Pay Your Taxes. That's Right! It is Ok.

A business that reports all their income and pays taxes will be worth more than the business that did not.  We call this investing in taxes.  Take a look at the scenario below:

	A	B
Sales	$500,000	$500,000
Unreported		$(100,000)
Expenses	$(300,000)	$(300,000)
Net Income (Seller’s Discretionary Earnings)	$200,000	$100,000
Multiple	2.45	2.45
Value	$490,000	$245,000
Taxes Paid	$(80,000)	$(40,000)
Proceeds to Seller	$410,000	$205,000

Business A reported all of their income and paid $80,000 in taxes.  Business B chose not to report $100,000 of their income.  The result was a savings of $40,000 in taxes paid.  However, when it came to value the business, A was worth 2 times as much as B.  


Bottom Line:  Report all income; invest in taxes, and in the long run your business will sell for a higher price.

The Shark Tank

If you haven't seen the ABC show "The Shark Tank," it is worth watching for many reasons.

One by one people line up to pitch their new idea, the next must-have product, killer app, or revolutionary service. They are hoping to convince one of these 5 investors to "buy in" to the business in exchange for capital (i.e. cash).

Some ideas are brilliant. Other ridiculous. The sharks chew up the ones that stink and invest in the ones that are good. I find the process of analyzing each business venture to be very entertaining.

On Friday a couple was asking for $125,000 for a 10% stake in the business. My mind automatically calculated the value of the business to be $1.25 Million. The next question was how much money did the company generate? Their answer was, "We have sold $4,000 of product in the past year."

What!!! You have got to be kidding me. This couple had valued their business at $1.25 Million based on $4,000 in sales. Not even profit, but sales. The sharks chewed this idea up and sent the couple away with nothing but embarrassment.

I hate to admit it but this scenario is more common then you think. I deal with with unrealistic business owners every day. I wish there was a good way to help business owners understand how much their businesses are worth and how to create value.

It would certainly make my job much easier.

Trevin Rasmussen, CBI

Business Broker

Bristol Group

How to waste a ton of time

Anybody who has every sat through a business meeting knows it can be a total waste of time.  Here is a way to make the most of every meeting.

When I was a consultant for Arthur Andersen in Seattle, Washington we ended every meeting with an exercise called “B’s and C’s.”  In this exercise, we asked every participant in the meeting to identify and list as many benefits or concerns as a result of the things discussed during the meeting.

The results would look something like this:

Benefits

• First to market 
• Solid solution that is developed and ready to be sold 
• Favorable terms and conditions with our vendors 

Concerns

• How will we reduce delivery time to less than 5 days?
• Will customer support be ready to address our customers needs?
• How will we be able track and calculate the ROI?

What usually happens is we generate a list of "pats on the back" that we called benefits and a list of "hot buttons" that we called concerns.   

With this list the meeting facilitator should jump right to the concerns.  The facilitator would then work through each concern with the participants until a solution was found or an assignment given to solve the concern.

Walking out of every meeting was a list of assignments made and plan to address the concerns resulting from the meeting.

-Trevin Rasmussen

Is now the time to buy a business?

Before we answer this question, lets look at some facts:  

The US economy has been in recession since December of 2007.  The housing market and banking industry have imploded.  The unemployment rate is hovering around 10%.  Consumer spending is down.  Consumer confidence is down.  Corporate earnings are down.  And you guessed it... personal earnings are down as well.  

So is now the time to buy a business?  The real answer...  There will never be a right time to buy a business, regardless of the state of the economy.  Why?  Because you can always talk yourself out of making that move for one reason or another.  It doesn't depend on economic data, market forces, or world unrest.  What matters is how committed you are to the process of being a business owner.

All successful business owners will tell you of a time when they stood at a crossroads, faced with a decision of moving ahead, or retreating back into the crowd of loyal employees.  They weren't scared by the media doom and gloom or the constant borage of negative reports.  These people found a way to be successful despite the circumstances and they continue to grow their ideas and their business.

-Trevin Rasmussen

Capital gains tax rate to increase by 69% in 2011

A recent Wall Street Journal article reported that the capital gains tax rate is likely to increase by 69% as a result of legislation that would repeal the Bush Tax Cut of 2003 and impose a surcharge starting January 1, 2011.

What that means is 2010 is shaping up to be a great time to sell your business. Any small business owner thinking about selling their business should get the ball rolling now to complete the process before the change takes affect.

I have a great document that explains the tax consequences of selling your business. If you are interested, send me an email (trevin@bristolgrouponline.com) and ask me for this document. I am more then happy to share it with you.

-Trevin Rasmussen

Two most important things.

The 2 most important things for any transaction are the Price and the Terms. Most sellers want the maximum value for their business and they want it all at the time of closing. Or in other words, they want a an all cash deal for the highest price possible.

I am going on the record to say that is impossible to name both your price and your terms. Nothing new here, right?

I recently heard a statistic from the International Business Brokers Association suggesting that sellers receive a 26% higher price when offering seller financing as part of the terms of the deal. That number does not include the interest earned on the seller financing.

So if you need money now, lower your price and hope you stumble across a generous, or naive, buyer that is willing to pay all cash.

If you can wait a little longer, offer seller financing with reasonable terms and you will make approximately 26% more money on the sell of your business plus interest.

-Trevin Rasmussen