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Business Succession

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Last week I was asked to speak at a small business seminar on business succession as it relates to selling a business here in Florida.  Succession planning in general  is the process of preparing to hand over control of the business to others. Very often family may be part of succession planning and while most businesses do not have any plans for business succession, those that do, fall short in the planning and communication of those plans. So you are working hard on your business now, what is your plan?

  • Build up  your business to a nice size and sell your business for great financial gain?
  • Pass your business on to your kids
  • Arrange an LBO for key employees
  • Work your butt off, make enough money to pay your bills and do this til you are no longer on this earth.
  • other

Business SuccessWe are all busy running and or growing our businesses, but last week  a few business owner did consider this issue important enough to take a few hours out of their day to attend this workshop and  begin understanding the process.

Presenting at this workshop were an Attorney, a CPA, an insurance provider, and myself.  This seminar was attended by local small business owners seeking knowledge on this topic.  What I found most interesting was that the Attorney, CPA, and I spoke on many of the same issue regarding selling your business  We all spoke for about 1/2 an hour and didn’t coordinate on what we would speak on.  While we touched on the the different aspects surrounding business succession,  I found we spoke on many of the same points, but due to our professions we spoke on those point from varying perspective.

When discussing seller financing for your business, the attorney spoke of the need for extreme caution when setting up seller financing, and additional care extended when family or fiends involved.  The CPA spoke to the proper records to be kept to document what you have and be able to show what you had in the way of your companies performance.  My discussion regarding seller financing  addressed the prevalence of seller financing in the marketplace and the need to be able to offer it to help make a deal happen in to days tight credit market.

What Your Business Success Relies On?

A few key points from this workshop:

  1. Most businesses do not have a succession plan.
  2. Planning is the most important first step.
  3. Seller financing can help facilitate a deal but one must do proper due diligence.
  4. Relying on your business as your only source of retirement funds is dangerous and mis guided.
  5. When doing your annual reviews of company numbers or tax preparation, use that as a good time to look at other matters as it relates to your biger picture

My suggestion is between handling your accounts receivables, accounts pay ables, other office paperwork, social networking, working with clients, and  returning phone calls/emails, take a moment to consider what your exit plan may be.  Even if you just give the subject a few moments of thought, you may find yourself ahead of most or your peers and fellow business owners.

Also, the Internet is a great source of information on business succession and other business matters, but also keep your eyes open for the various seminars, workshops, and expos that may be in your area.  They are not only a great source of knowledge, but also a great opportunity for the “other type” of social networking.

Using Your 401k to Buy a Business or Grow Your Business

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For many in the workforce their 401k can  represents a large portion of their net worth.  Many don’t realize that  they can use these funds to buy a business even before they reach 59 1/2 without incurring the often heard of  penalties and negative tax consequences.  Many of those that buy a business or want to buy a business are currently employees for others.  Future business buyers are currently working for someone else.  And there are many employed that are earning their hourly wage or salary, have minimal savings, but have accumulated a healthy balance in their 401k.

Using 401k To Buy A Business

This is ones safety net for the retirement years.  Even considering using this “security blanket” to fund your business or to use to buy a business needs to be well thought out and involved the counsel of your accountant or financial advisor.  Using your own savings, borrowing from family or friends, borrowing against equity of your own home are all means to fund your acquisition, and some more desirable than others.

I consider myself a somewhat conservative entrepreneur( which may sound like an oxymoron).  But the more I involve myself with the dilemma or how to finance business acquisitions, and are banks really loaning money to those that want  to buy a business, and more specifically are banks making smaller loans to those that want to buy a small business  (say $200,000 and lower) other means of financing should be considered. Ive always felt that banks do provide loans to those that can prove that they dont need it, and now that point is even stronger than in the past.

An SBA loan should be explored.  They are available and the requirements for documents, security, and your financial well being can be both daunting and take considerable time.  But one should explore this option.

Furthermore, when I initially hear of someone using a 401k to either fund a business or buy a business, I think penalties, fees, and shrinking nest egg.  But like so much in the accounting and tax world the devil is in the detail.

Using Your 401k Money To Buy A Business Can Mean Many Different Things

Using your 401k can mean ….

1. Just taking money out of your 401k .  – Just a Bad idea for so many different reasons

2. Taking a loan from your 401k- Most plans offer this options, there usually is amount restrictions, but you do pay interest back to your self.

3. Setting up a Self directed qualified plan(using a third party that specializes in this process)  that allows you to purchase  a franchise, or  buy a business without distribution, taxes, penalties, or the use of loans.

Setting up a Self Directed Qualified plan involves the following steps:

  • Form a C-Corporation
  • Prepare the adoption documents for your New 401k plan for your new corporation
  • Corporation Valuation
  • Rollover- direct rollover from your 401k plan into your new account
  • You as a Trustee will transfer money into your corporation checking account

Please note the above is a simplified summary, but does represent the spirit of the steps involved with setting up a Self directed plan to buy a business. There  are cost to hiring a third party to administer setting up a self directed Plan to buy a business.   It is their job and responsibility to guide you thru the specific process.

Using 401k To Buy A Business As A Last Resort

There are also some additional annual reporting requirements to be done by your accountant.   But if one wants to avoid a bank, or avoid borrowing from family or friends, or avoid borrowing against your home, then maybe using your 401k to set up a self directed plan to buy a business warrants further investigation.

Start or Buy a Green Business- Measure Twice Cut Once

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I believe  a disconnect exist between all the news media exposure regarding the “green movement”, “green jobs”  and the actual mindset of most small business owners and entrepreneurs.   It is no doubt that “green” has become one of the more reported on phenomenon over the last couple of years.  The  US election had strong ties to green promises  and  future jobs.  This mantra has created general optimism.  One of the most important part of starting a new business, or buying a business is the due diligence needed to evaluate the opportunity.  Do you want to start a business or buy a business in the “green Industry”?- perform some due diligence beyond reading the headlines.

Please consider that small business owners and entrepreneurs are wired to think in the now, and fast, and today and ASAP.  Much in the Green Industry is very policy driven, and that policy comes from federal and state levels, and that policy is wired to work within targets such as long term, next year , and eventually…  To me this creates a disconnect between the small business owner/entrepreneur and the potential opportunities.

Buying A Green Business – My Perspective

My interest in green is from somewhat a different perspective than many.  My real interest in Green began back in the early 1980’s and gas prices were once again going up.  The college I was attending had offered a major in Energy Management and I viewed this to be an industry with unlimited future, and I pursued and achieved my major in Energy Management.  We did experiments on Solar panels, reports on Global Warming, discussed world energy policy, nuclear and many other topics I did find interesting and still do.

Upon graduating with my Energy Management major, I got employed in the energy field and acquired further education and training.  My Entrepreneurial spirit got the best of me and the thought of starting and owning a business and being in direct control of my future had me in a start-up in a non-energy related business.  Sold that 20 years later and here we are in the year 2010 and wonder how far this exciting field has gone in the last 25 years.  It has gotten significant traction in the last years but where is it Jan. 2010?  And my interest in the green movement is its inter-relation with energy efficiency.

I enjoy the financial side of the green movement.  Tangible monies saved as a result of energy technologies and practices utilized.  I recognize the byproducts of many of these energy saving measures to be environmental benefits.  If you can save a kilowatt hour (kwhr), and that kwhr doesn’t need to be produced by a coal burning power plant, you have dual benefits.

I currently am representing  a Current business for Sale that utilizes a Green concept can be found here  at https://sellabusinessadvisors.com

Buy A Green Business In Florida

1000+ other businesses for sale can be found here as well including many Florida businesses for sale.

1. I am located in Florida, a state strongly hit by the depressed housing market and construction market and unemployment.  I interact with owners in the solar and energy industry and people interested in solar and renewable energy. With current policy (or lack of) in Florida, the solar industry and existing business engage in the solar industry is far from healthy in my opinion (Solar is just one aspect of the various renewable energies and green products and services that comprise the market as a whole.)

It appears to be a yo-yo type industry .  Policy injects some money into the industry, most policy is short term, policy money is exhausted and the industry slows down.  This process get repeated it seems year after year.  I also know of very qualified/licensed individual that work in the solar industry part-time, because the thought is the market is not there to support a full-time business.  I also attend Solar/energy advocacy meetings that attempt to show support of the industry that is full of individuals interested in entering this field, but where are the job opportunities?

Many jobs fall into the contractor categories, but the current market doesn’t seem able to support existing contractors.  Various consulting jobs may surface, but expertise  (that not everyone may have) is needed  and shrinking budgets from potential clients slow these opportunities down as well.

2.  Ok- so it was said that with stimulus money behind the “green movement” we would be creating lots of jobs- where are the jobs.  Numbers and statistics can be “massaged” to represent various results but certainly the empirical info in Florida is not impressive.

Buying A Green Business

Photo (c) mtnweekly.com

The economic stimulus bill’s investments in clean energy have not created many green jobs yet, according to the Council of State Governments.

Only 13,000 green jobs had been created or saved by the stimulus bill through Oct. 10, 2009 according to the council’s analysis of data collected by states. Ohio led the nation with 2,500 green jobs. Rhode Island, by contrast, reported no green jobs as a result of the stimulus bill.

The top programs for green jobs were the Department of Energy’s weatherization assistance program and energy efficiency block grants, and the Environmental Protection Agency’s clean water and drinking water state revolving funds – As reported in the Washington Business journal

3.  The Entrepreneur or business owner interest in the Green movement may be:

– “how much “green” can I make from this business opportunity ?”

-“I feel good about being in this industry that can have positive impact on the environment”

– “Am I missing out on some significant opportunities? ”

– “Can I buy an existing green business with a history of revenues and or profit?”

Conducting a search of “green or energy businesses” that are for sale that have a history of revenues and profits show very limited opportunities.  Possibly the largest opportunities are for entrepreneurs to start new ventures and build them and potentially sell those successful businesses down the road.  I am a fan of the energy saving part of the green movement and believe energy independence to be very sound policy for our country.  I support involvement and interest in this field.

But conduct proper due diligence before you proceed with your green business.  The newspapers, and news broadcast say green is great, governments are sending lots of stimulus money towards the green movement, but proper research and how you approach the “green industry”  in your part of your world will dictate your sustained success in this  potentially large industry.

“Earn $10,000 per Month Working just 2 Hours per Day!? “

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“Earn $10,000 Per Month Working just 2 Hours per Week”… “Lose 10 pounds per day by just Sitting on Your Sofa”… “Take this Pill and all Women will Love You”…

Eye catching titles intending to entice one to read your message. Many of us use the Internet to further our knowledge and educate ourselves on our areas of interest.

I am in the business of helping people buy businesses and sell businesses. I also do get involved with business consulting to both startups and small businesses. The above headings are written to get our attention and get us to read.

Is It True Or Just A Marketing Trick?

Does one think that you can get rich just working a couple hours per week? Lose weight by laying on the sofa? I dont think we really  believe it to be probable – maybe we think it to be remotely possible, and just that sliver of hope warrants us to spend our valuable time to read.

Optimism is a wonderful trait-when tempered. Kind of like the optimist that falls off a 90 story building and while falling past the 50th floor says to himself – “so far so good.”

Small business is of great interest to me, and I have various sources of information that I tend to follow. I write for a website that reaches many entrepreneurs, aspiring business owners and current business owners searching for both information and opportunities.  On my own website, I list 1000 plus businesses for sale from Florida and around the United States.  Within these businesses for sale certainly exist tremendous opportunity for those willing to put in the necessary risk and hard work.

And yes one buying one of the many businesses for sale  you can earn $10,000 per month only working a couple hours per week…. But that may occur only after 10 years of working 14 hours day, initially struggling to pay the bills, and dealing with daily dealing with setbacks, and disappointment.

Yes, maybe after you have exercised a)  a good business plan, in b)  a good industry and c) are well funded and d)  properly timed your venture you could earn that money – i.e. One could find quality people to help one execute a solid business plan for a well funded Typewriter Company…. But success would be unlikely – the same above scenario, executed 40 years ago may have proved successful. The timing for a typewriter company has come and gone.

There are people that “hit a homerun” and reach significant financial success with apparent little effort in a short period of time and capitalized on a new idea as the typewriter people may have several years ago.  But I think for every one of those success stories there are the 10,000 others that reach success through long term hard work.

Start Your Business

Photo (c) financeonlines.com

A person may start a business or buy a business and sell it next year for rich rewards. But, I am convinced that most financially independent success stories are the result of hard work over an extended period of time. And for me much of the good valuable advise I have attained throughout the years came through extended conversations, and trial and error – It does not come through short cryptic eye catching statements.

As a writer of a blog based on my experience as a business owner directly involved with several business acquisition,  I contemplate the question of writing what I think readers may want to read or the information that I think small business owners and aspiring entrepreneurs should read. Style or substance – I will tend toward substance knowing I will regularly not catch the eye of the readers looking to “get rich today – retire tomorrow.”

If I write an article about “Why is It Important That A Business Owner Understands His/Hers Balance Sheet,” will it be read? I dont know, but I know it would add value.

Real Business Advises

Some of the advise regarding starting a business, running a business, or buying a business can appear fairly boring and non eye-catching –

  • Do Your Homework
  • Educate Yourself
  • Understand that you will be rarely over-funded
  • Expect to Work Hard (working at “your job” or for others may be hard- but this will probably be harder-maybe more enjoyable, but harder)
  • Expect setbacks and accept it will be up to you to overcome them.

But I do think that readers that are reading small business/entrepreneur blogs, news feeds etc. are taking an important step in educating themselves which is a valuable part of the process of reaching financial independence and or entrepreneurial business success.

Starting a Business in a Recession

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Some business owners and Entrepreneurs are good planners.  Some are not.  Some consider themselves “do’ers” that they are very good at doing what they do and really don’t have the time to plan for next year or the year after, or for 5-years from now.  The economic climate has done more than bringing on lower sales, lower profits and lost employment.

It is a sound business practice to have a plan or idea that extends beyond the current year.  Many sound business owners and operators had planned to sell or exit their business, and then were hit by the drop in their stock portfolio, retirement funds, drop in home value and depressed company results.  So those well laid out plans are delayed as a result of the business environment.

Is It Wise To Start A Business In A Recession?

Starting A Business In Recession

Photo (c) drewsmarketingminute.com

What about the small business owner that had planned to start a business, or buy a business only to feel the need to address the question-   Can I start a new business during a recession?  What does one do?  Delay the decision until the economy turns around, or move ahead regardless of the slumping economy.  When running and or growing a business for an extended period of time ( say 10-20+ years), it is inevitable that you will need to operate that business during both good economic times and bad economic times.  How much do you allow the economic climate to be an excuse/reason/crutch or do you  try to just work harder thru it.  I personally view this economic downturn that we currently operate to be quite different than any “downturn” I have seen in my 25 years of business.

Most of what I read and discuss with others refer to our current economic environment  as  a Recession.   But is it possibly a  Depression?  A common offhanded comment defines A Recession is when your neighbor looses their job, A Depression is when you lose your job.  Respective governments have criteria used to establish Depression and or Recession.  I question the accuracy and application to our newer global economy.

I also question how much our politicians and policy makers really know what the business climate really is at the “street level”.  I actually think our economic climate we have been operating in is neither a Recession or a Depression but rather a hybrid  maybe there is a need for a new or different term to refer to our business environment.  I think the non-existent term   “DEP-RECESSION” may apply.

The Importance Of Proper Timing In Business

So what do you do with your plans to start that business or buy that business?  Do you delay or press ahead?  My thought is that it is somewhat dependent upon the business venture.  Many businesses and consumers  still need to procure certain products or services to allow their household or business to continue.  But some buying decisions can be put on hold or delayed until the economic uncertainty passes.  How much your product/service may be considered a discretionary expenditure may influence your decision to go forward or delay.

For example if you are in the paper business, businesses still need paper to run their operation or make copies.  But a business may not be compelled to buy that new copier and may decide to just “get by” with the one they have.  Most small business owners and entrepreneurs I know are more of the press ahead type and fairly aggressive with their business decisions.

Should one delay the decision to start or buy a business until the economy improves?  I’m not so sure, but what if it takes 2-5 more years to improve.- This almost  sounds like an answer to this question.