What is the true income of an independent business? This is a question of interest to many parties--including prospective buyers, investors, and lenders--but nobody is more determined to know the answer than the Internal Revenue Service. What makes the "truth" about a company's income so elusive? Isn't this what financial record-keeping is all about? Yes and no. Business owners have been known to go from minor figure-fudging to major-league cheating, in an effort to lower the amount of income necessary to report to the IRS in any given fiscal year. In fact, the IRS estimates that two out of three business owners regularly under-report income. "Unreported income" is the official phrase for this practice; however, in the trade, the word often heard is "skim." It sounds light, healthy, and maybe good for you. But is it? Consider an item from a newspaper in a typical Main Street town, bearing the headline "Business Owners Sentenced": Two Myrtle Beach business owners were sentenced in … [Read more...]

"Your salespeople didn't listen when I placed my order, and when I wrote a letter to complain, they still didn't get it right. I guess they don't read any better than they hear." Daniel Langley, the owner of a central Massachusetts mail order company, took this call on a recent Monday morning. It happened to be a holiday, or he might never have got this close to a customer complaint. He was glad he did. "I needed to be reminded," he said, "that the problems are always out there. I tend to hear a lot from customer service about the record-breaking order or the customer calling from New Guinea. I realized we haven't been paying enough attention to the everyday, not-so-happy news." Langley is typical of many business owners and managers in that respect. A lot of companies--large and small--do much less than they could in dealing with customer problems and complaints. This is an unfortunate omission, and an unnecessary one: achieving good customer service is neither costly nor … [Read more...]

Are your workers independent contractors or employees? This is a compelling question, especially where the Internal Revenue Service is concerned. Every worker claiming status as a non-employee means payroll taxes and social security contributions that won't fall into the IRS's pocket. Now many states are taking a closer look at the question, too. They are increasingly on the lookout for new sources of state revenue, including workman's compensation and unemployment insurance, both of which can be bypassed when a business uses independent workers. What can a business owner/manager do to keep on the right side of both federal and state tax patrols? Here are a few precautionary steps to safeguard the status of workers as independent contractors. Encourage (or at least allow) the worker to provide his own assistants, including their hiring, supervision, and compensation. Allow workers to establish their own schedule of work days/hours. Be sure that workers provide their own equipment … [Read more...]

1. Place a reasonable price on your business. Since an inflated figure either turns off or slows down potential buyers, rely on your business broker to help you arrive at the best "win-win" price. 2. Carry on "business as usual." Don't become so obsessed with the transaction that your attention wavers from day-to-day demands, affecting sales, costs, and profits. Since the selling process could take as long as a year, the buyer needs to keep seeing a healthy business. 3. Engage experts to insure confidentiality. A breach of confidentiality surrounding the sale of a business can change the course of the transaction. Expert intermediaries can channel the process and the parties involved to keep the sale within safely silent bounds. 4. Prepare for the sale well in advance. Be sure your records are complete for at least several years back and do all pertinent legal or accounting "housecleaning"--as well as a literal sprucing-up of the plant or store. 5. Anticipating information the … [Read more...]

Answering services, message machines, voice mail, "on hold" music, speaker phones . . . where would a business be without them? Perhaps--in some situations--a lot better off! In the small to midsized business, where every call should count, owners and managers need to ensure that the telephone is an efficient, effective sales tool instead of a handicap. It's important to remember that the caller's first impression of your company is from the voice answering the phone. That first minute or less will help form the caller's lasting opinion of your business, so why not take the opportunity to make that opinion the best possible? Here are a few ideas for improving the way your business says hello. Call Your Office Give your office a call--just don't let them know it's you. Have someone whose voice your employees won't recognize place the call, with you standing by waiting to listen. This may sound like cloak-and-dagger tactics, but it's one that successful managers use to monitor the … [Read more...]

There are myriad reasons why the sale of a business doesn't close successfully; these multiple causes can, however, be broken down into four categories: those caused by the seller, those caused by the buyer, those that just happen ("acts of fate"), and those caused by third parties. The following examines the part each of these components can play in contributing to the wrecked deal: The Seller 1. In some instances, the seller doesn't have a valid reason for entering into the sale process. Without a strong reason for selling, he or she has neither the willingness to negotiate nor the flexibility to see the sale to a conclusion. Without such a commitment, the desire to sell is not powerful enough to overcome the many complexities necessary to finalize the sales process. 2. Some sellers are merely testing the waters. As detailed above, they are not at that "hungry" stage that provides the push toward a successful transaction. These sellers merely want to see if anyone wants to buy … [Read more...]

Buyers are expected to perform a thorough due diligence on both the business and the seller(s). However, many sellers don’t do an extensive due diligence on the buyer(s). Deals do not always close; many are aborted in the very early stages, and others tank somewhere along the way to what was hoped to be a successful closing. So, what happens that prevents a deal from closing, especially one that began with such positive signs? Obviously, in many cases, the buyer’s due diligence turns up some items that were not revealed by the seller, and others that can’t be resolved.  Some of these items probably had early-sign red flags; other red flags occurred somewhere along the way, and unfortunately, the result was that there were pre-closing red flags. The Early-Sign Red Flags Sellers should seriously look at who the buyer is. This may be a corporate buyer who is just looking. On the other hand, some sellers may overlook a strong individual buyer for fear that he or she may be inexperienced … [Read more...]

The reasons for selling a business can be divided into two main categories. The first is a sale that is planned almost from the beginning or by an owner who knows that selling is or should be a planned event.  The second is exactly the opposite – unplanned; the sale is motivated by a specific event such as health, divorce, business crises, etc. However, in between the two major reasons, are a host of unpredictable ones. A seller may not even be thinking of selling when he or she is approached by an individual, group or another company, and an attractive offer is made. The owner of a business may die, and the heirs have no interest in operating it. A company may bring in new management who decides to sell off a division or two; or maybe even decides that selling the entire business is in the best interests of everyone. A major competitor may enter the market, forcing an owner to elect to sell. And the competition may not just be another company. The owner of a business may realize … [Read more...]

The “loose lips” tagline was a common World War II phrase and was on posters everywhere. The problem continues on the business battlefront today.  Leaks of confidential information coming from, apparently, some of the Directors of HP have been in the news everywhere. This is an ongoing story. If it can happen to HP, it can happen to anyone. Leaks of confidential data are a serious issue at any time, but are especially serious if they involve the sale of a company.  Sellers are very concerned because of the impact a leak can have on their company and their employees. Unfortunately, confidentiality is a Catch—22 issue. On one side, the seller wants to maintain it; on the other side, the seller wants to get the highest price possible, which can mean exposing the business to numerous potential buyers. The more potential buyers contacted, the better the chance of a good price being obtained—and the greater chance of a leak. Owners may be overly concerned about leaks of confidential data, … [Read more...]

The 65-year old owner of a multi-location retail operation doing $30 million in annual sales decided to retire. He interviewed a highly recommended intermediary and was impressed. However, he had a nephew who had just received his MBA and who told his uncle that he could handle the sale and save him some money. He would do it for half of what the intermediary said his fee would be – so the uncle decided to use his nephew. Now, his nephew was a nice young man, educated at one of the top business schools, but he had never been involved in a middle market deal. He had read a lot of case studies and was confident that he could “do the deal.” Inexperience # 1 – The owner and the nephew agreed not to bring the CFO into the picture, nor execute a “stay” agreement. The nephew felt he could handle the financial details. Neither one of them realized that a potential purchaser would expect to meet with the CFO when it came to the finances of the business, and certainly would expect the CFO to be … [Read more...]