Why Wait?

Posted on December 4, 2012 by in Blog, Planning, Retirement, Strategy

In her article “Why Waiting to Sell Your Business Might Backfire,” Emily Maltby discusses the dangers of procrastinating the decision to exit.  Although waiting might seem like the smart thing to do, here are a few reasons why there may be no time like the present:  

Millions of small-business owners may be delaying retirement to their late 60s or 70s and beyond, in hopes of riding out the sluggish economy and a slump in the sales value of small businesses.

After all, what are a few more years on the job, especially if it allows a proprietor to open new lines of business, gain more customers, or possibly identify more prospective buyers for his or her firm?

But waiting for the market to recover could backfire, according to some who study small-business valuations. If and when the economy brightens, there could be a hefty backlog of retirement-age small-business owners eager to sell out, competing with newer sellers for the same group of buyers.

“If you continue to hold on another day, that’s another day where several more thousands of business owners turn 65. The market will be flooded for small businesses and the valuation will continue to trend down,” says John Warrillow, creator of the Sellability Score, an online tool to help business owners value their firms.

For those looking to sell their business at the highest possible price in order to retire comfortably, “I don’t think waiting is necessarily the answer,” he adds.

The first wave of baby boomers turned 65 last year, and the growing number that will reach that milestone in the next five to 10 years could compound the problem. “That will make the field enormously crowded,” says Steven D. Popell, an exit-strategy consultant in San Francisco. “The number of companies that will be up for sale in the next decade will increase dramatically.”

Selling a small business can be difficult even in robust economic times because its success often rides on personal relationships the owner has built with vendors and customers, says Andrew D. Keyt, executive director of the Family Business Center at Loyola University in Chicago. Buyers are more likely to bite “if the business has value without the owner in it,” Mr. Keyt says.

But the relative number of sellers and buyers may not affect a given company’s value as much as its assets, cash flow and net profits. “If you have strong fundamentals, there will be willing buyers out there,” Mr. Keyt adds.

It is also possible that a pent-up supply of buyers who have been waiting in the wings for better credit condition or more attractive choices could emerge to offset the pent-up supply of sellers. “Those who were wishing and dreaming of owning their own businesses but elected to stay put” will take action as the economy warms up, says Barry Evans, partner at Acquisition Services Group, a business brokerage in San Diego. “There will not be a shortage of buyers,” he adds.

In the first half of the year, 3,332 small businesses exchanged hands in the U.S., down 40% from the first half of 2008, according to BizBuySell.com, an online small-business marketplace.

The Economy and Your Retirement

Posted on November 13, 2012 by in Blog, Planning, Retirement

Given the current state of the economy, many small business owners are finding it challenging to sell their businesses.  A recent article by The Wall Street Journal explains the challenges affecting the business owners’ retirement.

The median selling price for U.S. small businesses during the first half of this year was $150,000, down 25% from $200,000 in the first half 2008, according to BizBuySell.com, an online small-business marketplace. The firm’s findings, reported by business brokers, are based on listings and recent sales in 70 major U.S. markets.

In the first half of the year, 3,332 small businesses exchanged hands down 40% from the first half of 2008, it found.

Andy Birol, a small-business consultant in Pittsburgh, says many of his older clients are at a crossroads: “They either have to sell for far less than they need or deserve to get out, or they have to muster up the energy to recommit themselves to the business,” he says. “They’re conflicted.”

Times are tough. Many business owners feel like they may never retire.  However, if you begin planning now with the right team of advisors, you will be prepared when the time is right to sell.

Audit

Posted on July 25, 2012 by in Blog

This article addresses the benefits and advantages of having your financials audited.  Verifying the accuracy of the financials can increase the value of your company.  Here’s how:

Financial statements provide managers, shareholders and potential investors with the information they need to determine the financial health of an organization. The preparation of financial statements is also a legal requirement for many companies. However, financial statements are only useful if they are accurate. To that end, businesses often employ third-party auditors to monitor the accuracy and reliability of their financial statements. Additionally, federal and state agencies require companies to provide audited financial statements when their stock is publicly traded.

Accuracy

Audited financial statements are more likely to be free of reporting mistakes, such as data entry errors, as auditors check the accounting procedures companies use to record transactions and invoices used to prepare financial statements. For instance, if a balance sheet reports $100,000 in assets, an auditor will check the accuracy of that figure by looking at the receipts and invoices on file. This provides stockholders and investors with a reasonable assurance that the financial statements offer an accurate reflection of the company’s financial situation.

Information Asymmetry

Information asymmetry is a fancy word used to describe what happens when a business lies on its financial statements so that shareholders and investors do not have access to the same information as the company’s managers. Shady businesses will often have two sets of accounts: the accounts they use to run the company and the accounts they show to government authorities and potential investors. However, if an impartial auditor checks over the financial statements of a company, she will likely be able to spot irregular accounting methods that signal that a company’s financial statements are bogus.

Standardized

Auditors do not merely check the accuracy of the information included in financial statements. They also ensure that the financial reports are consistent with national and international accounting standards. This is especially important for multinational corporations that must follow different accounting systems. Audited financial statements are also checked for consistency to ensure that the accounting methods and figures used within a company are not only correct but also follow a regular and uniform reporting methodology.

Reliable

Even if an auditor does not find any mistakes in your financial statements, simply having them checked by an independent third party increases their reliability. For instance, lenders will usually require audited financial reports from potential borrowers because they want an auditor to put her seal of approval on the borrower’s financial records. Management also benefits from audited financial reports because they may alert them to dishonest employees who embezzle assets from a company and cover their tracks with phony invoices and transactions.

Audit to Add Value

Posted on July 16, 2012 by in Blog

When selling a business, many owners choose to have a CPA audit their financial statements.  Ensuring that your company has accurate financial records eliminates risk and makes your company more appealing to potential buyers.  This article goes into a little more detail about how a CPA-audit can add value to your company:

Having an audit can help you detect a deficiency in internal controls that could lead to fraud. It also helps you find efficiencies and ways to save money in your business. An audited financial statement may also help you reduce the taxes your small business pays. CPA Dan Peregrin said in a 1998 article in National Hog Farmer that he often finds enough in tax savings through an audit to pay for the costs of the audit. Another way audited financial statements are valuable is when you plan to sell your business. A business with audited financials is more attractive to a potential buyer and often brings a higher price.