Use December To Win In April: Thoughts For Year End Tax Strategy

Use December To Win In April: Thoughts For Year End Tax StrategyThe end of the year can be very hectic for business owners. They spend their time ensuring their projects get completed, customers get billed, and that there is enough time left to spend with family and friends. One task often overlooked during December is an end-of-year adjustment for tax strategy. Optimizing the business’s financial position for the coming year while minimizing its tax liability is a critically overlooked opportunity. With that tax strategy, consideration must also be given to how it may affect the viewing of the financial reports for the business. Potential buyers will want to know that the business is fiscally strong and that the tax history and reporting are accurate.

This is where a close partnership with an accountant can pay dividends in making sure that the business is prepared in advance and taking full advantage of the legal options available for reducing what taxes are owed in April. Having the benefit of a knowledgeable team can provide the business with the best direction and actions to pursue.

There is nothing worse than enjoying the Holiday season with the expectation that you understand and know your tax picture, and then coming across a nasty surprise come April 15th. Tax planning, in the right hands, should be a strategic tool providing valuable insight into how best to close the year and adjust in the future. Some basic strategies to discuss with your accountant include:

  • Tax loss harvesting
  • Reasonable compensation analysis that protects you and maximizes the Qualified Business Income Deduction
  • Timing capital expenditures and when to accelerate or to defer to land your deduction in the proper tax year

Take Advantage of Shelters

Some exclusive offerings are available to business owners that can help provide some relief from taxation while still keeping you financially solid and prepared for your future as a retiree. One example is the Solo 401(k) which is specific to business owners. The Solo 401(k) allows you to put business income as eligible compensation into a 401 (k) account for the business owner, which lowers overall profit for the year of the business, thus lowering the business’s tax liability. Other examples of eligible shelters are SEP IRA, Simple IRA, and a traditional 401(k). Another option for business owners is utilizing Deferred Compensation plans to greatly reduce taxable income.

Business Entity Changes

Depending on what type of entity your business currently operates under, there may be some benefit to changing from a sole proprietorship to an S Corp or LLC. It’s also time to toss the C-Corp and move to an S Corp or LLC! Each entity will have a variety of tax benefits and liabilities that they may offer to your current business model, so making sure you get the expert advice of an accountant is key. Christopher Royalty of Solopreneur Sherpa has noted that sometimes a late S-corp election is just the right move. “This sort of thing requires a complete understanding of the tax code, payroll requirements, and other issues, but more than once it’s been perfect for a given client.”

The entity type will also make a difference when it comes to courting prospective buyers, so partnering with the experts here at Apex can help make sure that your business is desirable for purchase when you are ready to sell.

If you want to know more about how the selling potential of your business may benefit from an improved tax liability strategy, give us a call.

Episode 97 – Follow Instructions

Andy and Doug discuss examples of where Buyers neglecting to complete information, changing entities, and good ol fashioned not following instructions impact the timeliness of a deal closing.

Ready to start the conversation? Get in touch for a FREE consultation. The best way to learn about us is at our website, which includes connecting with DougAndy, or the rest of the Apex Team.

What You Need To Know For Retirement As A Business Owner

What You Need To Know For Retirement As A Business Owner“Leadership requires two things: a vision of the world that does not yet exist and the ability to communicate it.” – Simon Sinek, Start With Why

Retirement as a business owner often requires:

  •  a vision of the world that does not yet exist for you
  • the ability to communicate your business’s value to potential buyers

Realizing these two goals can be challenging, but they are achievable if you move forward with a clear picture of your why, followed by solid planning, finished with execution.

Business Succession Planning

You may be reluctant to let go of the reins of your business when you are ready to retire. A sense of responsibility for your employees, partners, and customers can make it feel like your needs should be an afterthought. To overcome this feeling and make your and your family’s needs the priority, you will need to assuage the fear of letting others down by knowing that the company is in optimal shape to succeed when you step away. What the buyer may do with the business after you take your leave is out of your control, but what you do to position your business to be in its best possible position for success is all that you owe anyone else.

This is where a succession plan comes into play. Prospective buyers may have different ideas than you on how to carry on with the business, but having a plan in place that lays out how the business can successfully move forward shows a level of commitment and forethought to your team and potential buyers. Frequently the fear of how a business may progress after the owner sells it off can be enough to dissuade someone from moving forward with the acquisition, and having a succession plan can ease any reservations that the buyer may have as well.

No matter what your company’s fate may be, doing your due diligence in advance to help ensure its success moving forward is worth the time and energy spent to make sure you have left your livelihood, your employees, and your reputation in the best possible position for a new owner.

Financial Security Planning

Once you know that your business is in capable hands, you will be forced to reconcile the status of your retirement income, and how it will provide for you and your family in the future. While business succession planning may be focused on your former business’s survivability, your financial security very much focuses on the well-being and providence of yourself and your family, as far out as you may see as worthwhile. That means paying attention to capital gains taxes and inflation rates is a primary focus to help ensure your current lifestyle is achievable in your golden years or until you find your next project.

Foresight of A Retiree

When considering if you are in a position to sell your business and retire, you must know your why just as strongly as the buyer does. Knowing your why will help you make the right decisions when it comes to selling your business, and help avoid the emotional hangups of walking away from something you have put so much of yourself into.

Why are you retiring now? Asking yourself this one question will guide you toward the proper resources for selling your business and ensuring your family’s well-being. You will also start to realize how much work goes into selling a business, and how many areas one can err in that could have serious financial repercussions. The process of selling your business may start when you decide to retire, but the true work comes with understanding the value of your business and what you can expect to receive from a buyer. This requires accurate valuation and strategic positioning of your business to help maximize your returns.

Deciding to retire is rarely easy, and obtaining maximum value for your business when it sells is also a difficult undertaking that should be overseen and orchestrated by true experts in the field of brokering business sales.

If retirement is around the corner for you and selling your business plays a part in that retirement, contact us at Apex and let us work with you in realizing your dreams.

Episode 96 – Buying a Business: Why Do I have to Sign a Non Disclosure and Share my Financial information?

On today’s episode of the Apex Business Advisors podcast, Andy and Doug talk to newer buyers who wonder why they have to sign a non-disclosure and share financial information before seeing any information on a business.

Ready to start the conversation? Get in touch for a FREE consultation. The best way to learn about us is at our website, which includes connecting with DougAndy, or the rest of the Apex Team.

Book Club #36 : Getting Things Done by David Allen

Book Club #36 : Getting Things Done by David AllenGetting Things Done by productivity expert David Allen is a book that cannot be read without the reader battling their desire to put it down and to start putting into action its productivity lessons.

It is precisely because the book gets to the heart of how to unlock one’s own productivity that the reader also cannot come away from the book without knowing that there exists a productivity guide which, with rare possible exception, truly works.

In short, Getting Things Done teaches the reader first how to think about thinking about getting things done, and then how to implement a process which is intuitive with the way people actually achieve productivity.

Whilst framed as a book for businessmen, managers, and entrepreneurs seeking efficiency and control of their working lives, the book also places an emphasis on being productive in all aspects of one’s life (for example, if the entrepreneur has forgotten to do a personal errand this will inevitably create discord in their work life as well).

Someday, Maybe

The reader will gain a clearer understanding of the limited ability of the human mind towards organizing tasks without external aid. For example, an individual may daydream about going on holiday for years without ever doing so. All the while a “go on holiday” note may have been gathering dust on a dream board somewhere in their home. There may come a time when they finally do decide to go, but only when there is little time left, with a “now-or-never” ultimatum attached to what should be an otherwise invigorating vacation.

Seemingly useful productivity habits such as creating ”’to-do lists” are revealed for the productivity roadblocks they are. To-do lists list tasks to be done, such as: “Sales Report.”

This task, at face value, does not define the actionable next steps. If these steps aren’t defined, then the individual faced with the task will not think through what those steps need to be until they cannot put the task off any longer.

One cannot do “sales report” but one can do “Define the purpose of the sales report.”

Each actionable step of the task can be broken down to its individual action.

For example, for “sales report,” it could be:

  1. Define the purpose of the sales report
  2. Gather Data
  3. Choose a Reporting Period
  4. Organize Data

And so on, until the actionable steps are defined so that there is full clarity about what needs to be done in order to see the task through to completion. Through creating these kinds of actionable task lists, the task doer will inevitably feel an urge to set upon the task immediately now that the thinking about the task has been done externally (put on paper, or in a word document, etc) to a sufficient level of scrutiny.

Our lives require a robust productivity system

There wouldn’t be a need for Getting Things Done if productivity relied only on clarifying the next actionable steps of a task. New tasks can present themselves to us at any time, and there are large portions of our lives where we must be somewhere (a doctor’s appointment, a wedding, etc), meaning our time for getting things done is limited.

As business professionals our success is often met with more work, not less. There are other books that explore the idea of freeing up one’s time whilst growing one’s business (such as The E-Myth Revisted by Michael Gerber). David Allen’s Getting Things Done offers the reader a “stuff” collection system which can be used to define and decide how best to see tasks through to completion. “Stuff” is defined as anything which we need to get done. Once the reader has digested the book’s wisdom once, there is a readily available “map” of David Allen’s entire productivity process to refer to for a quick refresher.

The Art of Stress-Free Productivity

Whilst it is too optimistic to assume the book removes stress from the art of being productive, it does explain what it is about not having a robust productivity system in place which causes us so much stress. When we have a task to do, and we haven’t defined when it needs to be done and all the actionable steps, we are forced to continually remember the task in the back of our minds lest we forget it. Because of this, our time spent not working, or working on other tasks, becomes stressful because we have not taken the time to decide what to do with the task.

Part of the genius of David Allen’s productivity system is how he creates a filing method for tasks. Collection, sorting, defining, and doing. Whether a professional chooses to take on all of the lessons from the book, or some, there is a wealth of insight to be found that is sure to bring a boost to your productivity.

Is one of the things you need to get done this year buying or selling a business? Put us at the top of your list.

Episode 95 – Buying or Selling a Business: What does the survey say?

On today’s episode of the Apex Business Advisors podcast, Andy and Doug highlight critical information from the latest Market Pulse Survey that pertains to buyers and sellers of Main Street and Mid Market Businesses.

Ready to start the conversation? Get in touch for a FREE consultation. The best way to learn about us is at our website, which includes connecting with DougAndy, or the rest of the Apex Team.

Case Study #81: If At First You Don’t Succeed, Try Again (x4)

Case Study #81: If At First You Don't Succeed, Try Again (x4)You’ve most likely heard the expression, “You learn more from your failures than your successes.” Entrepreneur Josh Anhalt is living proof of that statement. He recently sold his business GreenPath Energy, but not before three failed attempts.

His company played a crucial role in the oil and gas sector, but industry changes prompted Josh to consider selling. With political uncertainties on the rise and technological advances reshaping market dynamics, he knew he had to figure out what to do next.

Recognizing the need to adapt, Josh decided that it was time to let go of the business. He didn’t get it right the first time (or the two times after that), and there are several lessons to learn from his failures.

Understanding the Oil and Gas Industry

To understand Josh’s decision to sell, it’s crucial to understand the challenges within the oil and gas industry. Politics and technology play a massive role in deciding what GreenPath could and could not do.

In 2016, market forces and political headwinds created a demand for a shift in strategy. Josh realized that scaling the business required consolidation. He needed to focus on high gross margins and assemble a team of highly technical professionals if he wanted to make it work.

Despite facing difficulties, Josh maintained a profitable business. He generated $8.2 million in revenue with a remarkable return on investment before ultimately deciding it was time to sell.

The Three Failed Attempts

Josh’s eventual success was followed only by three previous failures.

  • Attempt 1: The first deal saw Josh signing a letter of intent (LOI) without legal review which led to a flawed agreement. The deal collapsed due to issues with definitions and disparities in the interpretation of “cash-free, debt-free.”
  • Attempt 2: In the second attempt, engaging with another company revealed challenges in the earnout structure. The proposal jeopardized employees’ positions, and the acquirer’s reluctance to enter the US market further strained negotiations. It was a reminder of how much his people meant to him. Josh prioritized the well-being of his employees and rejected the deal.
  • Attempt 3: Private equity’s involvement in the third attempt brought promises of an equity roll, but caution on their part derailed the deal. Reps and warranties in the share purchase agreement proved to be contentious, which highlighted the conservative approach often taken by private equity firms.

Fourth Time’s a Charm

Josh decided on a different approach this time.

Thorough due diligence preparation — including the creation of a “data room” that held all of the necessary documents — proved crucial. The deal structure involved 90% cash upfront, 10% stock, and no earnout, which demonstrated the acquirer’s confidence in the business’s future potential. In talks, Josh replaced backward-looking scrutiny with forward-looking evaluation. He emphasizes the value of future opportunities and revenue and it worked. GreenPath was officially sold.

Key Lessons

Although the sale of GreenPath wasn’t as straightforward as Josh may have liked, it was worth it in the end. He sold his company for seven times its EBITDA figure. He also learned a lot along the way:

  • It pays to say no (sometimes): Josh built his company with one thing in mind — to make money. As such, he found it very painful when he had to reject the large sum of money in his first attempt to sell. However, the cons well outweighed the pros in that deal, so it was worth it in the end.
  • Thorough preparation is key: Josh emphasizes the importance of meticulous preparation in the business sale process. Creating a data room with all essential documents, financials, and agreements readily available streamlines the due diligence process and builds trust with potential acquirers.
  • People matter: The emotional impact of selling a business is significant, especially when it comes to the relationships built with employees and colleagues. Understanding the personal and emotional aspects of the process is crucial, and considering the impact on people is an integral part of successful deal-making.

From the importance of defining terms early and adapting to industry changes to the emotional impact on personal connections, Josh’s story is a testament to resilience, strategic thinking, and the significance of preparation in the intricate world of business transactions.

Need help preparing for your own sale but aren’t sure where to start? We can help you with that — and it won’t take us four times to get it right. Give us a call today.