If you are thinking of selling your business… How is your Exit Plan?
A business should be a constant ball of energy moving in different directions as the economy changes, new tools and innovations come to the market, the stress and strain from competitors and the ever changing demands of customers. This is what gets an entrepreneur out of bed every morning; the chance to do something different, learn something new, to see the rewards of hard work, to plant new ideas and watch them grow or to help someone do something they thought they may not be able to do. (more…)
Read MoreFederal Capital Gains Tax Rates – Where Are They Headed?
Since 2003, the top tax rate on most capital gains has been 15% for people in the 25% or higher tax bracket. Although a lower level tax rate has also been in place since 2003 for people in the 15% or lower tax bracket, this rate is only applicable until a person has enough income to cause him / her to enter the 25% tax bracket. As a result, for people incurring a capital gain from selling a business, most of them are in at least the 25% tax bracket so the top 15% rate is generally the rate they experience.
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Retirement Plans as a Source of Business Capital
By Monty W. Walker CPA, CBI, BCB
February 26, 2009
The need to use retirement funds for the purpose of making non-publicly traded investments such as buying a building, purchasing a parcel of land or acquiring a business is growing. It is extremely common to find people whose liquidity is located primarily in qualified vehicles such as IRAs, Pensions and 401(k) rollover accounts. As people are being downsized from Corporate America, they find themselves at a crossroad of either taking the entrepreneurial road or finding another job. Many people are deciding to take control of their own destiny by starting or buying a business. Thus comes the problem.
Large bases of these people have been building retirement accounts so most of their money is located in qualified vehicles. If improperly accessed, they stand to be hit with a 10% penalty and often pay 30% or more in federal income tax. Depending on tax bracket and the state of residence, total federal and state taxes can encroach on 50%. The idea of losing from 30% to 50% on a distribution from a qualified account does not set well with most people. So, the question to be answered is, How can a person access his/her retirement funds to purchase a business (more…)
Read MoreFrequently Asked Questions about Buying a Business
1. What are the key motivators for people going into business for themselves?
Before making a decision to purchase a business, a buyer should understand his or her objectives to make sure those objectives can be met by purchasing any or a particular business. Most relevant surveys reveal similar responses and, interestingly, making money is not at the top of the list. Here is a list of the typical answers, in the order of importance:
To control my own future.
To work for myself.
To take advantage of my skills and abilities.
To make money.
2. Should I start my own business or buy an existing one?
An existing business has a historical track record (good or bad) which can be used to evaluate the business. An existing business has usually shown there is demand for its products or services, and it should have, among other things, detailed financial records. Sometimes, a seller will agree to (more…)
Read MoreThe Offer to Buy a Business Depends on the Many Characteristics
In our Merger and Acquisition practice we try to prepare our business sellers for the multitude of different deal structures that they should expect from various buyers. We go through elements like cash at close, seller notes, earn outs, non-competes, escrow accounts, etc. More often than not our first time seller will actually put out his or her hand in a stop gesture and reply, “I only want the full price in cash at close.” This article will discuss some of the selling company characteristics that directly affect both the selling price and the terms.
Selling Company Revenue Composition –
This is a very important factor in determining how much a buyer will pay for your business and how much will be in cash at closing. If 80% of your annual revenue is a result of contractually recurring revenue, you can command both a premium price and a deal heavily weighted in cash at close. On the other hand, if you have little or no contractually recurring revenue and are heavily dependent on net new sales from new clients, your sale price will be far less and you will be expected to receive a significant portion based on a future performance earn out. Companies that can demonstrate (more…)
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