Articles and Data Relating to Your Business and Coronavirus

Articles and Data Relating to Your Business and Coronavirus

Harvest Business Advisors have created this collection of current articles that may be of interest to sellers, buyers, business owners and advisors relating to Coronavirus, industry and the economy.

We are always available to discuss how this might impact you, those close to you, and your business.

We hope you find these helpful.


Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver a high price as part of a smooth exit transaction.
Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia.
Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

More on SBA PPP and Disaster Recovery Loans

More on SBA PPP and Disaster Recovery Loans

Update on Small Business Administration Paycheck Protection Program (PPP) and Other Disaster Recovery Loans

Last Friday, April 24, 2020, President Donald Trump signed the next coronavirus relief bill providing another $310 billion in funding.  The Paycheck Protection Program (PPP) loans feature forgivable 1% interest loans for companies with up to 500 employees.  The loans are forgivable if certain payroll payment conditions are met totaling at least 75% of the money lent.

If you have not applied, Google your bank and call your business contact.  Apply today as funds will run out quickly.

We’d like to share an exceptional webinar featuring Al Titone, SBA District Director sponsored by the New Jersey Business Industry Association  (NJBIA) on the topic for those who want to know more on this topic.

‘A Business Owner’s Guide to Loans’, Al Titone, SBA District Director of New Jersey, joins Robbin Caruso and Edward Rigby (of Prager Metis)  to demystify the SBA Loan process. Titone discusses key features of the loans available to the business community.


Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver a high price as part of a smooth exit transaction.
Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia.
Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

Harvest Business Advisors: March Newsletter

Harvest Business Advisors: March Newsletter

The latest Harvest Business Advisors newsletter has just been released

Click Link for March Newsletter

We are excited to share the news that one of our businesses has sold!  In addition, our website has received a bit of an upgrade. And we still have excellent businesses for sale.

As always, feel free to contact any of the Harvest Business Advisors team at 877-838-4966 for more information – or to discuss your plans for your business.

Would  you like to receive the Harvest Business Advisors newsletter directly to your inbox?  Just complete this simple sign-up form: http://bit.ly/HBA_newsletter_signup


Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver a high price as part of a smooth exit transaction.
Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

 

Taxation of Earn-Outs in Mergers and Acquisitions

Tax  Points – Below is a summary of the tax treatments of earn-outs.  Remember, every situation is different.  These are general guidelines and not specific advice.  Do not enter into any transaction without review of tax issues by competent tax advisors.

Connect with Harvest Business Advisors today – email info@harvestbusinessadvisors.com or call 443.334.8000

  1. Income tax treatment for the seller – earn-outs are recognized by the tax rules as an “installment sale” meaning that each payment received by the seller includes two components:
    a. a portion of the “basis” is recovered (not taxed) and
    b. a portion of the “gain” is received (taxed).
    c. Some assets are excluded from the earn-out treatment, notably inventory and depreciable assets subject to depreciation recapture requirements.  For these asset classes, the gain is recognized in the year of the sale, regardless of payment terms.
  2. Earn-out Contingencies – the final purchase price for a deal that has an earn-out component is not known at time of sale; it is “contingent” on some future event(s) as defined by the earn-out agreement.  Examples of earn-out contingencies are:
    a. meeting specified, agreed upon financial targets (gross revenue, gross profit, EBITDA etc),
    b. customer retention,
    c. contract renewals.
    d. The final purchase agreement will include the formulas used to determine when the terms and conditions of the earn-out are satisfied and the seller gets paid.
  3. Final Purchase Price Determination – the final purchase price agreement will include the language regarding when the final purchase price is going to be determined.  The final price can be:
    a. Stated at a maximum price,
    b. Determined within a defined period,
    c. No maximum price and no defined period
  4. Interest on seller financing – remember that earn-outs are really a form of seller financing during the earn-out period.  Therefore, interest must be separately stated; if not, a portion of the deferred payment could be reclassified by the IRS as interest
  5. “Opt out” provision – this is a non-revocable election made by the seller meaning that if the seller has a change of mind and wishes to revoke the opt-out election, the IRS must approve it first.  The “opt-out” provision can only be elected n the year of sale.  If the election is made, then the the fair market value of the contingent payments are taxed in the year of sale, even though the cash is received in subsequent years.
  6. Depreciation and amortization – this applies to the buyer.  Depreciation and amortization begin when the payment is made, not when the deal is closed, meaning the tax benefits of depreciation and amortization are deferred until such payments are made
  7. 2013, New tax consideration – effective 2013, subject to various tax thresholds, there is a new tax of 3.8% imposed on the “net investment income”.  The definition of “net investment income” includes the disposition of interests in partnerships and s-corporations.  Point is, there is a new tax in town to consider.
Ed Davis, CPA, CVA
Harvest Business Advisors
Business Brokerage, Business Valuation, Transaction Planning
301-325-7687
www.harvestbusiness.com

How Your Balance Sheet Affects Your Business Sales Price and Business Value in Merger and Acquisition Transactions

Or, In Business Planning such as: Business Mergers and Acquisitions, Business Valuations,  M&A Business Valuations, Exit Planning, Succession Strategies, Business Strategic Planning, Business Brokerage, for Companies Such As, Construction Contractors, General Contractors, Engineering Companies, Sub-contracting Companies, Distributors and Supply Houses, Service Firms, how your balance sheet will affect your ultimate business sales price.

Connect with Harvest Business Advisors today – email info@harvestbusinessadvisors.com or call 443.334.8000

 We mainly focus on the income statement in order to determine earnings and company value.  But your balance sheet is an essential component of any transaction.  This article will briefly address how your balance sheet impacts your business market value in the sales process.

 A strong balance sheet can keep you in business in tough times.  That can be true in business sales also.  After all, if you are running out of cash or have had a loan called – how strong is your negotiating position?

 When selling any business the theory is that the buyer should get the assets necessary to produce the income that they are buying.  These assets may be trucks but they may also be cash and receivables (working capital).  Just like when you sell your house and pay off your mortgage (whether it is more or less than the sales price) debt will be paid off by the seller out of the sales proceeds or at least count as part of the sales price. 

 General balance sheet tips – Have cash.  Manage accounts receivable.  Try to collect as rapidly as possible.  Put systems in place to collect.  This includes making sure your requisition package is complete, all insurance certificates are current and whatever else is required.  Keep inventory as low as possible.  Do you really have savings after handling, storage, loss, etc. from buying in bulk?  The squeaky wheel does get the grease.  Manage accounts payable.  You must pay but do your best to obtain extended terms when possible.  Keep bank debt to a minimum if possible.  I was once told and the saying has never failed me, “A banker is someone who gives you an umbrella and when it starts to rain asks for it back.”

 Have lines of credit but do everything you can to not NEED to be in them.  Keep physical assets in good repair but do not overinvest in the 3-2 years before a sale.

 If you have real estate owned by your company (review with your advisors then in 99% of the cases) get it into a stand-alone entity now.

 In this time of low profits and high receivables many businesses – particularly many contractors are worth more dead than alive.  Namely many contractors have more due to them in accounts receivable than the value of their company.  A market buyer will not give them a price as high as the accounts receivable.   An uncomfortable place for any owner to be.

In summary, maintain a strong balance sheet with plenty of current assets and working capital in order to strengthen your negotiating position in a business sale and tide your company through any short term rough waters. 

 

 Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver the highest price in the smoothest sale transaction possible. Harvest provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

 

Revisit, Rethink, Recharge, Restart

Teamwork … it is the fuel that allows common people to attain uncommon results” 

                                                                                                         —  Andrew Carnegie

Good news – no more daily updates about the “fiscal cliff”.  It’s over, done, finished. What drama!

Back to the business of sales and acquisitions.  A study* was published last year that rated the challenges buyers and their advisors face when working on an acquisition. The findings were based on input from 70 participants who were experienced, motivated and wanted to do deals. Conclusion: there is no “silver bullet” in getting deals done, but the study emphasized several good learning points.

We’ve summarized the results below in the following format:

Challenge topic
Rated: two ratings – buyer followed by advisor
Comments

          Note: the ratings range from 1-5 (1=very easy, 5=very difficult).

We hope this helps you, buyers and sellers as you revisit, rethink, recharge and restart your own exit planning goals.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

Study Results:

Acquisition Strategy
Rated: 3.7 and 3.8
Comments: key driver of alignment between buyers and advisors; if unrealistic, the plan is too general and not enough emphasis on action-related tasks.  Post-closing success begins with good strategy and planning.

Deal Flow 
Rated: 3.6 and 3.7
Comments: access to deal flow is a conscious effort combining communication and networking skills, strategy articulation and identification of real opportunities.  Prospecting and follow-up are very time consuming.

Team Formation
Rated: 3.3and 3.7
Comments: teams must rise to times that demand intensity, coordination, trust and candor. Find external advisors you can trust, not those just trying to get any deal done.

Engaging Sellers
Rated 3.3 and 3.6
Comments: key to the deal, knowing the sellers and their advisors motivations: i.e. the key sellers’ “drivers”; “Staying in constant contact until the moment is right”.  Sellers tend to over-value their business and are not prepared for requests during due diligence.

Business Valuation
Rated: 3.8 and 3.5
Comments: sellers place less reliance on market comparables then do lenders and advisors. The challenge is how the comparable being used relates to today’s market. Understand the 2 or 3 key value drivers and test them during due diligence.

Financing
Rated: 3.8 and 3.7
Comments: banks focus on projections, track record, relationships, a clear understanding of the opportunity given the level of risk, management team and experience, the strategy behind the deal and the integration plan.  No company should start the acquisition process until they have financing to affect the acquisition strategy.

Negotiation
Rated: 3.7 and 3.6
Comments: it;s one thing to agree on a price (“hand shake”); the potential for the deal to derail is real during this process. The absence of experienced advisors is a common source of deals that fail.  Most targets retain less experienced advisors,making the negotiation and documentation process very painful at times.

Due Diligence
Rated: 3.6 and 3.6
Comments: due diligence needs to focus on valuation of the target and how uncertainties can best be handled in the final purchase contract.  The challenge is not with the information; it’s the lack of information the target does not have.

Post Sale Integration
Rated: 4.2 and 4.0
Comments: this item received the highest rating by a significant margin. Integration plans should begin at the very beginning of the acquisition process. Misplaced optimism, overconfidence in the deal and confusion with senior management surface.  Acquisitions often involve competitors who add to he mistrust and anxiety. 82% of participants rated this as “challenging” to “very challenging”.

Final thoughts and comments from the participants

“Acquisitions are difficult – finding the right acquisition targets, managing egos and continuing to run a business during the acquisition process…”

 “Plan on more details and value the experience of your team and advisors. Successful acquirers are those who have made multiple acquisitions.”

 “The use of politeness, graciousness (towards the other side) and humor are greatly undervalued in acquisition settings.  Relax and be polite.”

 “It would be valuable for a soup-to-nuts service from strategy through integration.”

 *Study: Joseph Feldman, Feldman Associates 2012

Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver the highest price in the smoothest sale transaction possible. Harvest provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

 by Ed Davis, Partner