Are active partners in a partnership considered to be employees or self-employed?

Q: Are active partners in a partnership considered to be employees or self-employed?

A: Partners are considered to be self-employed. The disadvantage to this is that all income
earned by the partnership is subject to self-employment tax. Owners of formal entities such
as S corporations only pay Medicare and social security taxes on compensation. Their
distributive share is not subject to employment taxes.

I would like to value my business so I can sell it. Is there a multiple I could use as a rule of thumb which would be accurate?

Q. I would like to value my business so I can sell it. Is there a multiple I could use as a rule of thumb which would be accurate?

A. No. Multiples are not recognized by the IRS as a valid valuation device. When valuing a business for sale, it is wise to invest in a valuation. Valuations of businesses are complex and require expertise. Simply using a multiple ignores too many contingencies and the like to be effective as a valuation device.

The assets of my business total $250,000. Do I have to be concerned about estate taxes?

Q: The assets of my business total $250,000. Do I have to be concerned about estate taxes?

A: Absolutely. Many businesses have hard assets worth maybe $100,000 - $500,000. Under the Internal Revenue Code, businesses are valued according to specific methods. Under these methods other less tangible factors are examined which frequently lift the value of the business substantially. Given that the estate tax exemption will drop to $1,000,000 in four years, it is wise to do estate planning.

Avoiding The Common Pitfalls In Selling Your Business: Deal Fatigue

December, 2007 Op-Ed Article

Avoiding The Common Pitfalls In Selling Your Business: Deal Fatigue

Most business owners are unprepared for the enormous amount of time and effort that will be required to prepare their business for sale, successfully market their business to find the right buyer and negotiate the right deal, and then get that deal closed.

Even at the conclusion of a highly successful process, many sellers describe it as “like having two full time jobs.” And even with the assistance of an experienced M&A professional many sellers will experience “deal fatigue” at some point in the process. If not properly managed, deal fatigue can scuttle an otherwise very attractive deal. Deal fatigue frequently occurs when the stress and strain of responding to all of the requests for information from all of the potential buyers — and then their due diligence advisors — descend upon the business owner whose staff is already fully burdened with the daily demands of running the business. All too often the tone of these requests make the seller feel like he/she is getting the third degree from a hostile and suspicious adversary, rather than a trusting investor/partner.

An experienced M&A intermediary can be immensely helpful in minimizing deal fatigue in several ways. First, in gathering and organizing most of the required information up front, the M&A advisor can anticipate and answer most of the commonly asked questions in the initial marketing phase. Next, by screening prospects so that only qualified buyers will ever meet the seller, we can minimize the seller’s frustration at being asked the same questions over and over again. By funneling all information request through the M&A advisor, we can remind the buyer that certain questions have already been asked and answered and that other questions should properly be asked after they’ve made an offer. Finally, by managing the process all the way through to closing, we can ensure that the seller always sees the light at the end of the tunnel.

If you know of a business owner who’s thinking of selling or buying a business and who might benefit from a free consultation with us, have them contact me, or any of the M&A professionals at www.bradwaygroup.com

Mike Ertel, CBI, M&AMI
The Bradway Group
813.299.7862 Direct
ertel@bradwaygroup.com

© 2007, J. Michael Ertel, PA