Women tend to have a different management style than men and this often non-traditional approach to running a company has been successful, and has given women a different view on possibilities and opportunities. Locating a source for venture capital is important. There are grants and loans created especially for women. With some of these loans and grants, applications focus on character, credit, experience, and reliability. Assets are not at the top of the list when qualifying for this type of loan.
Do not put your dreams on hold any longer. Call us. 479-770-8989. Want to know if you qualify? Check out these links and then give us a call to start making the change today!
Therefore, the combined impact of these increased taxes on business owners who sell their business after 2012 could be a 58.7% increase – from 15% to 23.8%! As an example, if the profit from the sale of your business is $250,000 you would pay $37,500 under the current capital gains rate. At the 20% rate those taxes would increase to $50,000. If your income qualifies you for the higher rate of 23.8%, your tax liability would increase to $59,000!
If you are planning to sell your business in the near future, now is the time to get started! Delaying that decision could end up costing you a significant amount of money. Please call when you are ready to proceed.
By Jon Holbert
These questions come up often in conversations with business owners. The answers are unique to each individual owner, but there are some constants that I’d like to address.
1) Why Sell?
a) Retirement. Even if you are technically not “retirement age”, business owners are often motivated by the desire stop working full time in their own business. Some will work part time, work for someone else or even begin a new business venture.
b) Health Issues. Many business owners are forced to sell because their health will no longer allow them to work in the business.
c) Interest. Many owners have lost interest in their current business. Let’s face it. Working in your own business can be grueling at times with long hours and lots of stress. Other times business owners have other businesses or interests that require more of their time. FYI— golf and fishing are not other interests, refer
to section a.
d) Timing. Many times if a particular business is the hottest thing going or if it is on the upswing, the timing may be right to get a great price for your business. Sometimes you just have to strike while the iron is hot.
2) Why Now?
a) Market Conditions. No one can predict the future, if you are considering selling, the only time you can be sure of the market conditions is now. As Yoda would say “Difficult to see. Always in motion is the future.” Many times we see owners postpone selling their business and then have some catastrophe or market shift that makes their business worth less or worse, worthless.
b) Taxes. There are some things that are predictable, especially in today’s climate. Those things are higher taxes, more government regulations and intervention. It seems inevitable that there will be a capital gains tax increase in the near future as well as additional regulations concerning employee benefits, environmental regulations and income taxes.
c) Trends. As we slowly recover from the 2008 recession, most businesses are beginning to experience upward trends in sales and profit and these are the trends buyers are looking for. Any business that has survived during the last 5 years has proven itself to be resilient and flexible in dynamic markets.
d) Buyers. With some larger companies downsizing, some retirement age people who aren’t ready or able to retire and with tight job markets for recent graduates there are plenty of willing buyers out there. The question is—are they capable of buying a business? The answer is—yes, many of them can. Now that people can invest their 401k into their own business without taxes and penalties, the door opens for many. Also, recent graduates or younger buyers can buy themselves a job with help from their families.
Using a business broker can help you determine if the time is right to sell. He or she will be up on current trends and market conditions. He or she will carefully screen buyers so that only qualified people will “see” your business and can help with recommendations for valuations and tax consultants.
Ultimately, only you can decide when the time is right to sell your business, but it just makes sense to use a professional business broker to provide confidentiality, insight into the market, bring you screened buyers and provide the consultations you need to make an educated decision. Once again, Master Yoda says “Already know you that which you need.”
By Lil Sawyer
locks days I nano-particles–some.
task. If you are serious about operating your own business, you might want to consider minimizing some of the anguish and pain associated with startups by purchasing an established business.Since many experts have predicted that a significant percentage of the workforce will be working in a self-employment capacity in the next decade, business ownership is becoming increasingly more important to many people.
For a financing perspective, you’ll have a much easier time securing capital from lenders by taking over an established business, than starting one from scratch. Not to mention, you’ll dramatically minimize the financial risk to yourself and your finance partners because the company will have proven revenue and a customer base. Many lenders will fund 50% to 75% of the acquisition cost for businesses depending on a number of factors such as the cash-flow numbers, assets and security available.
It is estimated that less than 10% of all start-up businesses are able to successfully secure the financing required at the outset. This is due to the high level of risk start-ups pose to lenders because every aspect of the business is unproven. Yet many people dream of the freedom and control over their own destiny that comes with owning and successfully managing their own business.
Buying an existing business or established franchise will dramatically reduce the risk when compared with starups since statistics estimate that 60% of start-up businesses fail within the first three years. Additionally it takes two years on average for a start-up to become profitable. Even comparing start-ups with such other options as home-based businesses or MLMs, in most cases, your chances of success are still clearly best when you buy an existing business. Outlined below are the ten primary advantages of business acquisition vs start-up:
1) Much lower risk of failure,
2) Business generates cash flow from day one (preferably positive cash),
3) Proven business concept and processes,
4) Proven products, services, marketing and sales strategies,
5) Established customer base providing referrals and references,
6) Established suppliers,
7) Trained employees in place,
8) Immediate credibility and perception of success,
9) Seller likely to lend support and may assist with
10) Easier to secure affordable financing to complete the acquisition.
If the business has a positive cashflow, proven track record and perceived stability, it makes it easier to secure affordable acquisition financing. When starting a business, every aspect of the business is unknown. You don’t know who your customers will be; you don’t know how many employees you will need; you don’t even know if the business will succeed! With some many unknown variables, lenders have no choice but to reject the financing request, labeling it as “too risky”.
When you buy an established business, all of those “unknown” details have been worked out by the previous owner. An established business should already have a solid customer base, an experienced management team with proven processes and systems in place. Even if the company was not profitable in the past, your strengths may lend themselves perfectly to turning it into a viable company. At least you’ll have the ability to verify what the company did in the past that resulted in the current status of the operation. They’ll have employees who know the business inside-out. Most importantly, the buyer can have peace of mind knowing that he or she has invested in a business with a much higher likelihood for success.
The biggest challenge to buying a business outright is the initial purchasing cost and the business transfer costs such as consultants, lawyers, accountants and valuation specialists. Because the business concept, customer base, brands, and other fundamental work has already been done, the financial costs of acquiring an existing business is usually greater then starting one from nothing. Other possible disadvantages include the time and travel required to research the opportunities available and hidden problems associated with the business and receivables that are valued at the time of purchase but later turn out to be non-collectable. Additionally, many acquired businesses lose 5-10% of their customers in the first year after a sale.
Good research, careful planning and following the advice of wise counsel are the keys to avoiding these problems. You can avoid some of the pain associated with new management for the staff, suppliers and customers by negotiating a reasonable amount of time to transition from the current management.
It’s often more cost-effective to bring in specific expertise in mergers and acquisitions before the letter-of-intent stage is reached. In fact many acquisition experts believe that it is important to put your ‘resource team’ together early. That is to seek the advice and guidance of business finance experts, lawyer and certified accountant before you begin your search for an acquisition target. After all, most people are going to do this deal once, so it’s essential to do it right and put the best total package together to ensure a successful acquisition and success long term.
In order to buy the right business or franchise, you need to do a thorough investigation of its historical performance, its operations, current status, the staff and management, real estate, competition, the industry and its future potential. Once all this analysis has been completed, you will then have to determine how it measures up with your skill, expertise and leadership. All of which is so much easier to do with an existing business.
While there are no guarantees in business and the risks must always be managed, buying an established business clearly offers significant advantages worth considering if you want to own your own business.
Lil Sawyer is Managing Director of FundingLinks Inc.
By Scott Shane
The last quarter saw a dip from 34 to 33 percent in the share of small business owners reporting that credit is difficult to get, according to the most recent Wells Fargo Small Business Survey.
Statistically, however, the share of small business owners reporting trouble obtaining credit has been the same since the third quarter of 2009. The survey, which is based on a nationally representative sample of 600 small business owners whose companies have up to $20 million in annual sales, has a margin of error of plus or minus 4 percentage points.
In the figure below, I have plotted the fraction of small business owners reporting that credit was difficult to obtain for each quarter since April 2007.
The figure clearly shows three distinct periods in small business owners’ perceptions of credit availability: Before the recession, when only a small fraction thought credit was difficult to obtain; during the recession, when the share expressing this view was rising; and during the recovery, when a large fraction has thought that credit was tough to get.
In a nutshell, the Wells Fargo surveys indicate that we are in a period of tighter small business credit than before the Great Recession.
The Eighth Circuit affirmed the District Court for the Southern District of Iowa’s decision that an S corporation shareholder’s $24,000 salary was not reasonable compensation and that the $91,044 salary determined by the government’s expert witness was (David E. Watson, P.C., No. 11-1589 (8th Cir. 2/21/12)).
At issue is a common strategy of paying a small salary to an S corporation shareholder providing services to the corporation to minimize the amount of employment taxes that must be paid.
In this case, Watson was a CPA with an advanced degree and 20 years’ experience who formed an S corporation that, in turn, became a partner in his accounting firm. Watson was “employed” by his S corporation. In each of the two years involved in the case, 2002 and 2003, Watson received a salary of $24,000 from the S corporation, but also received distributions of $203,651 and $175,470, respectively, that were not subject to Federal Insurance Contributions Act (FICA) taxes.
In challenging the IRS’ determination that an additional amount was subject to FICA, Watson claimed that the IRS’ expert witness (a certified business valuation analyst) was not qualified to provide the testimony that he gave and that the amount determined to be wages was erroneous. The Eighth Circuit concluded that the expert witness was qualified, rejecting Watson’s argument that, when the expert changed his opinion of the value of Watson’s services after reading Watson’s deposition, it showed that the expert was incompetent.
The court then examined Watson’s compensation, explaining that special scrutiny must be given to salaries paid to employees who control a corporation. Watson argued that no statute, rule or regulation required minimum compensation to be paid. According to the Eighth Circuit, however, the issue was not whether some minimum compensation must be paid, but whether the compensation paid was reasonable. Reasonable compensation analyses apply not only when the issue is whether a salary may be deducted as an ordinary and necessary business expense, but also when the issue is whether payments are wages subject to FICA tax.
The Eighth Circuit affirmed the district court’s holding that an additional $67,044 was subject to FICA tax, noting the lower court’s finding that Watson was a very experienced CPA who worked full time at his firm, one of the most successful firms in town (gross earnings over $2 million a year), and that $24,000 was an excessively low salary for someone of his experience and expertise.
—Sally P. Schreiber (email@example.com) is a JofA senior editor.
If you’re a business owner nearing retirement or considering a business sale for other reasons, you may want to put that idea into high gear and sell before the end of this year.
Starting next year, the federal capital gains tax is expected to increase sharply, by 59 percent, which will significantly reduce the amount of money you will ultimately earn from your sale.
Here’s why: Beginning Jan. 1 the federal capital gains tax jumps from 15 percent to 20 percent. Combined with a new Medicare tax of 3.8 percent, that’s a whopping 23.8 percent that you will have to pay from your sale for federal capital gains taxes.
The existing long-term capital gains tax rate of 15 percent has been in place since 2003, when it was reduced from the former rate of 20 percent after the passage of The Jobs and Growth Tax Relief Act. The rate was extended to Dec. 31, 2012, by The Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. Consequently, the 15 percent rate is scheduled to expire and return to the former 20 percent rate at the end of this year. In addition, capital gains will be subject to an additional new 3.8 percent Medicare tax under national healthcare reform legislation passed in 2010.
The new capital gains taxes scheduled to take effect at the beginning of next year will result in significantly lower after-tax net proceeds for a selling business owner. To break even, a business owner would need to increase the business sales price by 11.5 percent to have the same net profit if the business is sold after 2012. That would be difficult to achieve in a business transaction environment where private equity groups and large corporate buyers are shopping for values in a buyer’s market and baby boomers are increasingly looking to sell, adding to the supply of businesses for sale.
To illustrate the difference in selling a business this year and next year, let’s look at an example contrasting the net after-tax sales proceeds to an owner from the same business sale.
This year: Assuming the business sale resulted in $10 million in capital gains, $1.5 million of federal capital gains taxes would be due under the 2012 federal capital gains tax of 15 percent. That would result in net proceeds to the seller of $8.5 million after federal capital gains tax.
Next year: Given the same $10 million in capital gains from a sale in 2013, an additional 5 percent would be due for the 2013 capital gains tax increase and an additional 3.8 percent would be due for the new Medicare tax. The business owner’s federal capital gains tax liability would increase to $2.38 million. In the end, the business owner would only take away net proceeds of $7.62 million. That’s $880,000 less in net proceeds compared to a sale in 2012.
Note that the above example only accounts for federal capital gains tax differences and does not include state and local taxes.
Keep in mind that substantial time may be required to properly structure, position and market your business for a sale in 2012. If you are considering a sale, you should meet with your financial advisor, accountant and an experienced business transactional attorney as soon as possible.
Business sales can be complex and may take several months to a year to complete. Prompt action may make the difference between closing before the end of 2012 or being delayed until after the beginning of 2013 and having to incur the coming increases in federal capital gains tax.
George M. Reyes is a partner in the business services practice group at Best Best & Krieger LLP in Riverside. His practice specializes in mergers and acquisitions and includes general counsel work for privately owned businesses and non-profits. He can be reached at firstname.lastname@example.org.
The CBI+Team celebrates the transfer of ownership of Dr. Kent Nance’s Siloam Springs, Arkansas dental practice to Dr. Peter Jeppsen. Dr. Jeppsen purchased the practice and is maintaining the high standards practiced at the clinic for many years. Dr. Jeppsen has been an associate in the office for several years.
Carl E. Grimes, CBI, was the Intermediary to Dr. Jeppsen. This is the second Siloam Springs dental practice sold by The CBI+Team.
The CBI+Team has also found a resource for professional practice financing on very favorable terms. Call The CBI+Team at 877-582-5200 to begin the process of selling or buying a professional practice.
Lindsay and Judy South had been trying for over two and half years to sell their successful, profitable health foods and supplements store in Heber Springs, Arkansas, a beautiful resort community on the shores of Greer’s Ferry Lake in central Arkansas.
Once The CBI+Team listed the business the buyer was identified in less than 12 months and closing took place Sunday, December 11th, 2011.
Mai and Kobie O’Neill of Florida saw the ad for the health food store on the CBI+Team website, made the inquiry and then traveled to Heber Springs as quickly as possible to begin due diligence on the store and meet Lindsay and Judy.
Things went well from there and all parties were exhausted, but happy after the inventory and closing Sunday evening. Lindsay said, “The CBI+Team’s ability to help all of us over the problems and rough spots kept the deal going to closing.”
Lindsay, a native of Australia, and Judy, who is originally from Memphis, Tennessee plan on helping the new buyers, Mai and Kobie, get up to speed for the next 45 days and then the Souths plan on continuing to live in Heber and traveling more.
Mai and Kobie have children who are enrolled in Heber Springs schools. They have bought a home and are happily opening their store daily and excited about their future.
CBI+Team intermediaries for the deal were Connor Grimes and Bill Grimes.
Atlanta, GA – XpandCRM announces Carl Grimes has agreed to serve the company as Chairman of the Board to ensure that all development activities are in keeping with serving the ever-changing needs of the greater franchise community.
Carl became one of the first franchisees of Sunbelt Business Advisors in 1984 and served as First Vice Chairman of the Board for Sunbelt from 2001 to 2006.
Before Carl Grimes founded The CBI+Team, he published an award-winning newspaper, built and operated a state-of-the-art cable television system, owned a real estate firm, a retail catalog sales business, and an abstract and title company. All of these businesses were successfully sold and led Mr. Grimes to the field of business brokerage. He received the designation of Certified Business Intermediary (CBI) from the International Business Brokers Association and that organization recently honroed him by naming him a Fellow of the IBBA. Grimes and his family own CBI+Team offices in Fort Smith, and Northwest Arkansas as well as Joplin and Springfield, Missouri.
A graduate of the inaugural class of Leadership Fayetteville, a program conducted by the Fayetteville Chamber of Commerce, Carl has served as a city councilman, school board member, and a Chamber of Commerce president. A member of University Baptist Church in Fayetteville, Carl has also served as an elder, a deacon, and a Sunday School teacher.
Michael Auten, President, stated that “Having served as a franchisor CEO under the direction of Carl Grimes as First Vice Chair at Sunbelt, I have exceptional confidence in Carl to lead our management team to serve the franchise community with targeted solutions at an economically affordable price point with honesty and integrity. Carl and his family will continue to operate The CBI+Team on the XpandCRM private label platform (BRIM) while performing his oversight of the company’s vision and strategic direction.”