How Much Is My Business Worth? Finding a Qualified Business Broker!

How Much Is My Business Worth?  Finding a Qualified Business Broker!

What’s a Business Worth?

  • Unlike real estate, comparables cannot be used because every business is entirely unique in costs, expenses, profits, and management
  • Unlike public companies, market share prices are unknown
  • A common mistake is to use multiples of “rules of thumb”

Finding a Qualified, Credible Business Broker

What the Process Should Be:

  1. Assessment of Market Value
  2. Plan and Preparation to Market Business
  3. Strategic Marketing
  4. Screening and Qualifying Potential Buyers
  5. Negotiation
  6. Due Diligence
  7. Closing / Settlement

What a Credible Business Broker Should Offer:

  1. 100% Performance Based
  2. Success Fee paid at close
  3. No Up Front Costs

Please Note:  The Business Wealth Preservation Group is not a business broker.  The foregoing information is to provide you with information, knowledge, and an understanding of the obstacles, issues, and opportunities for selling your business.  We can recommend a broker from our list of preferred providers.  Please call us with questions.

Find Someone to Buy Your Business! Who Wants to Buy Your Business?

Find Someone to Buy Your Business! Who Wants to Buy Your Business?

Who are the Buyers?

  1. Employees
  2. Strategic same or related industry acquirers
  3. High net worth individuals
  4. Private equity firms

What Buyers Want:

  1. Profitable business
  2. Experienced, loyal, and motivated employees
  3. Diverse customer base
  4. Sustainable growth potential
  5. Strategically well structured business – asset / compensation / tax planning

The Buyers

1.  Employees

  • ESOP – Employee Stock Option Plan

- Ideal for companies with:

  • $1 Million or more in earning
  • $1 Million or more in employee payroll

-         $75,000 to $100,000  cost to set up ESOP

2.  Strategic Acquirer

  • Complimentary Company – highest value, lowest risk
  • Non-local Competitor – good value, moderate risk
  • Local Competitor – low value, highest risk

3.  High Net Worth Individual

  • Most common buyer

- Former corporate executive

- Second career baby boomer

- Experienced and financially qualified

- Highly motivated

4.  Private Equity Firms

  • Typical Investment Criteria:

- $10 Million + in sales revenue

- $1 Million + in earnings

- Differentiated product or service

- Proprietary market position

- Strong layer of management

Please Note:  The Business Wealth Preservation Group is not a business broker.  The foregoing information is to provide you with information, knowledge, and an understanding of the obstacles, issues, and opportunities for selling your business.  We can recommend a broker from our list of preferred providers.  Please call us with questions.

The Challenge of Selling a Business – Why Businesses Don’t Sell

The Challenge of Selling a Business – Why Businesses Don’t Sell

The Three Paths to Exit

  1. Close / Liquidate the Business
  2. Sell to a 3rd Party
  3. Pass the Business to a Family Member – Only 17% of Business are passed to the next generation

The Baby Boomer “Tidal Wave”

  • 7 out of 10 businesses will be for sale in the next 10 years
  • Largest transfer of privately owned businesses in U.S. History
  • Inc Magazine – “An estimated 65 -75% of small businesses will go up for sale in the next 5 to 10 years! Why? Retiring Baby Boomers.

Most Businesses Never Sell – What are the odds of selling?

Annual Revenues $ Success Rate

Below 750,000                                          1 out of 5.5                  18%

750,000  – 2,000,000                           1 out of 4                      25%

2,000,000  -  6,000,000                      1 out of 3.5                  35%

50,000,000 +                                           1 out of 1                     100%

  • Inc. Magazine – “Historically only one-quarter to one-third of all private companies ever manage to find a buyer.”

Why the high failure rate?

  1. Business is priced incorrectly
  2. Business is not properly prepared for sale
  3. Insufficient market exposure

Key Factors to Successfully Sell a Business

  • Provide the buyer with a fair market salary
  • Fund capital expenditures required to maintain historic revenues
  • Provide a reasonable return on investment
  • Service acquisition debt in 3 -5 years

Please Note:  The Business Wealth Preservation Group is not a business broker.  The foregoing information is to provide you with information, knowledge, and an understanding of the obstacles, issues, and opportunities for selling your business.  We can recommend a broker from our list of preferred providers.  Please call us with questions.

The Benefits of Cost Segregation – Increased Cash Flow and Tax Deductions!

The Benefits of Cost Segregation – Increased Cash Flow and Tax Deductions!

Cost Segregation is the process of segregating the costs associated with the specific commercial real property investments in real estate. Commercial real property is depreciated over 39 years (or 27.5 years for commercial residential).

In order to qualify for Cost Segregation, properties must have been constructed, acquired, or renovated after 1986, under the IRS guidelines. The property can be a new building under construction; existing buildings undergoing remodeling, restoration or expansion; purchases of existing property constructed anytime, but placed in service after 1986; office/facility leasehold improvements on your current facility and “fit outs”.

What are the Benefits of Cost Segregation?

With the benefit of properly segregating costs, business owners, investors, and developers can accomplish several goals related to real estate properties:

1. CASH FLOW – A significantly improved after tax cash flows from the project due to accelerated tax depreciation.
2. TAX DEDUCTIONS – Opportunity to claim “catch-up” depreciation on future tax returns for corrections in tax depreciation.

A Cost Segregation Study should never “estimate” or “assume” what the percentage of the basis of your reclassification of property might be.  An experienced, competent firm will perform the highly-detailed work that is absolutely necessary to provide you with the highest level of tax savings you have a right to and deserve.  The Study’s report must be completed with real, measured information, gathered by professionals who know from experience what a successful submission to the IRS requires.

The Business Wealth Preservation Group, LLC can recommend a preferred provider that can perform a no cost initial cost segregation analysis, and if it makes sense, perform a complete cost segregation study.  We strongly recommend you call us if you have questions.

Turning Prior Losses into Current Cash Flow

Turning Prior Losses into Current Cash Flow

Legislation has expanded the opportunity to claim refunds from previous years.  Before the American Recovery and Reinvestment Act of 2009, a business could carry a current loss back 2 years to essentially reduce taxable income and recoup taxes paid in the prior two years.  With its passage, the IRS now permits a business to carry a current loss back 5 years to recover previously paid taxes.  But it is critical that proper tax planning is utilized with this opportunity.  The new provision allows the business owner and tax planning professional to strategically select a 3, 4, or 5 year carry-back period.  Improper planning will limit both current and future refund opportunities.

Finally learn how to keep more of the money your business earns!  Call us for help or with questions!

The Business Wealth Preservation Group is a professional services firm dedicated to providing superior individualized and custom service to individuals and their businesses in the areas of asset protection, tax planning, exit strategies, and wealth building. Simply put – we want to educate you on all relevant opportunities to put more dollars into your pocket, your business and your future.

We focus on leading edge, sophisticated, and safe business strategies that will help business owners structure, operate and maintain their business to take advantage of business and tax laws rather than being encumbered by them. We partner with the business, the accountant, and the attorney to ensure the business owners are capturing all available benefits that align with their business and personal goals.

www.BusinessWealthPreservation.com
Call Us Toll Free: (888) 938-2975 (888-WE-TAX PLAN)
Email: tfoster@wetaxplan.com

Audits of Small Businesses and the Owners

Audits of Small Businesses and the Owners

For many years we have been reading IRS pronouncements and studies regarding IRS perceived abuses, underpayment of tax, overpayment of tax caused by both a lack of planning and a lack of understanding of tax laws, and ultimately the IRS’s plan to audit more small businesses, closely held business, and family business.  Why more audits?  Well, obviously as a way to raise revenue.  But really, the IRS sees you, the business owner as an easy target.  Who has the time to handle an auditor?  My records and financial are in bad shape.  It can be a stressful situation and the IRS wants it to be stressful.  They want you to write a big check just to get rid of them.

Why the IRS Audits Small Businesses

Unreported Income – The IRS will assess tax, penalty, and interest on unreported and underreported income and withdrawals from the business.  A business that lacks a strategic tax plan will try to create opportunities to pull unreported cash from the business.  Examples are cash sales, or recycling metal scrap for cash. These practices are risky and generally not difficult for the IRS to find.

Personal and Business Expenses – The IRS will scrutinize expenses relating to entertainment, meals, travel, transportation, fuel charges, and company cars to name a few.  Be prepared to answer questions and more importantly provide detailed records to support the expenditures as valid business expenses.  Expenses should tie to a business purpose.

Employees versus Independent Contractors – The IRS will want to make sure you are not improperly classifying employees as independent contractors as a method of avoiding payroll taxes and other employee expenses. This is viewed as an abusive area by the IRS and they can assess tax, penalty, and interest.  If the individual in question provides services to other businesses, has his own tools, truck, and business cards, and is told what to do and not how to do it – he will likely be found to be an independent contractor. (We have discussed this important topic in more detail elsewhere in our Blog –see IRS Hot Topics)

What Should You Do?

Be ProactiveEngage in proven strategic tax planning supported by the Internal Revenue Code.  Have your returns reviewed by an experienced tax attorney to eliminate any current red flags that increase your chances of an audit.  The more tax planning that you and your business do, the less likely you are to be audited.

Seek Help – Lose that entrepreneurial spirit that may tempt you to handle the audit yourself.  An experience tax defense attorney handling the audit from day one will direct the auditor instead of the auditor directing you.  Sure you could wait and only seek help for an appeal of the audits findings, but by then you may have inadvertently given the auditor too much information.

Call us for help or with questions!

The Business Wealth Preservation Group is a professional services firm dedicated to providing superior individualized and custom service to individuals and their businesses in the areas of asset protection, tax planning, exit strategies, and wealth building. Simply put – we want to educate you on all relevant opportunities to put more dollars into your pocket, your business and your future.

We focus on leading edge, sophisticated, and safe business strategies that will help business owners structure, operate and maintain their business to take advantage of business and tax laws rather than being encumbered by them. We partner with the business, the accountant, and the attorney to ensure the business owners are capturing all available benefits that align with their business and personal goals.

www.BusinessWealthPreservation.com
Call Us Toll Free: (888) 938-2975 (888-WE-TAX PLAN)
Email: tfoster@wetaxplan.com

ESOP – Employee Stock Ownership Plan

An ESOP is a qualified retirement plan funded primarily with the stock of that business.  As an enticement for business owners to “share the wealth” with their employees, Congress has provided ESOPs with 3 key tax advantages.

ESOP Tax Advantages

  1. Under certain circumstances, the business owner can sell the stock and defer the tax on the gain.
  2. If the ESOP was established with funds from a third party financial institution, both the interest and principal payment s may be deductible.
  3. If the company is an S-Corp, income generated by the ESOP may be tax deferred

ESOP Versus  401(k)

The main difference is that a 401(k) is generally funded with the employees’ own pre-tax contributions and potentially an employer match.  The ESOP is funded 100% with employer/business contributions.  Much like a 401(k) there is no guarantee the company and the Plan will be a good investment, but because there is no cash outlay by the employee, there is seemingly little downside for the employees.  The major ESOP downside may be failed expectations and delusions of grandeur that too often result in employees suing the company, the attorneys, the valuation experts, the trustees, and anyone else seemingly involved with the ESOP.  The expectation of litigation is one of the reasons ESOPs are complex and expensive.

Because both are qualified plans, both an ESOP and 401(k) can be in place at the same time, assuming the company has the financial wherewithal to do it.  The main issue with the ESOP is that its investment depends on the performance of a single company in a single industry.  So if the company does poorly after the owners get their cash out, litigation against all parties can be expected.

ESOP Costs – It’s Expensive

An ESOP will likely cost $150,000 and could easily cost $250,000 up front, just to initially establish.  Annual cost will continue throughout the life of the ESOP.  You can expect continuing tax compliance,  ERISA compliance, costs for extra tax returns, and annual business valuations, etc.  An ESOP is not for an owner who just wants a simple exit. For an ESOP to be cost effective, you need to have a company that has at least 40 employees and annual sales in excess of $5 million.

Is the Owner ready to Open the Books

At the very least, the business owners will have to allow employees access to the annual valuation of the company.  As news owners, with perceived “chips in the game”, most employees will demand greater access to company financials throughout the year.  Accordingly, time, effort, and money will need to be spent teaching employees to be more financially literate.

Many business owners have become accustomed to making decisions by themself and don’t like sharing information with employees.  ESOPs are generally not a good fit in this atmosphere.  Business owners who like the idea of getting employees involved in decision making and are willing to get more people involved in the decision making process, should explore the ESOP as an exit strategy.

Does the Business Expect Growth?

Through an ESOP, employees will become beneficiaries of the stock value of the company.  If the company isn’t growing and doesn’t increase in value, the ESOP will become a negative in the eyes of the employees and potentially doom the company.   Accordingly, ESOPs should not be undertaking merely for financial or tax benefits.  The makeup and drive of the employees, the business, the industry, and the total chemistry and potential synergies must be considered.  The company must have a well trained and experienced management team in place that can lead the company to continued and sustained profitability.  The company should also have the training in place to attract and create the next generation of management.

ESOP – Not a Quick Exit Strategy

If you are in a hurry, the ESOP strategy is not for you.  The ESOP takes many years, sometimes more than 20 years to complete the sale of the company to the ESOP.  Time should be available to unwind the ESOP if it’s not working out.  You must have time, patience, energy, and the money to make the Plan work.

Additional Issues – Talking Points

  • ESOPs have repurchase obligations.  Employees can require the ESOP to repurchase their stock when they leave the company.  This is out of control of the company management and may create cash flow issues and obligate the company to hamper the balance sheet and create and carry funds for current and future repurchase obligations.
  • ESOPs are difficult to unwind.  The unique structure of the ESOP makes it incredibly complex and expensive to unwind or sell a company with an ESOP.
  • Raising equity capital for an ESOP company may also be very problematic.

So What’s the Best Answer

The best answer is get an objective and thorough analysis and education of all succession, exit, business, and tax planning options that are available to you, the business owner.  Promoters are quick to sell the positives and business owners can become fascinated with the theory of an ESOP without fully understanding the complexities, costs, and risks.

Your Business Exit Strategy

You should only implement your Exit Strategy after thoroughly and objectively educating yourself on all business, tax, and legal options for converting business wealth into personal wealth.  ESOP should be a part of the discussion that includes all exit strategies -qualified and nonqualified retirement plans, management buyouts, defined benefit plans, sale to third party buyer, sale to family, or any other tax and business friendly method of exiting your business.  Just remember, whatever method you choose, the IRS will be an interested spectator.

Call us for help or with questions!

The Business Wealth Preservation Group is a professional services firm dedicated to providing superior individualized and custom service to individuals and their businesses in the areas of asset protection, tax planning, exit strategies, and wealth building. Simply put – we want to educate you on all relevant opportunities to put more dollars into your pocket, your business and your future.

We focus on leading edge, sophisticated, and safe business strategies that will help business owners structure, operate and maintain their business to take advantage of business and tax laws rather than being encumbered by them. We partner with the business, the accountant, and the attorney to ensure the business owners are capturing all available benefits that align with their business and personal goals.

www.BusinessWealthPreservation.com
Call Us Toll Free: (888) 938-2975 (888-WE-TAX PLAN)
Email:
tfoster@wetaxplan.com

Understanding Cost Segregation – And the Ability of Cost Segregation to Create Cash Flow and Tax Benefits for Your Business

Understanding Cost Segregation – And the Ability of Cost Segregation to Create Cash Flow and Tax Benefits for Your Business

According to Wikipedia, cost segregation“ is the process of identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes. A cost segregation analysis identifies and reclassifies personal property assets to shorten the depreciation time for taxation purposes, which reduces current income tax obligations. Personal property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs.

Eligibility for cost segregation includes buildings that have been purchased, constructed, expanded or remodeled since 1987. A cost segregation study is typically cost-effective for buildings purchased or remodeled at a cost greater than $500,000 and is most efficient for recently constructed or new buildings, but it can also uncover retroactive tax deductions for older buildings which can generate significant short benefits due to “catch-up” depreciation.

How it Works:
An experienced Cost Segregation Firm’s experts will analyze architectural drawings, mechanical and electrical plans, and other plans to segregate the structural and general building electrical and mechanical components from those linked to personal property.

Tax Benefits of Cost Segregation:
In addition to providing tax relief, a cost segregation analysis can benefit businesses in a number of ways:

  1. Maximizing tax savings by adjusting the timing of deductions. When an asset’s life is shortened, depreciation expense is accelerated and tax payments are decreased. This, in turn, increases cash flow available for personal income, operating expenses, or capital investment.
    2. Creating an audit trail. Improper documentation of cost and asset classifications can lead to an unfavorable audit adjustment. Properly documented cost segregation analysis helps resolve IRS inquiries at the earliest stages.
    3. Playing Catch-Up: Retroactivity. Since 1996, taxpayers can capture immediate retroactive savings on property added since 1987. This opportunity to recapture unrecognized depreciation presents an opportunity to perform retroactive cost segregation analyses on older properties to increase cash flow in the current year.
    4. Additional tax benefits. Cost segregation can also reveal opportunities to reduce real estate tax liabilities and identify certain sales and use tax savings opportunities.

The Business Wealth Preservation Group, LLC can recommend a preferred provider that can perform a no cost initial cost segregation analysis, and if it makes sense, perform a complete cost segregation study.  We strongly recommend you call us if you have questions, and we’ll make sure you completely understand this opportunity.

How the 2013 Tax Law Change Impacts You and Your Business

With the signing of the American Taxpayer Relief Act of 2012 in January 2013, we avoided a trip over the Fiscal Cliff – Right?  I mean this only impacts the wealthiest 2% of Americans – Right?

Well not entirely, especially for those of us that own a business.  Actually, almost every American’s tax bill will go up in some degree.  In reality, this was a fairly large piece of legislation with hundreds of provisions that will no doubt have an impact on every business owner – especially those business owners that have not been and are currently not proactive with their strategic tax planning.  These tax law changes coupled with the additional taxes, complexities, and costs associated with Obamacare, make 2013 a critical time for business owners to take their tax planning seriously.  You can’t afford not to!  The Tax Act will impact your personal income, your ability to build wealth, retirement planning, and the planning, timing, and tax impact of your exit from the business.

The following is a breakdown of the main provisions of the 2012 Tax Act and a brief explanation of how they will impact you and your business:

  1. The Payroll Tax Holiday is over – Anyone with earned income will see their payroll taxes increase by 2%.  This tax will be felt immediately by almost everyone.
  2. Additional Medicare Tax Under Obamacare – This additional .09% tax kicks in for individuals with wages or self-employment income of $200,000 or $250,000 combined income for married couples.
  3. Tax Rates Increase for High Income Earners – Tax rates will permanently increase for individuals making more than $400,000 or families earning more than $450,000.  For these tax payers we have a return to the Clinton-era top rate of 39.6%.  It’s important to remember that this increase will hit business owners with pass though business PROFITS exceeding the threshold regardless if they pay themselves less.
  4. Obamacare Affordable Care Act Surcharge – This new 3.8% net investment income tax on individuals or families earning more than $200,000 or $250,000 respectively. [NOTE: Items 1 through 4 illustrate why a comprehensive tax plan that diversifies various income streams specifically designed to reduce the potential impact of these tax rate increases is critical.]
  5. Capital Gains / Dividends Tax Increase – Taxpayers with income of more than $400,000 individually, or $450,000 for a family will pay 20% tax on capital gains.  For taxpayer with income under the threshold, the 0% and 15% capital gain rates still apply.
  6. Estate Tax Exemption is now Permanent – As in 2011 and 2012, estates valued at less than $5.0 million will be exempt from estate taxes.  The current Tax Act makes permanent the $5.0 million gift, estate, and Generational Skipping Tax Exemption.  In 2013 the exemption for couples will be $10.0 million.  It’s important to note the actually amount will be higher because the $5.0 million and $10.0 million figure will be adjusted up annually for inflation.
  7. Estate Tax Exemption is now “Portable” for Couples – Again, similar to 2011 and 2012, the Act now makes permanent the “portability” concept whereby the unused estate tax exemption amount of the first spouse to die can be passed to the surviving spouse for future use either during their life or at death.  For example, if the first spouse dies in 2013 with $2.0 million of assets, that deceased first spouse will have a $3.0 million (again adjusted for inflation) unused estate tax exemption, which can be passed to the surviving spouse.  This would give surviving spouse a total of $8.0 million gift and estate tax exemption going forward.  Additional analysis would be necessary if surviving spouse remarries.
  8. Tax Exemption Limitations – The Tax Act phases out both itemized deductions and personal exemptions for higher income taxpayers.  Itemized deductions and exemptions are reduced for individuals when income reaches – $300,000 for couples or $250,000 for individuals.
  9. Temporary Business Tax Breaks for 2013 – If applicable, these should be incorporated into your planning before they expire at the end  of 2013:
  • $500,000 limit on the Section 179 depreciation deduction on equipment
  • 50% bonus depreciation deduction on certain acquisitions
  • Research and Development Credit
  • 100% tax-free capital gains on the sale of small business stock
  • 15 year depreciation schedule for certain leasehold improvements
  • Work Opportunity tax credits

Call us for help or with questions!

The Business Wealth Preservation Group is a professional services firm dedicated to providing superior individualized and custom service to individuals and their businesses in the areas of asset protection, tax planning, exit strategies, and wealth building. Simply put – we want to educate you on all relevant opportunities to put more dollars into your pocket, your business and your future.

We focus on leading edge, sophisticated, and safe business strategies that will help business owners structure, operate and maintain their business to take advantage of business and tax laws rather than being encumbered by them. We partner with the business, the accountant, and the attorney to ensure the business owners are capturing all available benefits that align with their business and personal goals.

www.BusinessWealthPreservation.com
Call Us Toll Free: (888) 938-2975 (888-WE-TAX PLAN)
Email:
tfoster@wetaxplan.com

Client Letter – Critical Tax Planning Deadline

Dear Client:

We are currently contacting our clients so that we can conduct a final review in the 4th quarter to ensure they are proactively prepared for all the tax law changes that will happen January 1.

I wanted to reach out to you because this will be the last chance to proactively incorporate planning ideas to reduce your business and personal taxes.  2012 presents historically unique planning opportunities that will be lost if you do not capitalize on them in 2012.  It doesn’t matter when you file your 2012 tax return; it will be about what is incorporated during the final months of this year.  You will be “grandfathered” out of opportunities to reduce your taxes and increase your income.

Please call me if you have any questions.

As way of background and summary:

The Tax Policy Center, a nonpartisan, non political group that routinely releases factual findings based on current and upcoming legislation or in this case legislation about to expire in 2013.  The tax increases will have a dramatic impact on the business owners that we talk to.  Unfortunately, very few people seem to read these type of articles and depend on the media’s interpretation.  The NY Times and other sources only grab a few pieces and seem reluctant to report negatively on the current administration.

To review, in a nutshell, this is what January will bring to business owners:

1.  Increased Income tax rates

2.  Increased payroll taxes for yourself, and what you pay for each employee

3.  Increased taxes on capital gains

4.  Increased taxes on dividends

5.  Eliminated and reduced tax deductions and tax credits

6.  Reduced itemized deductions

7.  New taxes from Healthcare legislation

8.  Reduced child tax credits

Business owners are likely to see taxes increase substantially in 2013. Overall, they will pay higher tax rates on more income because there will be less offsets (credits and deductions) to reduce the amount subject to tax.  The dollars that ultimately end up in their pocket will be DRAMATICALLY reduced.

S-Corporation business owners will be especially hard hit because their taxes are based on corporate profits, that because of a lack of tax planning, is higher than what they actually take as income. So they will be paying even more taxes on money that they never see.

This is by far the worst time in our history to be a procrastinator!  That’s what needs to be reported.  Compared to 2013, 2012 will seem like tax paradise.  Business owners that aren’t taking advantage of 2012 are making a huge mistake.

I have attached the Tax Policy Center report

Call us for help or with questions!

The Business Wealth Preservation Group is a professional services firm dedicated to providing superior individualized and custom service to individuals and their businesses in the areas of asset protection, tax planning, exit strategies, and wealth building. Simply put – we want to educate you on all relevant opportunities to put more dollars into your pocket, your business and your future.

We focus on leading edge, sophisticated, and safe business strategies that will help business owners structure, operate and maintain their business to take advantage of business and tax laws rather than being encumbered by them. We partner with the business, the accountant, and the attorney to ensure the business owners are capturing all available benefits that align with their business and personal goals.

www.BusinessWealthPreservation.com
Call Us Toll Free: (888) 938-2975 (888-WE-TAX PLAN)
Email:
tfoster@wetaxplan.com


Copyright 2010 The Business Wealth Preservation Group, LLC.