Covid-19 Small Business Resource Update As of March 23rd, 2020
Federal Changes- below is an update on items affecting/supporting small businesses as of 3.23.20. Naturally, items are changing rapidly, and we will continue to provide future updates.
SBA Disaster Assistance – Available NOW– get started here.
Economic Injury Disaster Loan Program:
- Activated by States “Emergency” declaration- Loan amount up to $2 million – 3.75% business, 2.75% Non-Profit
- Working Capital & Business Expense only
- Cannot include “lost profits”
- These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
- 1-year payment deferment from disbursement- SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years.
- Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
Must meet 3 qualifications:
- Eligibility – Business & Non-Profits (no church’s or worship centers)
- Credit – lower than commercial standards
- Repayment ability – PRE-DISASTER CONDITION
SBA Administration update:
- Cutting Red Tape – changing current policy
- If a business receives a DECLINE – the notice is referred to the local District SBA office same day and an SBA official MUST contact Borrower within 24 hours to match them with a different lender
- FEMA is supporting SBA with 500 additional support personnel
Additional Federal Update
Temporary Tax Changes:
- IRS Notice 2020-17
< $1million in taxes due = payer able to defer payment without penalties or interest until July 15, 2020 - Applies to all individuals and business • filing calendar year return
1st quarter estimated payment - Interest and penalties will begin to accrue on July 15, 2020
Families First Coronavirus Response – HR 6201:
- Amends FMLA definitions
- Applies to all employers < 500 employees (including govt)
- Sec of Labor can exempt employers < 50 emp if business viability is in jeopardy
- Exemptions for Health Care Providers and Emergency Responders
Employee Health Emergency Leave (Div. C)
- First 10 days unpaid (employee may use accrued time)
- Leave paid thereafter at no less than 2/3 of employee regular pay
- Maximum of $200 per day or $10,000 in aggregate
- Variable schedules = avg number of hours over prior 6 months
- Job restoration upon return (or equivalent)
- < 25 employees, then “reasonable efforts” over 1-year window
- If the position does not exist due to coronavirus emergency, then no obligation
- Exceptions for Health Care Providers & Emergency Responders
Emergency PAID Sick Leave (Div. E)
- 2 weeks (80 hrs.) of paid sick time if employee unable to work
- Quarantine or isolation order
- Caring for another – child, relative, quarantined individual
- Experiencing conditions similar to Coronavirus
- May not exceed $511 per day or $5,110 in aggregate
- NO tenure requirements
- Employer cannot require employee to use accrued time
Employer Tax Credits
- To offset employer costs
- 100% of qualified Employee Emergency Leave
- 100% of qualified Emergency Paid Sick Leave
- Refundable payroll tax credit allowed against employer portions of Social Security and Railroad Retirement payroll taxes
- Tax credit for wages under both types of leave- Includes Employer-paid portion of employee’s health plan coverage while on leave
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Finding the Best Business for You
Owning a business and owning the right kind of business for you are, of course, two wildly different things. Owning the wrong kind of business can make you absolutely miserable. So if you are considering buying a business, it is prudent that you invest the time and effort into determining the best kind of business for your needs and your personality. In a recent Forbes article, “What is the Right Type of Business for You to Buy?” author Richard Parker explores how buyers should go about finding the right business fit.
Parker is definitely an expert when it comes to working with buyers as he has spoken with an estimated 100,000 buyers over his career. In that time, Parker has concluded that it is critical that you don’t “learn on your own time.”
His key piece of advice concerning what type of business to buy is as follows. “While there are many factors to be considered, the answer is simple: whatever it is you do best has to be the single most important driving factor of the revenues and profits of any business you consider purchasing.” And he also believes that expertise is more important than experience. Parker’s view is that it is critical for prospective buyers to perform an honest self-assessment in order to identify their single greatest business skill and area of expertise. The last thing you want to do is pretend to be something that you are not.
Parker makes one very astute point when he notes, “Small business owners generally wear many hats: this is usually why their businesses remain small. Remember that every big business was once a small business.” As Parker points out, whoever is in charge of the business will ultimately determine how the business will evolve, or not evolve. Selecting the right business for you and your skillsets is pivotal for the long-term success of your business.
All of this adds up to make the process of due diligence absolutely essential. Before buying a business, you must understand every aspect of that business and make certain that the business is indeed a good fit for you. According to Parker, if you don’t love your business, it will have trouble growing. This point is impossible to refute. Owning and growing a business requires a tremendous amount of time and effort. If you don’t enjoy owning and/or operating your business, success will be a much more difficult proposition.
Finding the right business for you is a complicated process even after you have performed a proper evaluation of your skills and interests. After all, do you really want a solid business with great potential for growth that you would hate owning? By working with brokers and M&A advisors, you can find the best business fit for your needs, personality, and goals. These professionals are invaluable allies in the process of discovering the right business for you.
Copyright: Business Brokerage Press, Inc.
The post Finding the Best Business for You appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
BizBuySell’s Annual Insight Report- 2019 Small Business Market: Uncertainty Creates Opportunity and Risk
BizBuySell’s Annual Insight Report shows that while small business sales still remain at historically high levels, 2019 transactions took a five percent dip from record-setting 2018 levels. The number of small businesses that changed hands in 2019 dropped slightly compared to last year according to the latest BizBuySell Insight Report, a nationally-recognized economic indicator that aggregates statistics from business-for-sale transactions reported by participating business brokers nationwide. The Insights Report also touches on several compelling demographic trends, including the Baby Boomer’s growing likelihood of selling their businesses as they age and seek retirement, as well as the causes of current market conditions.
In total, 9,746 closed sales were reported by brokers in 2019, a 5.5 percent decrease from the 10,312 deals reported in 2018, which set the BizBuySell record for most transactions. While full-year activity slowed compared to 2018, 4th quarter transactions bounced back to positive growth and it’s important to remember that levels remain historically high.
Still, there are many issues surrounding the market that could cause hesitation when considering a sale, particularly for owners who are having to juggle the dynamic of running a business at the same time of managing through policy changes. In fact, business owner confidence dropped 6 points in 2019 according to BizBuySell’s Annual Confidence Index, largely due to political and economic uncertainty.
Click here for the full report.
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Tackling Growth Delusions When Buying a Business
There is no doubt about it, it can be exciting to buy a new business. However, in the process, it is very important that you don’t become unrealistic about future growth. Keep in mind that in the vast majority of cases, if a business is poised to quickly grow substantially, the seller would be far less interested in selling.
Richard Parker’s recent article for Forbes entitled “Don’t Be Delusional About Growth When Buying a Business” seeks to instill a smart degree of caution into prospective buyers. Parker notes that when evaluating a business and talking to the owner, many buyers come away with a sense that enormous growth is just “sitting there” waiting to be seized. In particular, Parker cautions those buyers who are buying into an industry that they know nothing about; those individuals should be very careful.
When buying into an industry where one has no familiarity, there can be a range of problems. The opportunities that you see may not have been tapped into by the existing owner for a range of reasons. You couldn’t possibly guess what these reasons might be without more of a knowledge base. Since you are an outsider, you likely lack the proper perspective and understanding. In turn, this means you may see growth opportunities that may not exist, as the seller may have already tried and failed. Summed up another way, until you actually own the business and are running it on a day to day basis, you simply can’t make a proper assessment of how best to grow that business.
The seductive lure of growth shouldn’t be the determining factor when you are looking for a business. A far more important and ultimately reliable factor is stability. The real question, the foundation of whether or not a business is a good purchase option, is whether or not the business will maintain its revenue and profit levels once you’ve signed on the dotted line and taken over. You want to be sure that the business doesn’t have to grow to remain viable.
As Parker points out, the majority of small business buyers will buy in a sector where they don’t have much experience, and that is fine. What is not fine is assuming that you can greatly grow the business. Of course, if new buyers can achieve that goal, that is great and certainly icing on the cake. But don’t depend on that growth.
In the end, everyone has some ideas that work and some that don’t. You may take over a business and, thanks to having a different perspective than the previous owner, are able to find ways to make that business grow. But realize that many of your ideas for growing the business may fail completely.
A professional business broker will be able to help you determine what business is best for you. A business broker will help keep you focused on what matters most and steer you clear of the mistakes that buyers frequently make when buying a business.
Working Together Powers Seller Success
At Evolution Advisors, we work with sellers to find out what sets their business apart – and how we can market the business telling their story to as many buyers as possible.
Consider these recent success stories:
After completing the valuation process with one automotive business, they were approached by a large regional outside buyer and opted to work directly with them. Eight months later the seller called to say they’d essentially been strung along and were stuck. We were able to create a very effective marketing package that attracted multiple buyers with an accepted offer within 30 days and closed 3 months later. (Remember: limiting yourself to a single buyer reduces your leverage as a seller.)
We met with a rather frustrated seller of a manufacturing company that, having worked with two previous brokers, wasn’t very optimistic about selling. The business had developed a highly systematized process – but for an extremely specific manufacturing niche. When we determined their process could be applied to multiple industries, we marketed that value and found a buyer interested in expanding the business in a completely different niche.
One wholesale distribution business we worked with owned the 36,000-square-foot facility they operated out of, not paying themselves market rent, just the mortgage rate. Because any buyer would have to pay them rent at the going rate however, cash flow valuations didn’t support a workable selling price. We suggested they try operating using less space. They would need to reorganize, lease half their facility… with half the rent factor added back in, profitability improved enough for us to get the business sold.
Evolution has provided an extra set of eyes in so many different transactions, we can often spot opportunities a seller immersed in their business might miss. In our experience, working together to tell the story of a business is a far more successful approach to selling your business than working alone.
Read MoreA Closer Look At 3 Major Factors To Consider When Buying A Business
The simple but undeniable fact is buying a business is one of the single greatest financial decisions a person can make. Buying a business can lead to great financial success or great financial failure. This fact helps to underscore why it is so important to work with an experienced broker who can help guide you through the often labyrinthian process of buying a business.
In a July 2019 article from Smallbusiness.co.uk, author Kyle Carins explores three key factors that everyone should consider before they buy a business. The first factor covered in Carins’ article, “3 Things to Consider When Buying a Business,” is appeal vs. viability.
Appeal Vs. Viability
Not surprising, the most important variable for most prospective owners is that the business is indeed viable. Not being able to differentiate between an appealing business and one that is viable can lead to financial disaster.
As Carins points out, “Do you want to make money or do you want to fulfill a dream?” Sometimes those two variables can intersect, but not always and not often. In the end, it is vital to know whether a given business is, in fact, potentially lucrative.
However, as Carins points out, it is also important that you choose a business that you will enjoy. Nothing can be more spirit-crushing than running a business that you truly hate, even if it is lucrative. Selecting the right business for you is something of a balancing act that must take in a variety of often competing variables.
Considering Hidden Costs
The second factor that Carins looks at is the issue of “hidden costs.” One of the key reasons that it is so important to work with a business broker is that a business broker understands these kinds of factors that you might otherwise overlook. Due diligence is amazingly important. For those who have never bought a business before, working with a business broker offers substantial protection against making a potentially serious mistake.
Second Opinions
The third factor examined in Carins article is “Getting a second opinion.” For Carins, getting a second opinion is actually linked to due diligence. He feels that additional opinions regarding a given business should go beyond working with professionals and should also include talking to friends and family who know you well. Additional opinions can help one see angles that might otherwise be missed.
Again, buying a business is complicated and will take up a good deal of one’s time and mental energy. Your friends and relatives, understand your personality and your wants and desires. Their input can be particularly beneficial.
Finding an experienced business broker can help you do more than simply establish whether or not a given business is a “good deal.” Brokers with years of proven experience can also help you determine whether or not a specific business is a good fit for you and your lifestyle.
Copyright: Business Brokerage Press, Inc.
Read MoreA Closer Look at 3 Major Factors to Consider When You Buy a Business
The simple but undeniable fact is buying a business is one of the single greatest financial decisions a person can make. Buying a business can lead to great financial success or great financial failure. This fact helps to underscore why it is so important to work with an experienced broker who can help guide you through the often labyrinthian process of buying a business.
In a July 2019 article from Smallbusiness.co.uk, author Kyle Carins explores three key factors that everyone should consider before they buy a business. The first factor covered in Carins’ article, “3 Things to Consider When Buying a Business,” is appeal vs. viability.
Appeal Vs. Viability
Not surprising, the most important variable for most prospective owners is that the business is indeed viable. Not being able to differentiate between an appealing business and one that is viable can lead to financial disaster.
As Carins points out, “Do you want to make money or do you want to fulfill a dream?” Sometimes those two variables can intersect, but not always and not often. In the end, it is vital to know whether a given business is, in fact, potentially lucrative.
However, as Carins points out, it is also important that you choose a business that you will enjoy. Nothing can be more spirit crushing than running a business that you truly hate, even if it is lucrative. Selecting the right business for you is something of a balancing act that must take in a variety of often competing variables.
Considering Hidden Costs
The second factor that Carins looks at is the issue of “hidden costs.” One of the key reasons that it is so important to work with a business broker is that a business broker understands these kinds of factors that you might otherwise overlook. Due diligence is amazingly important. For those who have never bought a business before, working with a business broker offers substantial protection against making a potentially serious mistake.
Second Opinions
The third factor examined in Carins article is “Getting a second opinion.” For Carins, getting a second opinion is actually linked to due diligence. He feels that additional opinions regarding a given business should go beyond working with professionals and should also include talking to friends and family who know you well. Additional opinions can help one see angles that might otherwise be missed.
Again, buying a business is complicated and will take up a good deal of one’s time and mental energy. Your friends and relatives, understand your personality and your wants and desires. Their input can be particularly beneficial.
Finding an experienced business broker can help you do more than simply establish whether or not a given business is a “good deal.” Brokers with years of proven experience can also help you determine whether or not a specific business is a good fit for you and your lifestyle.
National Survey: Booming Construction Industry Leads M&A Activity
Construction and engineering companies led M&A activity according to the Q2 2019 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project.
This is a notable change from the manufacturing industry which previously had a prominent share of market activity. “The spotlight is on construction and engineering businesses this quarter, nearly knocking manufacturing—the previous leader—off the board,” said John Howe, M&AMI, director at Business Transition Strategies. “Part of that’s due to manufacturing clients holding back right now. They’re adjusting their businesses to new trade realities before they sell.”
The Q2 2019 Market Pulse Report also found that sellers have the advantage in all market sectors $1 million and above, with 66% or more advisors pointing to a seller’s market. Confidence is dropping across every sector and seller market sentiment in the $500,000-$1 million sector dropped below 51% for the first time since Q3 2017.
“Private equity is extremely active in the lower middle market, and that’s pushing values upward,” said Craig Everett, PhD, director of the Pepperdine Private Capital Markets Project at the Pepperdine Graziadio Business School. “Industry reports suggest private equity has nearly $2.5 trillion in unspent cash right now. The booming construction industry is an area of focus – many firms are using M&A to fill their lack of manpower and others are selling while the market is hot.”
Approximately one-third of business brokers surveyed report that recent trade policy changes with China, Canada, and Mexico are causing small business owners to hold off on selling their business or lower their asking price. In Q2 2019 final sale prices came in between 85% to 100% of the pre-set asking price or internal benchmark.
About the Market Pulse Report
The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0-$2MM) to those being sold in the Lower Middle Market (values of $2MM-$50MM). The Q2 2019 survey was conducted July 1-19, 2019 and was completed by 288 business brokers and M&A advisors.
About the International Business Brokers Association (IBBA) and the M&A Source
Founded in 1983, IBBA is the largest non-profit association specifically formed to meet the needs of people and firms engaged in various aspects of business brokerage and mergers and acquisitions. The IBBA is a trade association of business brokers providing education, conferences, professional designations, and networking opportunities. For more information about IBBA, visit the website at www.ibba.org or follow the IBBA on Facebook, Twitter, and LinkedIn.
Founded in 1991, the M&A Source promotes the professional development of merger and acquisition professionals so that they may better serve their clients’ needs and maximize public awareness of professional intermediary services available for middle-market merger and acquisition transactions. For more information about the M&A Source visit www.masource.org, or follow the M&A Source on Facebook, LinkedIn, and Twitter.
About Pepperdine University Graziadio Business School
For more than 50 years, the Pepperdine Graziadio Business School has challenged individuals to think boldly and drive meaningful change within their industries and communities. Dedicated to developing Best for the World Leaders, the Graziadio School offers a comprehensive range of MBA, MS, executive, and doctoral degree programs grounded in integrity, innovation, and entrepreneurship. The Graziadio School advances experiential learning through small classes with distinguished faculty that stimulate critical thinking and meaningful connection, inspiring students and working professionals to realize their greatest potential as values-centered leaders. Follow Pepperdine Graziadio on Facebook, Twitter, Instagram, and LinkedIn.
Contact:
Pepperdine Graziadio Business School
Hillary Doran
Associate Director of Marketing
310.568.2339
Hillary.doran@pepperdine.edu
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What to Expect in an M&A Letter of Intent
A recent article from Axial answering commons questions regarding LOI’s. Many times we see the LOI process skipped and go directly to the Asset Purchase Agreement and then due diligence. It depends on the deal and if the seller and buyer can agree to “high level” price and terms ahead of time. This can streamline the process and bubble all items important to the deal to help with surprises.
The letter of intent (LOI) is an important step in most M&A transactions. The LOI allows buyers to signal that they’re serious about a potential deal and to make sure that their vision lines up with the seller’s before they spend significant resources on a full due diligence process.
Here are the answers to four frequently asked questions about the LOI.
1. What does the LOI include?
A letter of intent serves in some ways as a preview or summary of the deal terms that would be expected to appear in the purchase agreement down the line. LOIs typically vary in length from about two to 10 pages, depending on a number of factors. Some argue a shorter LOI can help speed up the negotiating process as it centers the conversation around the most important elements of the deal: if there’s not agreement there, the logic goes, there’s no need to discuss other factors. Others prefer to address all potential issues upfront to avoid any surprise dealbreakers later on.
Here are some of the typical terms you’ll see in an LOI, though of course this varies depending on the deal.
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- Deal Structure: Is the transaction a stock or asset purchase?
- Consideration: What are the forms of payment? This can include cash, stock, seller notes, earn-outs, rollover equity and contingent pricing.
- Closing Date: What is the projected date for closing the deal?
- Closing Conditions: What are the tasks, approvals, and consents that need to be obtained before or on the closing date?
- Exclusivity Period: This is typically a binding clause requested by the buyer, who wants to ensure that sellers are negotiating in good faith. It’s typical for buyers to request an exclusivity period from 30-120 days, while sellers will typically want as short a period as possible.
- Break-up Fee: This clause is also typically binding, though break-up fees are less common in the lower middle market. In larger deals (>$500MM), break-up fees of approximately 3% are typical.
- Management Compensation: Which members of the senior management will stay on? Who will be provided equity plans? This aspect of the deal may be vague at the LOI stage before due diligence has been conducted.
- Due Diligence: How will due diligence will be conducted? This includes the nature of information that will be disclosed and the manner in which it will be disclosed.
- Confidentiality (Binding): Both parties have likely already signed an NDA earlier in the process, but this clause further ensures that all discussions regarding the proposed transaction remain confidential.
- Approvals: Does the buyer or seller need any approvals (e.g., from a board of directors, regulatory agencies, customers) to complete the transaction?
- Escrow: This may not appear until the purchase agreement, but sometimes the buyer will include summary terms of their expected escrow terms for holding back some percentage of the purchase price to cover future payments for past liabilities.
- Representations and Warranties: This also may not agree until the purchase agreement, but if there are contentious or non-standard terms the buyer may include them in the LOI.
2. Is an LOI binding?
LOIs are generally non-binding, though sometimes there will be terms that are specifically called out as binding, e.g., exclusivity periods or break-up fees. It’s important to note, however, that in certain cases courts may interpret letters of intent as binding documents if the buyer and/or seller treats it as a contract. Still, sellers shouldn’t expect that the terms outlined in the LOI will necessarily be the final terms offered by a buyer. Buyers are looking to portray themselves in the best possible light at this point in the deal process, and have not yet conducted full due diligenceand therefore don’t have a complete sense of the business’ risk factors that may impact their ultimate purchase price and terms.
3. Are LOIs mandatory?
No. It’s not unheard of for buyer and seller to skip over the LOI and go straight to the purchase agreement. However, an LOI can be useful for a number of reasons. It helps ensure that buyer and seller have similar (or at least similar enough) expectations around deal structure, scheduling, and other big concerns. It also means that any potential deal-breakers come up earlier in the process, so that the parties can either a) stop the transaction process before significant resources are spent on due diligence and drafting deal documents or b) figure out a resolution sooner. The letter of intent also is a nice way to ensure that seller and buyer are on the same page about how due diligence will be conducted. In addition, the LOI’s terms serve as important protection for all parties in a deal (e.g., exclusivity periods product buyers, while break-up fees protect sellers). Creating a shared vision of the future transaction means that there are fewer unpleasant surprises down the line and can make the overall deal process run a lot more smoothly.
4. What happens after the LOI is signed?
The next stage is typically due diligence. The buyer may have been conducting informal due diligence already, but the formal process begins now, and the seller will be expected to provide detailed financials and customer information along with other requested materials. These findings will inform negotiations down the line as buyers aim to lower their risk and sellers look to optimize purchase price and terms. At the same time that buyers are conducting due diligence, they also begin to plan for integration — doing so early on helps buyer and seller think through potential roadblocks and concerns and address those prior to the deal close. The final stage, of course, is drafting and signing the purchase agreement, which may require significant negotiation to get to a place where both buyer and seller are comfortable.
Source:
Read MoreDo You Know What Kind of Business Owner You Really Are?
Does your business have real, long-lasting longevity or is your business a temporary entity that will vanish the second you stop working on it? In his insightful article in The Business Journals entitled, “Are You Living for Today as a Business Owner or Building Value?” author Kent Bernhard asks a very important question of readers, “Are you a lifestyle business owner or a value accelerator?”
Many business owners have never stopped to ask this very important, yet basic, question regarding their businesses. So, let’s turn our attention to this key question that all business owners must stop and ask at some point.
As Bernhard points out the core issue here is how a given business owner defines the idea of success for him or herself. As Chuck Richards, the CEO of CoreValue Software notes, “At the end of the day, a lifestyle business is just a job.”
Richards goes on to note that this is fine for many people. But if this is the case, it is a choice that one is making. Therefore, lifestyle business owners should be aware that they are, in fact, clearly making a choice.
Business owners who are lawyers, consultants and accountants often fall into the category of those with a “business as a job.” They fail to accumulate enough assets for their business to really be more than a job. Summed up in another fashion, the business generates enough revenue to provide a comfortable lifestyle. However, it does not have the infrastructure or equity to remain profitable, or even in existence, once they walk away. As the owner and operator of the business, they are vital to its very existence. This means that the business only has value so long as the owner is working in the business on a regular basis. As a result, the owner may never really be able to exit the business.
As Bernhard points out, “To build a business as an asset, you have to become a value accelerator who looks beyond whether the business’ profits are sufficient to maintain your lifestyle. It means looking at the business as an entity outside yourself.” Those who fall into the value accelerator category, focus on figuring out creating value for the business as a financial asset that can operate independently.
Making sure that your business can continue on without you means that you have to build it, and that involves having a coherent and focused plan. Plan in advance and know how you will exit your business. To ultimately create value for the business entity itself, a plan must be in place that allows for your successful exit.