How will you market my business? Why this matters is that the health of your brokers company economically indicates how they spend thier advertising dollars for your sale…if they arent healthy they cant spend and your chance of sellign drops accordingly.

How much do you think I should ask for my business? Make sure that the broker has data and facts to back up his valuation…you dont what to hear what you want to hear…you want the truth based upon facts.

How will you show my business? Confidentiality, Screening of Prospects, and mechanisms to match the right buyer to the right deal are just some of the talking points that should be covered.

Do you cooperate with other business brokers? Wow…this is huge…most brokers dont which means they are not trying their best to sell your business….understand that brokers get paid commission and co – brokering economically hits them….industry avg is 80 % to 20% non co-broker to broker….you want to see a more even split.

Will you display my business on any Internet sites? Have them talk you through all the sites…and they should have thier own as well

How often will you contact me about what is going on? They should show you reports on activity and if you like ask for an email of hits and calls regarding the business.

Can you provide any references? The answer should be yes

Are you affiliated with any business brokerage associations or trade groups? This is important cause it means more visability for your listing

May I have a sample copy of your listing agreement? They can email it or give you a hard copy

Can you please tell me about you and your firm? Get their background and ask for # of deals done year over year…results matter here

Why Should I Buy A Business Rather Than Start One?

An existing business has a track record. The failure rate in small business is largely in the start-up phase. The existing business has demonstrated that there is a need for that product or service in a particular locale. Financial records are available along with other information on the business. Most sellers will stay and train a new owner and most will also supply financing. Finding someone who will teach you the intricacies of running a business and who is also willing to finance the sale can make all the difference.

What Is The Real Reason People Go Into Business For Themselves?

There have been many surveys taken in an attempt to answer this question. Most surveys reveal the same responses, in almost the same identical order of priority. Here are the results of a typical survey, listed in order of importance:

To do my own thing, control my own destiny.

Don’t want to work for someone else.

To better utilize my skills and abilities.

To make money.

*It is interesting to note that money is not at the top of the list, but comes in fourth.

How Are Businesses Priced?

Generally, at the outset, a prospective seller will ask the business broker what he or she thinks the business will sell for. The business broker usually explains that a review of the financial information will be necessary before a price or a range of prices can be suggested for the business.

Most sellers have some idea about what they feel their business should sell for – and this is certainly taken into consideration. However, the business broker is familiar with market considerations and, by reviewing the financial records of the business, can make a recommendation of what he or she feels is what the market will dictate. A range is normally set with a low and high price. The more cash demanded by the seller, the lower the selling price; the smaller the cash requirements of the seller, the higher the price.

Since most business sales are seller-financed, the down payment and terms of the sale are very important. In many cases, how the sale of the business is structured is more important than the actual selling price of the business. Too many buyers make the mistake of being overly-concerned about the full price when the terms of the sale can make the difference between success and failure.

An oft-quoted anecdote may better illustrate this point: If you could buy a business that would provide you with more net profit than you thought possible even after subtracting the debt service to the seller, and you could purchase this business with a very small down payment, would you really care what the full price of the business was?

What Should I Look For?

Obviously, you want to consider only those businesses that you would feel comfortable owning and operating. “Pride of Ownership” is an important ingredient for success. You also want to consider only those businesses that you can afford with the cash you have available. In addition the business you buy must be able to supply you with enough income – after making payments on it – to pay your bills.

However, you should look at a business with an eye toward what you can do with it – how you can improve it and make it more productive and profitable. There is an old adage advising that you shouldn’t buy a business unless you feel you can do better than the present owner. Everyone has seen examples of a business that needs improvement in order to thrive, and a new owner comes in and does just that. Conversely, there are also cases where a new owner takes over a very successful business and not soon after, it either closes or is sold. It all depends on you!

What Does It Take To Be Successful?

Certainly, you need adequate capital to buy the business and to make the improvements you want, along with maintaining some reserves in case things start off slowly. You need to be willing to work hard and, in many cases, to put in long hours. Unfortunately, many of today’s buyers are not willing to do what it takes to be successful in owning a business. A business owner has to, as they say, be the janitor, errand boy, employee, bookkeeper and “chief bottle washer!” Too many people think they can buy a business and then just sit behind a desk and work on their business plans. Owners of small businesses must be “doers.”

What Happens When I Find A Business I Want To Buy?

When you find a business, the business broker will be able to answer many of your questions immediately or will research them for you. Once you get your preliminary questions answered, the typical next step is for the broker to prepare an offer based on the price and terms you feel are appropriate. This offer will generally be subject to your approval of the actual books and records supporting the figures that have been supplied to you. The main purpose of the offer is to see if the seller is willing to accept the price and terms you offered.

There isn’t much point in continuing if you and the seller can’t get together on price and terms. The offer is then presented to the seller who can approve it, reject it, or counter it with his or her own offer. You, obviously, have the decision of accepting the counter proposal from the seller or rejecting it and going on to consider other businesses.

If you and the seller agree on the price and terms, the next step is for you to do your “due diligence.” The burden is on you – the buyer – no one else. You may choose to bring in other outside advisors or to do it on your own – the choice is yours. Once you have checked and approved those areas of concern, the closing documents can be prepared, and your purchase of the business can be successfully closed. You will now join many others who, like you, have chosen to become self-employed!

Why Should I Go To A Business Broker?

A professional business broker can be helpful in many ways. They can provide you with a selection of different and, in many cases, unique businesses, including many that you would not be able to find on your own. Approximately 90 percent of those who buy businesses end up with something completely different from the business that they first inquired about. Business brokers can offer you a wide variety of businesses to look at and consider.

Business brokers are also an excellent source of information about small business and the business buying process. They are familiar with the market and can advise you about trends, pricing and what is happening locally. Your business broker will handle all of the details of the business sale and will do everything possible to guide you in the right direction, including, if necessary, consulting other professionals who may be able to assist you.

Your local professional business broker is the best person to talk to about your business needs and requirements.

Do I Need An Attorney?

It may be advisable to have an attorney review the legal documents. It is important, however, that the attorney you hire is familiar with the business buying process and has the time available to handle the paperwork on a timely basis. If the attorney does not have experience in handling business sales, you may be paying for the attorney’s education. Most business brokers have lists of attorneys who are familiar with the business buying process. An experienced attorney can be of real assistance in making sure that all of the details are handled properly. Business brokers are not qualified to give legal advice.

However, keep in mind the fact that many attorneys are not qualified to give business advice. Your attorney will be, and should be, looking after your interests; however, you need to remember that the seller’s interests must also be considered. If the attorney goes too far in trying to protect your interests, the seller’s attorney will instruct his or her client not to proceed. The transaction must be fair for all parties. The attorney works for you, and you must have a say in how everything is done.

If you know someone who has owned their own business for a period of time, he or she may also be a valuable resource in answering your questions about how small business really works.

You have to make the final decision that “leap of faith” between looking and actually being in business for yourself is a decision that only you can make!

As a business broker ,which means business owner as well by the way, I am waist deep in the world of Small Business, so in some regards I am uniquely positioned to give opinion on the recovery…specifically the recovery here in Orlando. My process of reflection started with some dialogue with collegues both in and out of my firm. We are all working feverishly to drive activity on both ends of transactions through networking, direct mail, telemarketing, referrals and other grass roots marketing plans. As a consequence we are getting lots of chatter and not all of it is good. As a ‘veteran’ in this business I can clear out the static so to speak of negative results on our advertising efforts….we have never had great ratios…its just the dynamic….but I do think there has been a shift. Here is my observation:

During the boom years consumers on all fronts: housing, durable goods, CC expenditures acted with reckless abandon racking up debt. It is in my opinion somewhat of a consequence of our present culture. Americans (and American Business) simply acted foolishly and with no thought toward the future. Whether it was the homeowner with the variable mortgage in a house way to big for them or the business / corporation that did not manage the risk in its customer portfolio with regard to Margins and Client stability. We simply were Stupid and Greedy to some degree.

As a consequence businesses and consumers are scared and cautious. They are building stronger balance sheets, saving more, and generally operating on a ” do I really need to spend that $ now mentality” This is the way it should be. We are now behaving as we should have when things were hunky dorey!! Does that mean growth will be slow….sure as it relates to the insanity of growth we have seen…..its kinda like taking a leisurely sail in 10 mile an hour winds as opposed to trying to ride out a hurricane in the same boat. We as business brokers, business owners, consumers need to make a paradigm shift to being focused on SUSTAINABILITY and managing risk.

For the broker it means more work….the whales will not be there and the value proposition must be increased. For the consumers and buyers you must learn to recognize and reward your partners and providers for the quality they provide…that means paying what people are worth…and finally it means we must as a culture look to what is important….for me it is GOD, Family, and My country. If you act prudently and make common sense decisions and not emotional ones we will all be stepping forward and making progress

Category : Lawn/Landscaping SIC : 0782
Detail : Lawn Biz Residential Price : 85,000
County : Orange Down : 85,000
State/Prov : Florida Adj Net : 57,000
Country : USA Sales : 105,000

——————————————————————————–
Quality Small 1 Man Res Lawn Biz. 45 to 50 Residential Customers w/ monthly billing of $6500. Solid Enhancement opportunity clients generating strong Margins. Good Visa Candidate, Very high billing per customer at avg of 100 a month. Full complement of equipment including dual axle trailer, scag mover, edger, trimmer, blower & hand tools. Ideal opportunity for add on route for existing business. Route can be done in 4 days. Tax returns and all records maintained in quickbooks. Contact Agent ASAP

——————————————————————————–
Reason for Sale : Discuss with Seller
General Location : Winter Park , Oviedo
Organization Type : Corp ‘Sub S’ Hours Owner Works: 40
: Years Established: 7 Years Owned: 7 Emp FT: 0 Emp PT: 1 Mgrs: 0
Non Compete : Miles: 50 Years: 3 Weeks Training: 2 Cost: 0
Operating dys/hrs : m to f 9 to 5
Skills/Licenses : occupational licenses
Business is : Relocatable: Y Home Based: N Franchise: N Lender P/Q: N

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——————————————————————————–
Data Source Annualized Tax Return Tax Return
Year (Cash Flow) 2010 (N) 2009 (N) 2008 (N)
Gross Revenue 105,000 109,535 108,524
Cost of Goods 15,000 44,329 64,922
Gross Profit 90,000 65,206 43,602
Expenses 33,000 16,717 9,021
Net 57,000 48,489 34,581
Owner Salary 0 0 7,000
Benefits 0 0 0
Interest Expense 0 633 0
Depreciation 0 2,746 3,131
Other 0 6,636 2,458
Owner Benefit 57,000 58,504 47,170

——————————————————————————–
Accounts Rec 0 N* Real Estate 0 N*
Inventory 0 N* ___________ 0 N*
F F & E 8,000 Y* Total Assets 8,000 Y*
Leasehold 0 N* *Included?

As you can tell from this stream of consciousness post today I am having some interfaces with folks who will never buy because they are being emotional (they dont see that they are) and in a couple of cases irrational. But that is what makes this business exciting and different.

“Make Mistakes of Ambition not Sloth”…wow isnt that a great quote?!! Avoiding risk is impossible and ther are not guarentees in anything. You must way the risks and work to mitigate the risks in your business dealings.

All too often buyers come in and look to do deals with no risk and the fact of the matter is there is no deal without risk. Do your analysis…understand both parties position and the dynamics of the market and make a decision….cause sure as sugar sitting idle and doing nothing will result in nothing

Just yesterday I had a buyer who has experienced several layoffs in his field and needs to replace income. His wife and the pride they held in thier titles had them looking at businesses that a) did not fit thier skill set b) had excessive fixed overhead requirements and c) required large reserves / working capital.

Buyers please please please do the following:
1) surround yourselves with good advisors (cpa, attorney, and brokers who have real tangible experience in what you are doing)
2) educate yourself – your advisors are not the ones taking the risk…if you dont understand the business and its key elements then dont do it.

3) ask the simple and important question of yourself …i.e. if i buy a coffee shop how many cups of coffee have I got to sell to cover rent, electric, labor, taxes, contingencies, and pay myself a livable wage…and oh how much do i need to grow yearly to keep being profitable becuase that darned landlord is gonna jack my rent yearly?”

3. Can I unload it if I want out and how long will that take?

In short folks Caveat Emptor applies and use your common sense….its God’s gift to you

Here’s the background: The American Jobs and Closing Tax Loopholes Act (H.R. 4213) was recently approved by the U.S. House of Representatives. One provision of the bill is designed to help curb tax abuses by small business owners whose companies are organized as S corporations. The way things are currently structured, many of these small business firms have been able to avoid Social Security and Medicare taxes (”payroll taxes”) they will likely now have to pay. Congress’ Joint Committee on Taxation estimates that closing this tax loophole could generate almost $11 billion over the next 10 years. H.R. 4213 is now stalled in the Senate. But even if this loophole-closing provision isn’t adopted as part of the pending legislation, expect to see it resurface as Congress struggles for ways to cut the deficit, without harming entitlement programs such as Social Security.

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Yahoo! BuzzWhat abuse is Congress targeting? According to a recent Government Accountability Office (GAO) report, about 13% of all S corporations are abusing the system by understating the wages of their owners. Instead of paying themselves reasonable compensation, these owners report most of their earnings as corporate income. The report further reveals the median understatement of wages was $20,127 per tax year, with virtually all of the underpayment concentrated in S corporations with three or fewer shareholders. (S corporation income isn’t taxed at the corporate level but is passed through to shareholders’ personal tax returns; they are liable for federal and, where applicable, state income taxes on it, but not for payroll taxes.)

The House bill would mandate payroll taxes be paid on all income from certain professional service S corporations. Specifically, it would apply qualitative test: where the business is in any one of 12 specific service areas, such as law, accounting, and medicine; and is principally based on the “skill and reputation” of three or fewer employees.

The Senate has attempted to replace the qualitative test with a more quantitative measure that states: “…if in the above service areas 80% or more of the income is attributable to the services of three or fewer owners, all S corporation income will be subject to payroll taxes.”

Currently, no tax reporting guidelines exist to determine the proper level of wages to be paid to shareholders who are also employees in an S corporation that provides professional services. Therefore, some pay only modest wages to their shareholders. For example, a law firm owner could pay the partner $25,000, and pay the balance of the net income as S corporation income to avoid payroll taxes. If the act passes in any one of the proposed forms, it is likely the earnings of small professional service shareholders will be fully subject to payroll taxation without exception.

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Post a CommentTime will tell the final form of the provision and how it will be applied. If the Senate version is passed, an analysis of the S corporation’s income generated by the three most productive shareholders would be compared to the total income of the S corporation. If the income attributable to the three shareholders exceeds 80%, then the firm will face payroll taxes on all the profits passed through to the owners. If the House version passes, it is unclear, but it’s possible a valuation of the “skill and reputation” of the three most valuable shareholders would be required to determine if the S corporation income will be subject to payroll taxes. However, it is likely the Treasury Regulations interpreting the House version would apply a more quantitative measure of “skill and reputation.” In either case, both proposed tests use a combined measurement of three shareholders and a percentage of revenue or value as a threshold to payroll taxation.

Should some form of this provision pass, as many are forecasting, there are ways small businesses might be able to minimize the impact. For example, it may very well be possible to bring in a “fourth” shareholder or employee so as to reduce the combined revenue of the three to below 80% of the total. In other words, if the personal service S corporation expands its professional employee base ever so slightly, imposition of the new payroll taxes could likely be avoided.

There’s a bright side to this provision too: IF S Corp owners decide to report this income as wages, they will become eligible to fund larger tax deductible contributions to a qualified retirement plan such as a 401(k). Ironically, the overall tax savings may just outweigh the cost of the new payroll taxes. Regardless of whether some version of this loophole closer is adopted this year, there will still be a need to eliminate the abuses of payroll taxation that result merely from the form of entity that is chosen to provide personal services.

James B. Davis is the tax practice group leader at the Florida-based law firm Gunster. His practice areas include ERISA and employee benefit law, corporate and business law, taxation, and estate planning. He joined Gunster in 2001.