How to Avoid 7 Pitfalls That Reduce Sales Price – Small Business Exit and Succession Planning

How to Avoid 7 Pitfalls That Reduce Sales Price – Small Business Exit and Succession Planning

by | May 2, 2022 | Exit Planning Business Valuation & Growing Business Value

A presentation for Jim Hitchner’s Valuation Products and Services Wednesday, May 18th, 2022 1:00 – 3:00 PM EDT

Jeff got up from his hospital bed after missing most of tax season and felt better. So good that three days later he canceled the closing on his 7 employee CPA practice. Unfortunately Jeff spent the next tax season in the hospital too and did not have a practice to return to. While this sounds crazy and far fetched it happens all the time.

How do you keep your exit and succession clients from being Jeff?

Presentation Description: Starting and then following through – taking consistent forward moving action is the biggest issue with succession and exit planning. In this presentation we will review seven major pitfalls that reduce business value and at times stop the process altogether. Several of these are common errors made by professionals and several are traps into which clients commonly fall into. Emphasis will be on maximizing value while continuing to take actions to move the process forward. A simple exit plan template will be provided to aid in initial discussions with the client and to prompt them to take the first steps. Click here for more details from a similar presentation.

You will gain a better understanding of what it takes to get your clients to start – and successfully finish – a business or practice exit and succession plan.  If you provide succession planning, would like to add this service, or are just thinking about your own plan, this presentation is for you. This presentation is designed for advisors of smaller businesses with revenues typically under $10 – 20 million.

Purchase Your Ticket Here!

The 6 Steps To Get An SBA Startup Loan

The 6 Steps To Get An SBA Startup Loan

by | Apr 12, 2022 | SBA Business Valuation and Appraisal

 

The United States Small Business Administration—or SBA—loans are primarily for new businesses to get off the ground.

The amounts you can receive vary by loan program but some range up to $5 million! Funds also may be more accessible to some borrowers who struggle to qualify for other business financing methods.

However, most new business owners say that applying for an SBA loan can feel daunting because of the eligibility requirements and application procedures imposed by individual SBA lenders.

Follow these steps to get an SBA startup loan:

Step 1 –Calculate Your Startup Costs

Before you apply for an SBA startup loan, you need to evaluate the needs of your business. First, consider one-time startup costs and then recurring expenses (which may include everything from renting office space to buying equipment and covering payroll for your first employees).

Step 2 – Check Your Eligibility

The Eligibility requirements vary by SBA loan type and individual lender, there are a few general requirements that a business must meet to qualify for an SBA startup loan.

A Business Must: 

  • Operate for profit in the U.S. or its territories
  • Constitute a small business by SBA Standards 
  • Demonstrate a need for the loan funds
  • Have reasonable invested equity
  • Have already accessed alternative financial resources, such as personal assets
  • Use the loan proceeds for an acceptable business purpose
  • Not have any delinquencies on debt to the U.S. government

Step 3 – Write a Business Plan

 

Most startups do not have extensive financial records like established businesses, so business owners can improve their approval odds by drafting a comprehensive business plan that demonstrates how the business will make money and on what timeline.

Step 4 – Choose a Loan Type

There are several loan programs to meet a range of borrowing needs, however not all of them are good fits for startup companies.

The Options Include: 

  • SBA Microloans
  • SBA Community Advantage Program
  • SBA 7(a) Loans
  • SBA 504 Loans

 

Step 5 – Research and Compare Lenders

 

Borrowers must apply for an SBA loan through an approved financial institution and meet the individual lender’s application and credit requirements. The SBA provides small business owners the Lender Match Platform, which helps business owners choose the best lender to fit their needs. 

Step 6 – Prepare and Submit Your Application

 

Individual lenders impose different requirements, but there are some materials that are requested by most lenders. In addition to a business plan, prepare the following documents as part of your loan application:

  • Copies of business licenses and certificates
  • Business overview and history
  • Personal and business tax returns for the past two years
  • Current and projected financials for one to three years
  • Profit and loss statement and balance sheet
  • Loan application history

Read The Full Article By Forbes That Covers Each Step In-Depth HERE.

 

Questions, want to know more, contact Gregory R. Caruso, Harvest Business, LLC, t/a The Art of Business Valuation.

Increase Your Business Value – Think Of Your Business Like An ATM

Increase Your Business Value – Think Of Your Business Like An ATM

by | Apr 10, 2022 | Exit Planning Business Valuation & Growing Business Value

“Daddy, I know how we get money.” Said my 3 year old son in his very deep voice.

“How?” I asked.

“We go to the ATM” he said.

Well my son was right.  Prior to everything being cards and phones it was important to have cash and I would get my cash at an ATM at my bank.  Often this was on the way to a family dinner and clearly my son was watching and absorbing.

The ATM is really a lot like a small business.  You use a process to obtain money.   Also like your business – think about how disappointing it is when the ATM does not work?  Again, consistency creates comfort with an ATM and reduces risk (aren’t those two the same thing) with your business.  The more profits or money with the least risk increases small business value.

How can you turn your business into a reliable ATM and increase your business value?

  • Hire great people and train them and grow them.
  • Work on your systems.  “A great system is when ordinary people get extraordinary results every time.”
  • Develop tracking systems for key metrics and things like collections that are important but easy to ignore.
  • The less your business needs you the more valuable it is.
  • Implement how you can make your company more “Sticky.”  Sticky means your customers stick around.  Repeating work like taxes, integrations simplifying things for your clients but creating hassles to move (think about how you bank may have done this to you?)  Service contracts so you are the first call, etc.
  • Investigate the profitability of your different products and services.  Sell more of the high margin ones.
  • Develop a marketing and sales system that is independent of any one person.  Which would you rather own?   A fast food restaurant with no customer alliance to staff or a restaurant where everyone comes because of a wonderful Maître D’?

Ways to make your business run consistently like a quality ATM are endless.  Change and technology make sure this is a job that is never complete.  But, when you build your business to run like an ATM you will have more fun running it and you will increase business value. 

I’m a JD, CPA and Certified Valuation Analyst, and I know that valuation is an art. To find out more about professional valuation services for your business, contact me to learn more.

How to Increase Business Value for Government Contractors

How to Increase Business Value for Government Contractors

by | Mar 29, 2022 | Exit Planning Business Valuation & Growing Business Value

When these lessons are implemented by management, government contracting company’s business profits, resiliency, and business value all increase.

As a business valuator and business broker who spent much of his career in the Washington, DC area I have frequently worked with government contractors. For a list of industries we have prepared valuations for click here. Technically, government contractors are not a specific category of business. They get lumped into their specific underlying industry. Yet, government contractors are usually quite different from companies serving private industry.

Here are a few things I have learned.

LESSON 1 – Obtain Transferable Long Term Contracts

In order to increase transfer or business sales value long term contracts that can be transferred to a reasonable cross section of buyers should be sought out. Many government contractors have status certifications. These status certifications are important for obtaining work in a competitive market. But, if the focus is on building value also consider the effect if the status used to obtain the contract are difficult to transfer to a larger organization with capital to invest. 8(a) because of it’s limited life can be a great way to grow a firm but check carefully about transferability if you are counting on 8(a) contracts to increase your business value.

LESSON 2 – Obtain Profitable Fixed Fee Contracts

Fixed Fee contracts where you can make a profit are preferable to Time and Material contracts. Typically there are two types of contracts, fixed fee where you take the risk of the cost of performance. But, you also get the benefit of a larger profit if you can do the work for less cost. When properly managed by a government contractor that knows their costs fixed fee can be much more lucrative. Time and material allows a specified mark-up above costs. While these are safe, unless they are very large they cap your profitability at a low rate and frankly, small dollars.

LESSON 3 – Obtain multiple vehicles (contracts) to facilitate growth.

Many small government contractors win one award and think they are fine. But this leaves the company susceptible to contract termination. Contracts can terminate for many reasons often that have little to do with your performance. Government contracts can take years to obtain so set goals and begin working on this now. (Need a free goal setting / planning system, click here) Over time obtain multiple contracts so if one terminates the company has work and is still in business.

LESSON 4 – Take 8(a) contracts anyway

Due to the profitability of the right 8(a) contracts it may be prudent to continue obtaining them even if they are not transferable. Lets face it, earnings / money in your pocket today is always good.  Yes, Lesson 1 is important but so are profits today. But, do not take 8(a) contracts if better less restricted contracts are available. If using this strategy both save some of the profits and look for non-8(a) work for when graduation day comes. (SBA statistics indicate that over 60% of government contractors do not survive 8(a) graduation. Don’t join this statistic.)

Obviously leadership, team building, hard work, and a little luck play a HUGE role but the four lessons shown above when properly implemented will increase business value.

Questions, want to know more, contact Gregory R. Caruso, Harvest Business, LLC, t/a The Art of Business Valuation.

The Small Business Valuation Desk Reference “The Art of Business Valuation”

by | Mar 22, 2022 | Technical Business Valuation Topics

Over the years, I have found too many business valuators try to apply methods appropriate for valuing large public companies such as Home Depot when they are valuing a local hardware store.

This is like trying to value your home by looking at a downtown office building.  You could do it but, really, why would you?

So I decided to write “The Art of Business Valuation, Accurately Valuing A Small Business”.

The local hardware store, a very small or typical micro-business, requires different methods and tools than valuing large companies.  The companies are not the same and the valuation methods should not be the same either. This problem is most evident in businesses with revenues under $10 million and even more so with businesses with revenues under $5 million. There are better ways available for valuing these smaller businesses.  By the way, according to 2012 Census data (the latest available) over 95% of payroll businesses have revenues under $10 million.

This book may be the only business valuation book to really focus on valuing these smaller businesses.  Certainly it is the most comprehensive.   What you will get from the book is the ability to more accurately prepare or review business valuations of micro and small businesses with data that is really available both inside and outside the business. 

In more detail this means you will have a clear understanding of how to apply the most appropriate methods for these very small businesses.  While I strongly favor the market method I deal with the complexities of income methods including tax affecting, specific company premiums and more.  In addition you will learn methods to address the accounting and cash flow normalization issues so common in small business valuation.  Finally, professional judgment and common sense is stressed throughout.

I hope you get a lot out of reading it.