The Importance of Keeping Your Business Books Up-To-Date
At least once a month, you should be doing an analysis of your business, and making sure that your books and records are in working order.
It’s not only good to see the progression of your business but to verify that both your accounts payables and receivables are in the black. If you are thinking about selling your business somewhere down the line, you should have everything in shape. Additionally, you should have dashboard reports that pinpoint exactly where your revenues are coming from (or not) along with industry analysis reports that show how your business stands up against others.
Specifically, you should be paying attention to profit and loss statements (P&Ls) when analyzing your business. You’ll be able to account for all the income that your business has earned as well as all incurred expenses.
There are two ways to cast a P&L:
- For tax purposes, a P&L is slanted to show maximum expenses and minimum profit.
- To help sell your business for top dollar, the P&L is re-casted to show the actual ongoing business expenses and maximum profit.
Remember, buyers are looking for a business that’s making a profit. So when reconstructing the P&L statement, pull out the personal expenses, overstated inventory, non-deductible expenses, owner’s personal insurance, salary, promotion expenditures, travel and entertainment, depreciation on equipment, auto expenses, bad debt, donations, interest and income tax. Once you remove these items from the “losses” category, the money gets added to the “profits” category. Now, you should be left with a truer net profit.
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Choosing the Proper Entity to Acquire a Company
By Peter C. King, PresidentVR Business Brokers/Mergers & Acquisitions
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There are four basic types of entities that may be used to acquire and operate the business of the acquired corporation: (1) C corporations, (2) S corporations, (3) partnerships, either general or limited and (4) the limited liability company (LLC). The LLC is a hybrid entity authorized in 1988 by the IRS. It offers the legal insulation of a corporation and the preferred tax treatment of a limited partnership. Today, all 50 states and the District of Columbia permit LLC’s.
Primary differences exist among the four types of business entities. A regular, or C, corporation is a separate taxpaying entity. Therefore, its earnings are taxed to the corporation when earned and again to its shareholders upon distribution. Partnerships, S corporations, and LLC’s, in contrast, are generally not separate taxpaying entities.
The earnings of partnerships and S corporations are taxed directly to the partners or shareholders, whether or not distributed or otherwise made available to such persons. Moreover, partnerships and S corporations may generally distribute their earnings to the equity owners free of tax. Because S corporations, partnerships, and LLC’s are generally exempt from tax, but pass the tax liability with respect to such earnings directly through to their owners, these entities are commonly referred to as pass-through entities.
A C corporation is defined in the Internal Revenue Code as any corporation that is not a C corporation. The term C corporation generally excludes corporations granted special tax status under the Code, such as life insurance corporations, regulated investment companies (mutual funds), or corporations qualifying as real estate investment trusts (REITs).
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Pandemic Impact on CT Businesses
by Jeff Swiggett, CBI, M&AMI, President M&A Source, Owner of VR Business Brokers in New Haven, CT
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VR Business Sales - Mergers & Acquisitions, Marcum LLP and the law firm of Zangari Cohn Cuthbertson Duhl & Grello P.C. teamed up to conduct this survey because of the Firms' and their clients' interest in issues related to exit planning, with the belief that it is important to quantify the challenges ahead for business owners as the population ages. The market surveyed included owners of businesses located in Connecticut from various market segments.
Key Findings from the Survey:
The pandemic was the big story in 2020, its effects were reflected in the survey participant responses.
- 76% of businesses have been hurt by the pandemic.
- In 2020, the Connecticut transaction market grew more favorable to buyers than sellers mirroring the trend in the national market.
- Connecticut businesses are recovering from the pandemic, but the large majority of owners anticipate it will take 12 to 24 months to fully recover.
- 4 in 10 business owners say their exit strategy has changed since the onset of the pandemic.
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Why Buy and Sell Agreements Matter to Business Owners
By Tim Bellon, CBI, CMAP, Owner of VR Business Brokers in Apollo Beach, FL
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If you’re in business with a partner, you already know that your partnership - like your company - can change over time. If your initial shareholder agreement didn’t include Buy and Sell provisions, it’s essential to add them.
A Buy and Sell agreement is a legally binding contract that stipulates how a partner's share of a business will be reassigned if that partner dies or otherwise leaves the business. It may also cover what happens if a partner becomes disabled or unable to perform business functions, gets divorced, files for personal bankruptcy, or experiences other significant life events that may impact the partnership.
Generally, the Buy and Sell agreement prevents the remaining partner(s) from being forced into being in business with family members: surviving children, or a disgruntled ex-spouse. This year in particular has shown us that circumstances, both personal and in business, can change in an instant. It’s a really good idea for partners to sit down early to discuss what happens when one of them leaves the business.
In the case of a partner’s death, some of the cost of the buyout may be covered by a life insurance policy the company pays for. Any other exit must be part of a negotiated agreement, which is best done well in advance.
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Strong Year of Lower Middle Market ("LMM") Deal Activity Expected in 2021
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Private equity is emerging from a tumultuous 2020 in a transformed landscape, with a set of opportunities that would have been impossible to predict 12 months ago. The industry will seek to extend Q4’s rapidly expanding deal volume into this year. Many of the catalysts remain – paused deals and pent-up demand will boost 2021 activity, there is still an enormous amount of dry powder sitting on the sidelines, portfolio companies have largely stabilized and don’t require the same support as last year, and PE firms have adopted to the logistical and analytical challenges posed by the new global economy.
Activity in the lower middle market was discreetly buoyed by strong LBO volumes last year, as funds were taking on divestitures from corporations that were shedding non-core divisions amid the crisis. It’s hard to see this tailwind persisting in a rebound period, so it will need to be offset by increases elsewhere. To fill that void, we are likely to see a return of exit activity, the resumption of larger deals that were deemed too risky during peak uncertainty, and higher multiples pushing aggregate deal value upward. The recovery of credit markets and sustained low rates should also be a stimulating factor.
There are complicated dynamics at play as we move into 2021. Understanding the different factors influencing the 2020 bust-boom arc should set up middle market professionals to manage risks and tap opportunities.
Disruptions will Continue to Influence 2021
It’s not shocking that deal volumes are forecast to rise substantially in 2021 from last year. The catalysts driving activity, however, are unequally distributed across sectors and geographies.
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Pool Scouts for Sale in St. Louis, MO
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VR in Boca Raton, FL Sold a Very Well Know Distribution/Wholesale Company for $1,160,000.
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Established in 2001, very well known brand of frozen beverage distributor and wholesaler company providing service for schools, movie theaters, major league sports stadiums, hospitals, resorts, restaurants, bars, amusement parks, zoos, aquariums, bowling centers, race tracks, casinos. The company has approval for School Districts in the United States for healthy beverages. Has over 20 flavors of Frozen Drink Mixes, both for alcoholic drinks and non-alcoholic. Trademarks are included the price.
Congratulations to Baris Guler for your successful closing.
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Thinking of selling your business or looking for an established
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