Acquisition Time? Tips on Buying a Business

December 11, 2011

Homepreneurs and small business owners don’t always need to start a business from scratch.  Another option is possible: buy an existing business.  This may require upfront money, but not necessarily.  Seller financing is possible or paying for the business by working for the owner for a pre-determined period.  This is sweat equity, basically.

The article below by Anne Field – though written during the height of the recession – still provides many tips and suggestions for buying a business in today’s shaky economic climate.  From purchase options to systems integration, Field’s experience is invaluable when considering a purchase.  Many businesses will be up for sale as the baby-boomers retire or leave for other reasons.  If you can handle the idea of a purchase, Field’s words are sage advice.


Acquisition Time? Tips on Buying a Business

By Anne Field

With the recession hammering business valuations across the board, you’d think small business owners looking to buy a company would be in the driver’s seat, able to get their pick of the litter at bargain basement prices. But, the reality is a bit more complex.

For one thing, with bank lending to small business down, potential purchasers don’t have the access to capital they might need.  Then there’s the question of supply. Quite simply, “We see a lot fewer businesses for sale than most people would think,” says Mike Handelsman, general manager of, an online marketplace for small businesses. That’s because many company owners have pulled their firms off the market, preferring to wait until they’re more likely to sell at a higher price, according to Handelsman.

That’s what Hanson Ansary, who owns Global Management Services, a 22-employee events planning company, discovered recently. In an effort to expand into other areas in the hospitality industry, he bought two companies earlier this year, including a gaming company and a travel business. . But, according to Ansary, he found far fewer options than he thought he’d have.

In fact, in the case of the travel company, he ended up buying a business that didn’t meet all his original criteria. While he’d intended to purchase a firm that worked largely with corporate clients, he had to acquire one that did mostly retail business. As a result, he figures he’s going to have to spend more resources getting the company up to speed than he’d planned at first.

Still, there are plenty of opportunities, particularly among business owners looking to retire. “Some of them don’t care if they get less for the business than they might at another time. They just want out,” says Handelsman.

If you’re shopping for a company, here are some ideas to take into consideration:

Try seller financing or earn-outs. According to Handelsman, more transactions are being funded by seller financing, through which buyers pay sellers a percentage of the purchase price up front and the rest over a specified period of time, with interest. Another approach is to use an earn-out. In that case, you set certain  parameters—usually specific gross revenue, profit margin or net income levels– that have to be met annually for a period of two to three years. Then, you pay the seller a percentage of the total price if those benchmarks are met.  Usually, the seller also has to stay on as an employee for a period of time.

Earn-outs are also useful ways to protect against risk. That’s especially important in the current environment, if you’re buying a company with declining revenues. Richard Foster, owner of Foster Construction Management, a 15-employee New Hyde Park, NY company, is in the process of buying a company that recently experienced a drop in sales. To protect himself, Foster decided to finance the transaction partially through an earn-out, through which the seller will share in a sliding scale of profits over a five year period; for the first three years, the seller will remain on staff.

Don’t overlook the importance of integration. For an acquisition to be successful, you need to make sure you can combine the two businesses without too many hiccups.  “You can’t expect to just buy another company and fold it in,”  says Domenic Rinaldi, managing partner of Sunbelt Business Brokers, a business brokerage firm in Chicago. He advises company owners to “look for the gaps”. That could include anything from different accounting procedures that might not jibe, to an inefficient sales automation system likely to create inefficiencies and slow down operations.

Make sure you thoroughly understand how the economy will affect the future growth potential.   For example, the owner of a dry cleaner might decide to buy another firm in a less affluent area, only to discover that residents have cut back on their dry cleaning to save money.   In addition, investigate previous cut backs, to ensure your seller hasn’t made significant changes that caused real damage. Similarly, if you’re buying a business that’s experienced a sales decline, “Determine it’s just because of the economy, and not something systemic in the business that has caused business to drop,” says Rinaldi.

Anne Field is a Freelance writer, Business Insider

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The Home: A Great Place to Start – And Run a Business

August 2, 2011

August 2, 2011 –

Seriously considering your own home business?  You are not alone.

According to the Small Business Administration, over 15 million home-based businesses exist in the United States alone.  Many of these businesses account for more than half of an owner’s annual income.  Impressive!

Many advantages exist for the home business entrepreneur or homepreneur.  Lower costs, flexible schedule, tax advantages, and work-life balance are a few.


The Home: A Great Place to Start – And Run a Business

By Steve King

According to the SBA, there are over 15 million home-based businesses in the U.S.  And based on analysis of data from the Network Solutions Small Business Success Index (SBSI) and the SBA, around 6.6 million of these are serious home businesses providing at least half of their owner’s household income.

The home has long been viewed as a great place to start a business.  Lower costs are, of course, the key reason.  Many large enterprises such as Ford, HP and Apple Computer started as home businesses.

A recent SBA study of growth-oriented firms that began operations in 2004 shows that the home continues to be a great place to start.  About half of the growth oriented start-ups surveyed were home-based.  And almost all of these firms were still home-based 2 years later.

But the home is not just a great place to start a small business.  Data gleaned from the Small Business Success Index shows that homes can also be a great place to operate a business long term.  Data from the SBSI survey of home-based businesses that generate at least half of their owner’s household income shows:

·      On average these firms have been home-based for almost 10 years.

·      These home-based businesses score roughly the same as non home-based businesses in overall competitiveness.

·      These home-based businesses score as well on access to capital.

·      35% of these home-based businesses generate more than $125,000 in revenue; 8% more than $500,000.

Just as lower costs are a key reason for starting a business at home, they are also an important reason many small business owners keep their business home-based.

With technology making it cheaper and easier to start and operate a home-based business – and traditional employment harder to find – we expect continued growth in the number of home-based business start-ups.

For more information on home-based businesses, see Homepreneurs: A Vital Economic Force. (Note: this report is based on newly-released research that my firm, Emergent Research, conducted on behalf of Network Solutions.)

* * * * *

About the Author: Steve King is a partner at Emergent Research and a research affiliate at the Institute for the Future. He is a co-author of the Intuit Future of Small Business report series, and a Senior Fellow at the Society for New Communications Research. He blogs at Small Biz Labs.


7 Signs Your Business Is In Trouble

April 12, 2011

April 12, 2011

By Barry Moltz

Things change rapidly in life. Personally, this happened to me in May 1995 when I woke up with blurry vision. A few days later, I was diagnosed with diabetes. That day changed my life forever.

Small business fortunes can also “turn on a dime.” It’s a constant roller coaster where one day your company is on top of the world. Customers will buy anything, people are paying their bills on time and everyone wants to work for you. The next day, you can’t give your product away, your computer systems crash and your best employee leaves without notice.

Like people, healthy businesses can become “sick” very fast. This is why the stock market places so much emphasis on quarterly earnings reports. Things can change in a matter of months—more of this is likely to happen in the current weak economic recovery.

So what are the early signs that your business is in trouble?

1.   You do not understand how profit is generated in your business. Which products or services are the most profitable (not just the best selling)? Can they be divided into primary and secondary streams where one sale depends on the sale of the other? For example, in a software company, annual maintenance, upgrades or add ons will never sell if the original product isn’t first purchased.

2.   You do not know the gross margins of your major products (sales minus cost of goods sold). Remember, it is a lot easier to make money with an 80 percent gross margin than a 20 percent gross margin. In most service oriented businesses, gross margins must approach 50 percent to make a healthy bottom line profit.

3.   You do not know what your prices are based on. Are they set based on their value to customers, competitive pressures or historical trends? Do a sensitivity analysis to find out how much flexibility there is to charge more for the same products. Most small companies especially early in their life charge too little for their products rather for fear of being rejected and not having any customers.

4.   You don’t understand your cash flow statement. Every other financial statement can be “fudged” except for this one. You need to know exactly where cash comes from and how the money is spent. How much of the monthly profit reported on the income statement actually gets retained as cash in the business?

5.   You do not know how current your accounts receivables are. Find out your company’s biggest offenders. Remember that customer credit is a privilege, not a right, and it’s available only to those who earn it. A customer is only a customer when they pay.

6.   You don’t know if the problem your business solves is still relevant to your customers. If the nature of the pain for these customers is beginning to change or be substituted by other solutions, you may have a problem. For example, pay phones were needed when people wanted to make phone calls outside their homes. Portable cell phone technology killed this industry.

7.   You don’t know where and how you spend your time.You need to focus most of your energies on generating revenue for your company rather than on administrative duties. In fact, look at what the people in your company do who aren’t generating income and continually justify it. Escalating fixed overhead kills many companies when economic conditions change.

A Small Business Speaker, Consultant, and Author, Barry Moltz gets business owners growing again by unlocking their long forgotten potential. With decades of entrepreneurial experience in his own businesses ventures as well as consulting countless other entrepreneurs, Barry has discovered the formula to get stuck business owners out of their funk and marching forward. Barry applies simple, strategic steps to facilitate change for entrepreneurs, and get’s them growing their business once again.  See his work at .


8 Ways To Get The Most Out Of Excess Inventory

March 23, 2011

Homepreneurs, small business owners, and individuals have “inventory” sitting around in basements, garages, storage rooms, etc. These may be related to intended future projects, a business that didn’t work out or simply unsold product.

What to do with the extra “stuff” gathering dust and annoying your spouse, partner, employees or friends? The following article by Judith Aquino provides valuable suggestions for eliminating this problem and maybe bringing in some extra income. I would add that recycling unused metal products – steel, aluminum, copper, brass, etc – can result in a nice bonus. Want to make an extra $10, $20 or more? Consider taking all empty soda cans from employees or family members to local recyclers instead of putting them in your weekly recycle bin. Clean out those storage areas by donating usable goods to charities such as Goodwill, Salvation Army or AmVets. Keep track of donations and write it off next year’s taxes.  Goodwill provides a fair value list recognized by the IRS.


“Inventory is money sitting around in a different form,” writes Rhonda Abrams in, “The Rhonda Report.” And unless you can sell it, excess inventory can be a huge drain on your profits. This includes the cost of storing the stuff and the decreasing value of merchandise that’s perishable or becoming dated.

Here’s how to make the most of your excess inventory.

Sell it to an inventory liquidator

An inventory liquidator will buy your excess merchandise and re-sell it, oftentimes at a discount. There are several things to keep in mind if you decide to go with this option. First, make sure you know what the value is of your merchandise and how much you are asking for before entering into any negotiations.

If your inventory is particularly brand sensitive or includes other factors, then you also need to establish that going into the deal. “Even if the buyer gives you the highest price upfront, if they put your brand in jeopardy or compromise your current sales channels then you still end up losing,” warns InventoryBuyer.Net. Consider the cost of delivering your inventory to the buyer as well. If you need cash quickly, inventory liquidators can be helpful, but be aware of the risks.

Sell it online

If you don’t have enough to sell to a liquidator, try selling your excess merchandise through third-party sites. For single items, try listing products on eBay and Craigslist. Another marketplace for slightly larger quantities is

Give bulk purchase discounts

Motivate customers to buy more than one product or service by offering “two for one,” or “buy one, get one free” discounts for bulk purchases.

Start bundling

Similar to the bulk purchase, gather several products or services and sell them for an overall discount. Buyers often perceive this as getting more value for their money and it moves a lot of merchandise at once, notes Abrams.

Offer extremely steep discounts

We saw a lot of these when the last recession was at its peak. Products were put on sale for unbelievably high discounts, sometimes as high as 50 percent or more. Only offer this type of sale for a short period and avoid doing it regularly, otherwise you will find it difficult to sell anything at full price.

Use as rewards for customers

Repackage products that cannot be re-sold, such as flowers, fruit baskets, or other perishable items as rewards for your long-time customers or new customers.

Turn your excess inventory into gifts for references

Use your products or services as an incentive to get customers to bring their friends. Consider offers like “Get one free bag with each new client you refer to us.”

Give a donation for marketing purposes

If you absolutely cannot sell the products or services, donate them to organizations and turn it into a public relations event to raise your visibility. Some examples include donations to local community events, schools or libraries.


5 Tax Penalties You Can Easily Avoid

March 22, 2011

Would you toss a wad of cash into the wind and watch it fly away? Probably not. So why would you incur tax penalties that cost you money and aren’t even tax deductible? You shouldn’t. Avoid these five tax penalties and you won’t be caught watching your hard-earned money flutter away.

Late Filing Penalty

There are fixed deadlines for filing various tax returns and penalties for missing these deadlines. For example, if you fail to file your personal income tax return on time (this year it’s April 18, 2011), you are subject to a late filing penalty. The penalty is 5 percent of the tax due for each month you’re late, up to a maximum of 25 percent. If the return is more than 60 days late, the minimum penalty is the lesser of $135 or 100 percent of the tax due. For partnerships and S corporations, the late filing penalty is $195 for each month or part of a month the return is late, multiplied by the total number of owners during any part of the year, up to a maximum of 12 months.

How to avoid the penalty: If, for any reason, you cannot file on time, request a filing extension by the return’s due date. For individuals and partnerships (including most limited liability companies), the filing deadline for the 2010 return is April 18, 2011.

* Individuals (including sole proprietors and one-person limited liability companies) can request a six-month extension (to October 17, 2011) on Form 4868.

* Partnerships can request a five-month extension (to September 15, 2011) on Form 7004.

The filing deadline for corporations (both C and S) was March 15, 2011. Corporations can request a six-month extension (to September 15, 2011) on Form 7004.

Late Payment Penalties

Federal income tax is due on the return’s original due date, regardless of any filing extensions. The late payment penalty is 0.5 percent of the tax due; the maximum penalty is 25 percent. In addition, there are interest charges for late payments.

How to avoid the penalty. Pay the tax on time, even if this means requesting an installment payment agreement on Form 9465 or by charging the outstanding amount to a major credit card (find authorized credit card processors).

If you fail to pay on time, you can still avoid the penalty by showing reasonable cause for the lateness. Reasonable cause includes having paid (through withholding, estimated taxes, and additional payments) at least 90 percent of the taxes due.

Estimated Tax Penalties

If you are self-employed, you probably need to pay estimated taxes to cover your payments for the year. Payments are due four times each year; you cannot wait until you file your return to make a single payment. If you fail to pay minimum amounts, you are subject to underpayment penalties. Essentially, this is an interest charge that is adjusted each quarter. The rate for the second quarter of 2011 is 4 percent.

How to avoid the penalty. Figure estimated taxes based on one of two safe harbors by paying the following amount over the four installments:

* At least 90 percent of the taxes due for the current year.

* At least 100 percent of the taxes shown on the return for the prior year (110 percent if your adjusted gross income in the prior year was more than $150,000 or more, or more than $75,000 if married and filing separately in the current year).

Note: Different percentages apply to farmers and fishermen. Consult a tax professional.

Late Employment Tax Deposits

If you have employees in your business, you have certain payroll tax responsibilities. This includes withholding income taxes and the employee share of FICA (Social Security and Medicare taxes) from their paychecks as well as paying the employer share of FICA and the FUTA (federal unemployment tax). If you fail to deposit these taxes with the government on time, or if you deposit less than the full amount owed, you are subject to a penalty ranging from 2 percent to 15 percent; the quicker you make the late deposit, the lower the penalty rate will be.

How to avoid the penalty. Make deposits using, which is a free electronic payment system. You can schedule your payments in advance so that they are automatically transferred from your bank to the U.S. Treasury on the due date.

Note: Very small employers – those permitted to file Form 944 because their annual payroll taxes do not exceed $2,500 – can pay the taxes with their annual return.

Late Sales Tax Deposits

If your state levies sales taxes, you must collect them and pay them in a timely manner. Each state has its own rules regarding payments and penalties. Even though you do not actually pay the sales tax – your customers do – you must transfer the funds to your state or face penalties.

How to avoid the penalty. Learn about your sales tax obligations from your state.

Late Information Returns

In the course of your business, you are required to provide various information returns, such as 1099s, to the IRS and to service providers and others. If you fail to do so and do not have reasonable cause for the failure, you are subject to a penalty. The longer you fail to file or submit full information, the greater the penalty (explained in instructions for certain information returns).

How to avoid the penalty. Learn which forms you are required to file. If you discover that you failed to submit a form on time, correct your mistake as quickly as possible to minimize penalties.

Bottom line

Work with a knowledgeable tax professional who can help you meet your filing obligations and avoid penalties. Money spent avoiding these and other tax penalties is definitely not money thrown into the wind.<br></br>
By Barbara Weltman<br></br>
Barbara Weltman is an attorney, author of several business books including J.K. Lasser’s Small Business Taxes, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and her monthly e-newsletter Big Ideas for Small Business®; both are available at, and host of Build Your Business Radio. Follow her on Twitter @BarbaraWeltman.


How to Maintain Positive Cash Flow During Hard Times

March 11, 2011

When it comes to cash flow, small business owners often find themselves in a reactive cycle. Each month starts with the hope that they will come out ahead after payroll, inventory purchases, and other overhead. When that happens, all is well with the world.

On the flipside, when they come up short, panic blankets the business as the owner frantically scrambles to make ends meet. This cycle can prove exhausting and demoralizing.

“Instead of letting cash flow just sort of happen, it needs to be budgeted for and actively managed,” says Ted Hurlbut, principal of Hurlbut & Associates, a business management consultancy in Foxborough, Massachusetts.

Managing your cash flow sounds like a great idea, but in today’s tough times, it is possible?

Absolutely, according to Hurlbut. Here are a few of his top tips for maintaining positive cash:

Create a sales forecast

This can be hard to do in the beginning, but after running your business for a few months, you’ll have a good idea of how sales will stack up month to month. If you are a retail shop owner, take a look at your inventory. Which items move quickly? Which items have been gathering dust for a while?

“You really need to have a benchmark for what you think will happen,” Hurlbut says. “Forecast out by month, category and what revenue you anticipate based on history—the more detailed the better. Just write it down on paper. These forecasts can end up giving you the budgets to make purchases for your business.”

Devise an inventory management plan

Once you’ve finished writing out your sales forecast, its time to think about inventory. It’s important not to go overboard when purchasing inventory, says Hurlbut.

“Less is more,” he says. “Lean inventory means that you are not investing precious cash in unnecessary, excess inventories.”

Keep your markups

Times are tough, which means small business owners should consider slashing prices, right?


Major markdowns will only have a negative affect on your cash flow. If you must mark something down, make sure you can recover that loss with the price of other items.

“Manage your markups,” Hurlbut says. “Markups erode when vendors try to raise prices. It is easy not to pass on that cost increase fully and maintain your margins.”

Plan pre-season to maintain margins

Markdowns usually happen for one of two reasons: 1. The business owner is fearful that the customer will not support prices 2. The business owner has excess inventory he or she needs to shed quickly to maintain a positive cash flow. In the case of No. 2, pre-season planning is essential.

“The way to prevent excessive markdowns is a pre-season commitment to lean inventories,” he says. “Take the big box stores as an example. Last year, there was a lot of talk about how these chains were reducing their inventory levels around the holidays. They were trying to protect their margins. The benefit? The cash never left the account, so they never had to mark anything down.”

Manage cost structures

Fixed costs can kill cash flow, while variable costs can help businesses stay in the red. If you have five employees on salary your monthly payroll expenses are considered fixed costs. If instead those five worked part-time or even flex time, payroll would be a variable cost, which is better for the business’s bottom line, says Hurlbut.

Rent and utilities can also be translated into variable costs. “If you are going through a rough patch, talk to your landlord; they may be willing to work with you,” he says. “Also, try to find a different plan from our utility provider. These strategies can free up a lot of cash flow.”

By Katie Morell

Katie Morell is a writer and editor based in Chicago.

Over the past 10 years, Morell has covered topics ranging from business and politics to travel and social justice.

She is a member of the American Society of Journalists and Authors (, and a graduate of Michigan State University’s School of Journalism.


Protect Your Business and Your Family from Yourself

March 7, 2011

According to the latest data from the Bureau of the Census, there are roughly 5.9 million businesses in the U.S. Virtually all of these can be considered “small.”  Only 18,469 (or less than one-third of one percent) have more than 500 employees.  Even getting to several dozen employees is a feat worth of recognition:  over 89 percent of businesses have 20 employees or fewer on their payroll.  Despite the diversity in industries, resources, location ,and stage of growth, “the 89 percent” have one thing in common: you.

When the indispensable disappears

By you, I mean an owner who is an indispensable part of the business.  What would happen to your business if you suddenly disappeared for a day? How about a month?  And what if you never came back?  Could your business continue where you left off, or it would simply collapse and disappear into the annals of failed ventures?

Most owners are so busy trying to grow their businesses that they don’t even consider what would happen to that same business if they were to die or become suddenly and permanently incapacitated.  Those that are brave enough to entertain the discussion of their untimely demise do so using the conditional “if I die” instead of the certain “when I die.”  For everyone, it’s “when.”

Significant impact on family business

The odds are quite good that as a business owner, most or all of your wealth is tied to your business.

The odds are also that your family may not have sufficient life insurance to stay protected.  If they are counting on your stake in the business to provide for them, that may not be realistic if the value of the business dies with you.

Depending on the study cited, it’s estimated that most small business owners typically have anywhere from 60 percent to 100 percent of their net worth tied up in their business.  The exit strategy is typically a partial or complete sale of the business at some unknown point in the future.

According to a recent study by LIMRA, a leading market research company focused on the finance sector, only 44 percent of U.S. households currently have life insurance. That’s a 50-year low.  One-third of affluent families admit they don’t have sufficient life insurance to cover their needs and maintain their family’s lifestyle if the main income provider were to die.

The impact of not planning for your death has significant repercussions.

Take action to protect your personal and business interests

It’s time to protect your business and your family from yourself.

1.  Revisit the terms of your personal life insurance policy and make sure it’s up to date.  Are the beneficiaries correct?  Is the value of the policy sufficient to maintain your family’s current lifestyle until the youngest child graduates college?  Are big-ticket items like college tuition and mortgage balance payoff included?

2.  Shop around.  Term insurance rates have become increasingly affordable in recent years.  Additionally, more sophisticated insurance products can also serve as tools for more complex estate planning requirements.

3.  Have your business purchase a “key person insurance policy.” Commonly known as “Key man” insurance policy (they really should update that…), these policies are purchased by your company, the premiums are paid for by the company, and the beneficiary is the company.  This has several important uses.  First, it provides the company with a financial cushion to survive the death of its owner.  If there are partners, then it is very important to also have a “buy-sell” agreement.  This agreement states that upon the death of a partner, the business has the right to buy out the deceased partner’s equity.  The proceeds of the key man policy are used to fund the acquisition of the ownership stake.

4.  Prepare a secure file offsite with all of your passwords, account information, and file access information.  With most key information locked away behind password-protected software, it’s critical that someone knows how to access your e-mail and file directory. You can keep this information with your attorney.

5.  Have a contingency plan in place for your operations. Spend a day every six months making sure it is up to date and that key people are aware of what should take place when you die or are incapacitated.

6.  Delegate! Stop being the only “key person” in your company.  Give others a sense of ownership by making them responsible for important areas of your company’s operations.  This is good advice, even if you don’t go anywhere for a long time.

By Mike Periu
Mike Periu is a leading national voice for empowerment through financial education.
Mike is a proven entrepreneur and business leader with extensive expertise in corporate and personal finance and work experience that encompasses international business, marketing, finance and management. He has started 3 companies in the past 10 years and is now dedicated to helping other entrepreneurs achieve their full potential.
Mike Periu reaches over 10 million people every week with his message of self-empowerment through financial dicipline and entrepreneurship. He has established a solid and continually growing multimedia platform focused on small business owners and entrepreneurs.


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