Tuesday, August 15, 2017

Do A Business Valuation When You’re Ready To Sell Your Company


Well before you’re ready to sell your company, you’ll want to determine its fair market value as a starting point for negotiations. Of course, obtaining a reasonably precise value for your business is often a complicated and time-consuming task. Accurate appraisals must weigh a variety of factors and incorporate numerous assumptions. The more precise the underlying numbers and suppositions, the more likely the appraiser’s determination of fair market value will reflect what a willing buyer would actually pay. Here are two questions an appraisal should address.
  • How does your business compare? If you’re operating a service business, your valuation will differ – often substantially – from a company involved in light manufacturing or retail. Buyers will expect a reasonable return on their investment, a return that is often represented as some form of earnings multiplier. For example, your business may be valued at three times projected earnings. Once determined, that number can be compared to businesses of similar size in your market. Of course, accurate valuations must compare apples to apples. “Earnings” must be defined. Should “earnings” include or exclude the owner’s pay, interest expense, depreciation, or taxes? A careful appraisal will also scrutinize the balance sheet. The basis for valuing tangible and intangible assets (including non-compete agreements) and liabilities (such as mortgages, installment loans, and accounts payable) should be clearly laid out – before the business is put on the block.
  • Will present trends continue? The future may be difficult to predict, but a careful analysis should be based on conservative projections, assumptions, and common sense. If, for example, the business is expected to retain skilled management and employees, buyers may be willing to pay a premium. If, on the other hand, the company is overly dependent on a few products or customers, potential buyers may be scared off. Or they may require concessions to mitigate perceived risk. Again, a careful appraisal will consider many such factors and value the business accordingly.
Remember: an appraisal is merely a starting point for negotiations. The more accurate the appraisal, the more likely the business will be priced correctly and potential buyers will be attracted. Unfortunately, determining the fair market value of a business may be fraught with missteps and faulty assumptions. For that reason, hiring a trained and objective professional is often a worthwhile investment.

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Monday, August 7, 2017

Four Tips For Building An Emergency Fund

Planning for business emergencies is like buying insurance: you pay into an account and hope you’ll never have to use it. But life happens. Equipment breaks down. Electrical problems occur. Employees leave. Having money in the bank to cover those unexpected expenses can reduce stress and keep you from relying on credit cards and loans to keep your business afloat.
Here are four easy and effective ways to establish and maintain an emergency fund for your business.
1. Start small. Many financial planners advise setting aside enough money to cover at least six months of expenses. That’s a worthy goal. But for many businesses, it’s also a daunting task, an objective that will take years – not months – to achieve. So, set a realistic and achievable amount for your emergency fund, and then get in the habit of contributing regularly. Then don’t touch the account except for real emergencies. Leave it alone and it will grow.
2. Pump it up. When you get a surplus of revenue, tax refund, or windfall, consider using a portion of that money to bolster your emergency account. Fight the temptation to increase spending with every new dollar that comes along.
3. Make it automatic. With online banking, it’s easy to set up routine transfers from your businesses’ primary account to a separate savings account. Consider allocating a portion of each quarter’s earnings to an emergency fund. Consider establishing the account at a financial institution other than your regular bank. As the saying goes, “Out of sight, out of mind.” If the money never shows up in your regular checking account, you’ll be less likely to use it for everyday business expenses.
4. Slash expenses. Take a hard look at your budget and consider everything fair game: expensive client dinners, extravagant business parties or trips, and so on. You may find that a surprising number of dollars can be freed up and stashed away in savings. The key, of course, is to direct those savings – immediately, if possible – away from regular spending and into your emergency account.
If you’d like more ideas for setting financial goals or building up an emergency fund for your business, give us a call.

Wednesday, August 2, 2017

Don’t Assume It’s Correct, Just Because It’s The IRS

Quotes from actual IRS correspondence received by clients:
“Our records show we received a 1040Xfor the tax year listed above. We’re sorry but we cannot find it.”
“Our records show you owe a balance due of $0.00. If we do not receive it within 30 days, appropriate collection steps will be taken.”
“Payment is due on your account. Please submit payments on or before June 31 to avoid late payment penalties and interest.”
It’s pretty tough to pay a balance due of $0.00 or submit a payment on June 31 when June has only 30 days. The message should be clear. If you receive a notice from the IRS, don’t automatically assume it is correct and then submit a payment to make it go away. The same is true for errors in any state tax agency notices. They are often in error. So what should you do?
Stay calm. Try not to overreact to the correspondence. This is easier said than done, but remember, the IRS sends out millions of notices each year. The vast majority of these notices attempt to correct simple oversights or common filing errors.
Open the envelope. You’d be surprised how often clients are so stressed by receiving a letter from the IRS that they cannot bear to open the envelope. If you fall into this category, try to remember that the first step in making the problem go away is to open the correspondence.
Review the letter. Make sure you understand exactly what the IRS thinks needs to be changed and determine whether or not you agree with their findings. Unfortunately, the IRS rarely sends correspondence to correct an oversight in your favor, but it sometimes happens.
Respond in a timely manner. The correspondence received should be very clear about what action the IRS believes you should take and within what timeframe. Ignore this information at your own risk. Delays in responses could generate penalties and additional interest payments.
Get help. You are not alone. Getting assistance from someone who deals with this all the time makes going through the process much smoother.
Correct the IRS error. Once the problem is understood, a clearly written response with copies of documentation will cure most IRS correspondence errors. Often the error is due to the inability of the IRS computers to conduct a simple reporting match. Pointing the information out on your tax return might be all it takes to solve the problem.
Certified mail is your friend. Send any response to the IRS via certified mail. This will provide proof of your timely correspondence. Lost mail can lead to delays, penalties, and additional interest on your tax bill.
Don’t assume it will go away. Until you receive definitive confirmation that the problem has been resolved, assume the IRS still thinks you owe the money. If you don’t receive correspondence confirming the correction, send a written follow-up.