What is the Section 179 expense?

Q: What is the Section 179 expense?

A: The deduction contained in the Internal Revenue Code Section 179 allows for expanded deduction of equipment purchased for the year of 2008. During the year 2008, the maximum allowable deduction is $250,000. Bonus depreciation has also been reintroduced. To qualify for bonus depreciation, the equipment must be purchased brand new and be used within a trade or business.

Are there nontax reasons for why I might want to buy a hybrid vehicle?

Q: Are there nontax reasons for why I might want to buy a hybrid vehicle?

A: Absolutely. Hybrid vehicles have such good gas mileage, the fuel savings alone can be significant enough to affect cash flow for a small business. Even though Honda and Toyota are in their phase out sessions, these hybrids tend to carry their values well as of yet and can offer significant trade in value when the time comes.

If I purchase and use a hybrid vehicle for business purposes in my business, am I still eligible to use Section 179 accelerated expenses?

Q: If I purchase and use a hybrid vehicle for business purposes in my business, am I still eligible to use Section 179 accelerated expenses?

A: Yes, even though a hybrid car purchase can qualify for a credit, Section 179 expenses, bonus depreciation, and ordinary depreciation can still be used by the buyer.

What’s Involved In Due Diligence When I Sell My Business?

August, 2008 Op-Ed Article

What’s Involved In Due Diligence When I Sell My Business?

Due diligence is a critical phase in the sale of any business when the buyer and his/her trusted advisors perform several kinds of audits to: (1) Confirm everything the seller has represented about the business is true and (2) Make certain that there are no hidden surprises. When the buyer’s due diligence uncovers serious discrepancies/ deficiencies, it is not uncommon for the buyer to require a significant reduction in the purchase price and/or a significant tightening of the terms in order to still close the deal. Frequently, the deal may fall apart altogether if the deficiency is serious enough.

Due diligence usually begins after the parties have agreed in principal to the price and general terms of a deal, and usually requires 30 to 90 days, depending upon the complexity of the business. It has at least four phases: Legal, Financial, Environmental and Operational, which typically proceed in parallel.

The buyer’s attorney usually leads the legal phase, which seeks to confirm that the business is now and will continue to be properly licensed, that there are no lawsuits pending against the company, and there are no problems in transferring the company’s contracts with its existing customers and vendors.

The buyer’s CPA/ accounting firm will usually lead the financial phase, which seeks to confirm that the business books and records accurately represent the current financial condition of the company. The buyer’s bank will also have their own list of questions regarding the business’ financial condition, which must be satisfied before they will approve the acquisition loan. During this phase, the bank will also require independent appraisals of the business’ assets. If these include real estate, either owned or leased, the bank will no doubt require an environmental phase one audit, depending upon the nature of the business.

Operational due diligence is usually conducted by the buyer’s own management team.

During due diligence, the seller is likely to feel like the company – and perhaps even the seller personally — is being put under a high-powered magnifying class, which can be pretty comfortable even when it goes well. An experienced M&A advisor can be of great assistance during this phase by coordinating and simplifying the information requests from these various sources. In some cases, we can identify those requests that aren’t relevant or material for this business, or by suggesting some alternate ways to get the buyer the basic information he/she requires from readily available sources/ reports, rather that initiating a time consuming special study.

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

The Bradway Group
813.299.7862 Direct
ertel@bradwaygroup.com

© 2008, J. Michael Ertel, PA

When It Is The Right Time To Sell Your Business, Will Your Business Be Ready?

July, 2008 Op-Ed Article

When It Is The Right Time To Sell Your Business, Will Your Business Be Ready? It’s been estimated that the owner of a typical small- to medium-sized business has up to 90% of their personal net worth tied to their business. Their retirement plan is simple: Sell the business for a whole lot of money and live off the proceeds. Problems can arise for a variety of reasons when the business owner is ready to retire and the business isn’t ready to sell. In many cases, the business owner has underestimated the amount of time it will take to prepare the business for sale, and/or the length of time it will take to conduct an effective marketing campaign to find the right buyer and negotiate the best price and terms and actually get the deal closed. In other cases, the owner is simply unaware of the steps he/she might take to maximize the attractiveness of the business, and ultimately its market value. In the current economic climate, the buyers are also getting pickier and the successful seller may need to spend even more time and effort making their business saleable. Experts suggest that business owners begin as much as 3 to 5 years – and in some cases longer – prior to their ideal “last day” in the business. While this might seem excessive, there are several good reasons for such a lengthy planning and preparation period. First, more sophisticated buyers will insist upon reviewing 3 – 5 years of historical financial statements, preferably reviewed or at least compiled by an outside accounting firm. Larger & more sophisticated buyers may require audited financial statements. If your business is not doing this now, it can obviously take several years to build up this well-documented financial history. Furthermore, a business owner would be wise to anticipate some of the common issues that often show up in due diligence that will lead the buyer to either reduce their offer, or walk away from the deal altogether, and implement changes to eliminate or at least minimize them. Some common concerns are: Excess Customer Concentration; Lack of Management; Deep Threat of Technical Obsolescence, and Overdependence Upon the Seller. Additionally, a business owner might choose to implement several changes to improve the proven cash flow of his/her business, since this is so important in determining the ultimate market value of the business, and these can take time to implement and bear fruit. Likewise, the owner of a small- to mid-sized business should allow about 1 year and in some cases substantially longer to conduct an effective marketing campaign to find the right buyer and negotiate the best price and terms, and actually get the deal closed. Finally, many savvy buyers will want the seller to stay on in a management/consulting role for six to twelve months, and in some cases much longer. 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 © 2008, J. Michael Ertel, PA

I have recently had my business valued. The value between what I believe the value should be and what is calculated are completely different. Why is this?

Q: I have recently had my business valued. The value between what I believe the value should be and what is calculated are completely different. Why is this?

A: There could be any number of reasons for this dilemma. Valuations are based upon assumptions, figures provided, and calculations based upon them. The numbers, assumptions, and calculations may not necessarily reflect the value of the business to an owner. There are methods and procedures available to improve the value of a business to a willing buyer. It is with these improvements, a business’ value can be augmented.

As part of my parent’s business succession plan, I will inherit property. Will I have to pay taxes upon the receipt of the property?

Q: As part of my parent’s business succession plan, I will inherit property. Will I have to pay taxes upon the receipt of the property?

A: Generally inheritances come to an individual tax free. It is the estate that must deal with the tax consequences in most cases. When an item is received by an heir, its basis is either determined by the fair market value upon the date of death or based upon the alternative date 6 months later.

When Is The Right Time To Sell Your Business - Part 3

June, 2008 Op-Ed Article

WHEN IS THE RIGHT TIME TO SELL YOUR BUSINESS – PART 3

THE CURRENT WINDOW OF OPPORTUNITY

Some experts have observed that several trends have converged to create a uniquely attractive window of opportunity for those business owners who would like to sell their business.

First, they note that about 250,000 businesses are transferred through sale, inheritance, etc. each year, and this annual “demand” is expected to remain fairly constant for the foreseeable future.

Second, due to the aging of the Baby Boomer generation, the number of businesses available for sale is expected to grow to 500,000 per year beginning in about 2010. As supply begins to exceed demand, selling prices will begin to fall.

Third, tax rates on capital gains are currently at record low levels, but most observers believe these rates will likely go up –perhaps dramatically — as early as mid-2009, depending upon which party comes into power in January.

Lastly, though much has been written about the current “credit crunch” and resulting economic slowdown, the truth is that: (1) interest rates are still lower than they have been in 40 years, and (2) banks still have plenty of money available to finance the sale of fairly priced businesses.

The combination of low interest rates, low tax rates, and balanced supply and demand is creating a more favorable climate for the sale of a business today than may exist for another 10-15 years, according to many observers.

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

© 2008, J. Michael Ertel, PA

The Importance Of A Strong Balance Sheet

Most M&A experts agree that the ultimate transaction value of any profitable, on-going business is largely determined/influenced by its cash flow, which is most frequently expressed as its adjusted, or normalized, earnings before interest, taxes, depreciation and amortization (EBITDA). If that’s the case, why should we be at all concerned about the strength of the company’s balance sheet?

In point of fact, the role of the company’s balance sheet in the M&A valuation process is not well understood –even by most M&A professionals. Recognizing that in almost all cases the buyer will need to re-engineer the company’s debt in order to finance the acquisition, most M&A advisors spend little time analyzing the seller’s balance sheet (interest rate) than equity, a company with a strong balance sheet can typically command a higher purchase price, and still meet the buyer’s expectations for the return on his equity investment.

In reality, the strength of the company’s balance sheet, particularly as it relates to the collateral value of the company’s assets, plays an important role in determining just how much bank debt the business will support, which in turn affects how much cash equity the buyer will have to invest to finance a particular purchase price. Since bank debt typically has a much, much lower return expectation on equity, a company with a strong balance sheet can typically command a higher purchase price, and still meet the buyer’s expectations for the return on his equity investment.

It is principally for this reason that manufacturing businesses typically sell for a higher multiple of cash flow than a distribution company, which in turn sell for a higher multiple than service companies.

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

©2008, J. Michael Ertel, PA

Choosing An M&A Professional

May, 2008 Op-Ed Article

Choosing An M&A Professional

One author has estimated there are 17,000 practicing intermediaries who assist business owners with the sale of their business. So how do you pick the right one to represent you when the time comes to sell your business, which is likely to be one of the largest and most important financial transactions of your life?

Since the process of selling any business can take up to a year or even longer, it’s a good idea to start planning 2-3 years in advance to prepare your business for sale, and selecting an experienced M&A professional to assist in the process. Certainly, you will want to interview several candidates before selecting one, but what should you be looking for? Here are a few suggestions:

1. Make certain that you meet with the individual who will actually be working on your engagement. Some larger firms will send a senior partner to get the listing, but then assign the engagement to someone else in their firm.

2. Ask questions about their education, experience, professional credentials, and track record. Any professional intermediary should be happy –even proud — to share this with you.

3. Make certain that your business is a good fit for the intermediary and vice versa. There’s no point in “parking” your business with an intermediary who is not genuinely interested in working on your engagement.

4. Ask for examples of how the intermediary has added value in assisting other clients with the sale of their business. An experienced intermediary should have a network of contacts/resources who can be called in to solve various problems that may arise with getting any deal successfully closed.

5. Ask for references from recent clients and actually follow up and call them. Look for evidence of their integrity, trustworthiness, professionalism, with an emphasis on getting the best deal for you while protecting your confidentiality.

6. Finally, determine if you and the intermediary will work well together with your other professional advisors to accomplish your goals. If not, keep looking.

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

© 2008, J. Michael Ertel, PA

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