Episode 131 – When Buyers and Bankers lose their voice

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In this episode, Andy and Doug dive into the complexities of business closings, sharing recent challenges and successes. Andy recounts his recent frustrations of delayed closings, while they both highlight the impact of poor communication from bankers and buyers.

They discuss successful deals, including a heating and air business, a port-a-potty company, and a daycare center, all tied by the importance of open communication. They also touch on how vacation seasons affect timelines and the dangers of ghosting during acquisitions.

Tune in for valuable insights on navigating the closing process, managing buyer inquiries, and ensuring smoother business deals.

Keep Your Accounting in Order

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Keep Your Accounting in OrderAs we’ve often said, no one gets into business because he/she loves bookkeeping and accounting. But no one buys or sells a business (or gets financing along the way) without solid financial statements. So, what are some ways to keep ourselves on the straight and narrow?

Clean Books and Complete Tax Records

Broken record alert: have clean books. Every banker and buyer will want to look at a company’s books that are at least reasonably well organized (shoeboxes with receipts do not qualify) and have few to no errors (small mistakes, particularly those which do not dramatically affect valuation, are understandable and acceptable in small businesses). The best time to have clean books is today. The next best time is tomorrow. Get started. We can help you if you need.

The same is true of your taxes. By properly filing you not only offer a corroborating narrative to your books, but you also establish trust with potential bankers and buyers: this business plays by the rules.

Accurate Financial Statements

Clean books produce accurate financial statements. While such statements have great value to bankers and buyers, their primary value is to the people running the business. The balance sheet, income statement, and statement of cash flows. These documents tell the story of a business, past, present, and future. People who operate their businesses without these documents are either operating a sweet legacy business that probably still has a fax machine (can’t argue with success) or are clueless and heading for disaster.

Internal Controls

How many stories have you heard about a company getting phished and accidentally paying a bill to someone masquerading as a trusted vendor? If you haven’t heard any yet, take a look online and educate yourself, then get with your IT people to make sure you have controls in place to make sure that physical and digital access is properly distributed and monitored. While you’re having that conversation with IT, make sure that you have regular data backups for your accounting data, if not all of your data.

Bankers and buyers love businesses that have taken the time to minimize fraud.

Financial Projections

If you have solid financial statements, you’re going to be able to make better projections into the future. While you can’t account for changing conditions in the world and the market (no one can), the projections you make from solid financial statements tell a story that can lead to a bank offering you financing, or a buyer seeing what the payback ratio looks like.

A Manual

An accounting manual will probably be at the bottom of your list of projects to work on for your business, but it can only improve the value and curb appeal of your business. This manual should include your business’s:

  • Accounting policies and procedures
  • Cash flow management
  • Budgeting
  • Software
  • Strategic planning
  • Disclosures

Formal policies also lessen the possibility of fraud, something we already mentioned above.

Do you feel like you could use some help getting your accounts in order? We have a number of people who can help you if you need. Give us a call.

Episode 130 – Best of Episode: Profile Perfection and Storytelling Success using LinkedIn with Jason Terry

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In this episode, we dive into the essentials of optimizing your LinkedIn profile and leveraging the platform for business growth. Our expert guest, Jason Terry, shares invaluable tips on creating the perfect profile picture, crafting an engaging bio, and utilizing LinkedIn’s features to their fullest potential.

Learn why your profile photo should be current and professional, and discover the four key elements that can make or break your LinkedIn presence: the cover image, professional headline, about section, and consistent activity. Our guest also discusses the importance of storytelling in business, emphasizing how sharing personal and professional stories can enhance relationships and drive engagement.

We explore real-world success stories of businesses that have transformed their online presence and increased client interaction through effective LinkedIn strategies. Additionally, the episode covers LinkedIn’s role in talent acquisition and retention, proving that a well-maintained profile can attract top talent.

If you’re looking to elevate your LinkedIn game, this episode offers a wealth of practical advice and actionable steps to help you stand out and connect meaningfully in the professional world. Tune in to learn how to make LinkedIn work for you and your business.

Cautionary Tale #12: The Supreme Court Decides a Business Valuation

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Cautionary Tale #12: The Supreme Court Decides a Business ValuationWhat happens when the IRS tries to get more money from a small business owner and loses in the lower courts? They appeal to the Supreme Court. In the case of Connelly vs. the United States, they won, and won unanimously, leading to an additional tax bill of $889,914. So, how did this happen?

The Facts of the Case

The “Connelly” in the name of the case above referred to Michael and Thomas Connelly, two brothers who owned Crown C Supply Company. They had taken the time to create a buy-sell agreement to make sure that the business stayed in the family when one of them died. In this particular case, upon the death of one brother, the other would have the option to purchase the deceased brother’s shares. If the brother declined, the company (Crown) was required to buy the shares.

The share price would be determined either by a Certificate of Agreed Value executed annually by agreement of the parties or through two or more written appraisals. The agreement also authorized Crown to purchase life insurance on the lives of the shareholders, the proceeds of which could be used to pay for the purchase. Michael Connelly took out $3.5M on his life and assigned the policy to Crown, and Crown took out a policy on Thomas Connelly for the same amount.

This all sounds good and we would have been applauding as business advisors up to this point. The catch? Michael and Thomas did not appraise the business at the time of the execution of this business and they did not execute a Certificate of Agreed Value every year. And as we always say, if you don’t do a key part of the paperwork at the time of an agreement, the chances of you doing it down the line decrease exponentially.

What Happened Next

Michael died in 2013 with a majority interest in Crown. Thomas declined to purchase the shares. Crown then used $3M of the $3.5M in insurance proceeds to purchase the shares from Michael’s estate. Thomas, who was also the executor of Michael’s estate, filed an estate tax return reporting the value of Michael’s stock at $3M, which was an amount agreed to by Michael’s son and Thomas.

The IRS audited the estate tax return and noted that this $3M was not supported by a qualified appraisal. This led to a report submitted to the IRS by Thomas valuing Michael’s shares at $3.86M. This included the $500k of life insurance proceeds that were not used for the redemption of Michael’s shares, but also excluded the $3M that was used to purchase stock from Michael’s estate.

Stay with us here: this procedure was itself advised by a case called Estate of Blount v. Commissioner in which insurance proceeds were properly deducted from the value of a corporation when “offset by an obligation to pay those proceeds to the estate in a stock buyout.”

The IRS concluded that the entire $3.5M of insurance proceeds needed to be added to the value of Crown. That put the value of the business up to $6.86M, of which Michael’s shares were worth $5M, leaving the estate with a fresh additional tax bill of $889,914.

The Court Rules

The Court held that the obligation in this particular buy/sell agreement was not a liability that decreased the net value of Crown by the amount of the life insurance used to purchase the shares. The Court concluded that a corporation’s obligation to redeem shares at fair market value does not reduce the value of the shares, hence any buyer of Michael’s shares would expect to receive the fair market value of those shares, which in this case included an extra $3.5M.

New Rules, New Practices

So, now that we have a new Supreme Court ruling, we need to adjust our planning accordingly:

  • Get a valuation of your business sooner rather than later. Do not wait for a health event or death.
  • Review any of your existing buy/sell agreements in relation to share price for estate tax purposes.
  • Consider other options than the brothers used, for example a “cross-purchase” agreement in which each shareholder owns a policy on the other, with proceeds used to buy a shareholder’s interest, or a special purpose LLC, which could be owned by the shareholders and used to hold the life insurance policies.

Surprised by this Supreme Court ruling and wondering if your buy/sell agreements are up to snuff? Give us a call. We’d love to look them over with you.

Episode 129 – Best of Episode: Mastering Business Connections using LinkedIn with Jason Terry

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In this insightful episode, we invite LinkedIn expert Jason Terry to discuss the transformative power of LinkedIn for businesses. Jason shares his unique journey from IT to sales and how LinkedIn became essential to his success. The episode dives deep into the importance of maintaining a strong LinkedIn presence, the benefits of regular status updates, and the impact of personal storytelling on business relationships.

Listeners will learn practical tips on how to leverage LinkedIn to stay top of mind, build meaningful connections, and drive business growth. Jason also addresses common myths about LinkedIn, the value of engaging content, and the significance of commenting over merely liking posts. Tune in to discover how LinkedIn can elevate your business to the next level.

Looking into the Mind and Heart of a Business Buyer

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Looking into the Mind and Heart of a Business BuyerWe often think about how to package products or services for sale to potential customers, but we sometimes fail to use that process for packaging our business for sale.

To help with that we’ve put together some categories and questions you can put to a potential buyer in a first meeting to find out if this person is a good fit for you and to potentially spur them on to action.

Timing

The buyer is sitting in front of you because he/she is financially qualified (because we made sure of that already) and they are ready to buy. But go deeper:

  • Why is this the right time for you to buy? This will reveal their personal and professional motives and why they have decided to act now rather than last year or one year from now.
  • If you don’t take action now, what are the consequences? This gives a tone of urgency to the conversation, and can reveal whether such urgency exists in the buyer’s world.

Personality

What is the buyer like? Is he/she an introvert or extrovert? Ask them:

  • What is something that really matters to you? Observe the way the buyer speaks about and engages with this topic/interest/activity. Think about how it may relate to your business.

Social Influences

Who helps support decisions in the buyer’s world? Think about asking:

  • How does your family feel about this? While extended family’s support is helpful, it’s the direct family’s support that is crucial. And the veto of a spouse effectively kills a deal.
  • How do your friends feel about it? Here you might discover that friends have been encouraging this move for years. Is this a pressure-oriented decision or is it something that the buyer has finally embraced?

Purpose

Perhaps most importantly, we need to find out the buyer’s why. Don’t fail to ask:

  • What is it that the business will give you? For those in jobs, this could be the autonomy they’ve always wanted, or the ability to finally tether their income to how hard they work. For those already tried and true in business, it’ll be the thrill of a new challenge. Whatever it is, we need to know what the buyer is getting out of this big decision.
  • How would this business match your skills and desires? This is a bit of a “closing” question, as we are pivoting from the big picture of the previous question to “how can we help.” But this matters for sellers too. A strong connection here can lead to a light-switch moment for the buyer and an impulse to move forward. This is a great opportunity for the sellers to apply their selling skills honed over the years to this specific potential buyer.
  • What are your hopes and dreams outside of this business? This ties us back to the personality question about what makes they might be passionate about, but it’s also a “post sale” question. We are assuming that they have already potentially bought the business, and it’s empowering them to chase after these hopes and dreams. You can help color in those spaces as needed.

Yes, business sales are about dollars and cents, but don’t kid yourself, it’s one of the most emotional things many people experience. Don’t battle those emotions as a seller. Harness them to your benefit and, ultimately, to help identify a serious buyer.

Need more questions like these? We’ve got you covered. Give us a call.

Episode 128 – Know Your Broker: Tina Youngblood

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In this episode, we sit down with Tina Youngblood, a seasoned professional transitioning from a high-stakes corporate M&A background to a brokerage role at Apex. Tina shares her journey through corporate America and the startup world, revealing the challenges and politics that led her to seek a more fulfilling career.

Discover the pivotal moment that sparked her interest in becoming a broker, influenced by her colleague Chuck Campbell’s success and happiness in the field. Tina’s extensive experience in accounting and financial services, coupled with her passion for connecting buyers and sellers, makes her a perfect fit for Apex.

The conversation also delves into her academic achievements, including a PhD in accounting, and her unique encounters, such as meeting Alex Haley, the author of “Roots.” Tina discusses the importance of understanding financials for business owners and her plans to leverage her network and expertise in behavioral health and software development to bring value to Apex.

Join us as we explore Tina’s aspirations, her favorite hobbies like golf and cooking, and her excitement for attending conferences and expanding her professional network. This episode is a must-listen for anyone interested in career transitions, brokerage, and the personal stories behind professional success.

Inside the SBA’s New Working Capital Program (WCP)

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Inside the SBA's New Working Capital Program (WCP)We’ve written about the importance of working capital before. You might not know that Uncle Sam is about to open up another source of funding to small business owners.

The SBA has been piloting the Working Capital Program (WCP) and it officially launches to the public on August 1, 2024. It lives within the SBA’s existing 7(a) Loan program and can provide guaranteed lines of credit up to $5M to support domestic and international transactions. The program runs until July 31, 2027.

Let’s Look at the Numbers

Some of the important stats include:

  • SBA guarantees 85% of the loan up to $150,000, 75% for amounts greater than $150k
  • The maturity of the loan can run up to 60 months
  • Rates for loans of $50,000 or less cannot exceed the base rate (prime) + 6.5%
    • For $50-250k, this drops to 6.0%
    • For $250-350k, 4.5%
    • For $350k+, 3.0%

Lenders who already have Export Working Capital Program (EWCP) authority can immediately begin lending under this program. Other lenders can apply for the same delegated authority.

In fact, the fees for this program are modeled on what has already been working under the EWCP, namely that borrowers can customize the loan to their exact needs, paying only for the time they require.

Who Could Use This?

There are many applications for this type of funding. For example, for those looking to finance transactions, they can access working capital in this program earlier than they could using a traditional line of credit. For those looking to use assets as a basis for lending, they can efficiently borrow against their accounts receivable and inventory. Anyone who wants to go after a contract or expand its orders can now look to this program to help.

You might be wondering “what’s the catch?” Well, the requirements from the SBA are actually not too onerous:

  • The borrower must have had a history of 12 full months of operations before applying
  • If the application is in support of a new business, the acquirer must still have had a history of 12 months of operating the business, effectively putting a one-year waiting period on this program for buyers.
  • The business must be able to provide timely financial statements
  • The borrower must be prepared to offer annual financial statements and be creditworthy at the outset

Why Now?

The SBA has said that it wants to broaden its facilities available to businesses, and programs like their SBA Express loan have been less appealing to lenders, in part because it only offers a 50% guarantee.

Whatever the reason the program is rolling out now, it’s something that small business owners should look into for themselves.

Do you have a relationship with your banker? Would you like a referral to a friendly one? We’ve got a whole rolodex to share with you. Give us a call.

Episode 127 – Death by a Thousand Paper Cuts: Navigating Perceptions in Business Deals

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In this episode, we dive deep into the intricacies of business negotiations and how minor issues can accumulate, creating significant hurdles. Our hosts share a real-world example of a deal fraught with small but impactful challenges, including software ownership, training commitments, and non-compete clauses.

We discuss the importance of perceptions in business transactions, highlighting the delicate balance of trust between buyers and sellers. Key points include the implications of reducing non-compete durations, the necessity of thorough training periods, and the role of banks in deal negotiations.

Listeners will gain valuable insights into handling multiple minor issues that could potentially derail a deal and the importance of clear communication and trust in business relationships.