Corporations, partnerships, individuals and trusts that receive rental income from property should plan to keep additional records in 2011. As a result of 2010 legislation, they will be required to issue IRS Form 1099-MISC to service providers, such as plumbers, painters and accountants, of $600 or more during the 2011 tax year. (more…)
The future of your family business might not be in the front of your mind as you go about your day-to-day routine. But if you have a defined plan that everyone is aware of, you can more effectively prepare for a successful transition when the time comes to put it into place. (more…)
Over the past few weeks, we have discussed steps to follow when you develop a succession plan for your business. First, we made the decision to do a succession plan. We looked at the value of the business. We explored all of the options for transition. And we determined your personal and professional goals and those of your family and key personnel. Now it’s time to set a course of action. (more…)
Are you actively planning a transition for the business you worked so hard to build? The majority of North American businesses are family-owned, yet just about 30 percent make it to the second generation. Even fewer reach the third generation. As more and more business owners prepare to retire, more and more businesses will face the issue of succession – whether they are prepared or not. This article discusses the third in a series of tips to help family-owned businesses begin the succession planning process. (more…)
In an earlier post we discussed the important step of making the decision to begin the succession planning process. Once you have made the decision to begin the process, knowing the value of your business is the second crucial step in the transition plan. (more…)
The price paid for a product line (or a business) is typically determined by a return on investment (ROI) calculation. The buyer estimates the future benefit stream from the product line and then determines the required rate of return that is needed to entice them to purchase it. The required rate of return is a function of how risky the future benefit stream is. If the future benefit is in doubt or risky, the required rate of return will be higher. There is an inverse relationship between the required rate of return and the value of a product line. Our job as business valuators is to determine what the future benefit stream will be and what is the proper rate of return required for that benefit stream.
Whenever you are considering selling a business or a product line it’s important to get a true value by using a professional business evaluation. Usually the seller does not have any experience selling a product line or a business, and not knowing all the facts could cost tens of thousands of dollars. The buyer may be very sophisticated. There are many complex issues in addition to negotiating a price in a transaction that should be considered, such as the terms of a deal and the purchase price allocation.
The terms include whether the price will be paid in cash or by a note or stock. If there is a note, the question becomes “Will this note be secured?” “Are there conditions required to be met by the seller to be paid?” and “How long will it take to pay back?” Purchase price allocation is critical to any deal. It can be the difference between paying a 15 percent tax rate on your gain or 40 percent tax rate.
As you can see, there are many considerations to selling a product line or business. Don’t attempt to navigate the complex area of business transactions alone.
Every business strategy should include an exit plan for leaving the business. This can hinge on the owner’s personal financial and estate planning efforts, and a successful transition depends on many factors. (more…)
To answer this question, think about the stocks and bonds you may have invested in. Everyone wants to maximize the value and annual return on their investments. But many owners of closely-held businesses don’t place the same attention and care to determine the value of their businesses or work to improve their return on their largest investment.
Just like your stock portfolio, your business requires tending to help it create greater wealth. And just as you pay a fee of about one percent of your portfolio to an investment advisor to track and value your assets, you should plan the same to invest in the valuation and management of your business value. Typically 50-70 percent of your net work is tied up in your business. If you could double its value, wouldn’t you do it? Other businesses have seen this type of return and you can too. (more…)
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