 2020 in California, the Great Lockdown recession saw the closing of 6 Bay Area counties and the directives from California Governor Newsom to execute the closing of non-essential businesses, institute social distancing, and so much more.
As of late May 2020, California is starting to move into phase two opening so perhaps things are starting to return to normal. But what is this new normal, and where does your business fit in?
If your business is deemed an essential service, then you may have been operating ‘normally’ during this time, with some adaptations.
If you are a student, teacher, hair salon owner, owner of a bar, and any business where 10 or more people would normally sit close together things are still far from normal operations.
If you own and operate a construction, manufacturing, or another type of business in California, it’s possible you are seeing some return to normalcy.
If your business is part of the phase three or four openings and you have the ability to keep your business alive until then, a new normal is not too far away.
If you were a business owner and needed help with an SBA Economic Injury Disaster Loan or EIDL loan or Payment Protection Program or PPP loan, hopefully it has been approved funded. If you need help with either loan, please let me know as Rogerson Business Services can assist you at no cost through the Small Business Development Center.
If you are one of the many business owners that cannot keep going because the lockdown has not only shut down the product(s) or services you provide but left you with no interest in continuing to own and operate your business, I am truly sorry and wish nothing but good things for you.
As you read the above paragraphs there are seven paragraphs that start with ‘if’.
This is the uncertainty and hurt the coronavirus has created to not only our economy but also our way of life and daily routines.
As John Lennon indicates above, life may happen when you are creating other plans, but let’s look at what you should be considering if you own a business located in California.
Why is California Different?
The reason the following information applies primarily to California is for a number of reasons.
- The southern California economy is the 6th largest in the world. This economic powerhouse allows California to do things that other States in the US cannot do as it is such a juggernaut. When you add in the IT economy of the Bay Area and the Central Valley of California, which grows and sells about 45% of the agriculture products that the US consumes and you can see how the economy in California affects the economy everywhere.
- Whether you like it or not, California politics means it is primarily a blue state. This means it protects, through legislation and case law, not only the California consumer but also the California worker. This also means it costs more to own and operate a business than other states.
- Then there are taxes, one of the most unpleasant words in the English language. California seems to have them all; payroll taxes, business license taxes, corporation taxes, sales tax on all the products you buy, along with one of the highest gas taxes in the United States.
- Because of the above diversities, almost every industry in California has regulations to operate a business, and, in many cases, these laws are unique to California and stronger than other US states. Yes, people and businesses are moving out of the state but there are also others coming to California due to its climate and quality life.
Do You Still Love Owning and Operating your Business?
Starting or buying a business or company to own and operate is typically the most important thing an entrepreneur can do.
They live and breathe it.
They worry and obsess over it.
They rarely live in the ‘now’ but are constantly looking back or looking forward. A business owner typically doesn’t live in their comfort zone as it’s not what they do.
Business ownership defines the owner and yet most business owners don’t give enough thought to how they will exit their business.
Have your priorities changed now you are recovering from “cabin fever?”
If you own and operate a business, perhaps the coronavirus has made you re-think your priorities. I know it has for me.
If the passion, the attention to detail, the time, the risk and the responsibility have moved from a positive to a negative, maybe it’s time to exit your business on your terms.
The coronavirus has completely shut down the economy. It is the end of an economic cycle and the start of a brand new one. By its nature, the economy is self-healing, but it takes time. Absolutely no one knows how much time it will take; especially as we move through the phases of opening up the California, the US, and other global economies.
Will you have financial security if you sell your business?
Your decision whether to stay and operate your business or exit will primarily boil down to your financial security.
After you sell your business, the cost to maintain your current standard of living will generally not be much different.
Therefore, make sure the numbers make sense.
Do you have a plan to minimize your taxes if you sell your business?
What are the tax consequences if you sell your business and can these be better managed?
Your CPA can assist you. My experience is that a lot of CPA’s are very good at preparing tax returns but don’t necessarily know the best tax strategy when selling your business.
Ed Cotney from Olympus Tax is a colleague of mine and loves not only obsessing about the numbers and how to pay less tax on the sale of a business but writing out a plan so it can be shared with your legal advisor, CPA, and financial advisor so everyone is going in the same direction.
Ed doesn’t work for free, but if you call (530) 913-0562 he will answer the phone and let you know the cost. As a rule of thumb, it generally takes Ed about a month to understand your tax position and prepare a report for you to read and ask your questions. And as Ed likes to say, if you have a business worth $5 million or more, Olympus Tax has 56 strategies to reduce or eliminate the tax you have to pay when you sell your business.
Ed also likes to say “The one key issue every business owner suffers from is the failure to run their business as if it were for sale every day. For those that honor this rule, they have the flexibility to move when unseen and unpredictable events occur. Whether it be a loss of key management, health, or disaster.”
If you want more information, visit Olympus Tax and do some reading.
What do you want your legacy to look like?
If your business has been successful and the financial rewards are more than enough, you may want to consider starting and funding a foundation.
The coronavirus has reaped havoc on so many ‘soft’ and ‘quiet’ parts of the economy. If you would like to help, it’s not a question of how much help you can provide but how do you maximize the help you provide.
Foundation Source is in its third decade of assisting with administering and guiding how to set up and execute the right foundation for you. More information is available by visiting the Foundation Source website.
If you would like to know how you can help during this phase of the coronavirus, here is some information available to you.
What’s the process to value and sell your California Business?
Would you like to know more about valuing and selling your business?
This link to my website provides more information about valuing your business. You will notice on the right-hand side there is a link to a sample business valuation. Please call (916) 570-2674 if you would like to discuss valuing your business or know more.
You may prefer to learn more about how a business is valued, and if you do, feel free to sign up for my free seven email program that offers a free spreadsheet tool, and steps you can take to know the general value of your business. This is a 14-day program so you will have time to work through each step before the next one arrives in your inbox.
This page of my website explains the steps to sell your business. You will also notice that on the right-hand side there are links to nine free documents to help you.
If you want to learn more about selling a business, sign up for my free email program, which will send you seven emails over ten days that explain the process.
You are also welcome to sign up for my free monthly newsletter. You can do this by going to the Home Page of my website and filling out the pop-up form there. I look forward to staying in touch.
Is it time to value and sell your California business? Only you can know for sure. But if you have any questions, contact us. We’d love to help any way we can.