by Jill Kerr | Oct 20, 2022 | Blog, Buying A Business, SBA - Small Business Administration
BY:
Nimi Natan
Division President & CEO
Gulf Coast Small Business Lending
As a small business lender, I get many questions regarding the state of economy. In the past few months, the overarching theme has been: “should I buy or start a business now and if so, how?” Our economy is facing a near unprecedented number of stress points including persistent inflation; recessionary pressures; high interest rates; supply-chain interruptions; and labor shortages. For the foreseeable future, we will likely experience declining sales and profits. Fortunes are made in times like these so it is absolutely a great time to invest. Good businesses are available to purchase at reasonable prices, vendors are more interested in extending terms and opening new accounts, and while more difficult to find, financing is available.
My suggestions, featured below, are relevant for strong and weak economic conditions; however, the challenges today require a level of precision that is not as critical in a growing economy.
First, buy a good business. It seems obvious, but keep in mind that now is not the time to attempt a turnaround. A good business has decent margins, diverse customer base, tenured staff, and no extraordinary working capital, and/or capital expenditure needs. An established franchised restaurant, for example.
Second, don’t overpay. Small businesses with good margins and growth rates are worth up to 4-5X cash flow, based on average cash flow for the past four to five years. Businesses with proprietary technology or unique and recognized brands are worth 6-8X, with more commodity-type businesses worth 3-4X. Enlist the help of an accounting professional to go over the financials and scrutinize add backs.
Thirdly, finance conservatively. A strong balance sheet is critical for surviving the next few quarters. Use more equity even if it means bringing in partners. Rely on conventional and/or SBA financing, and DO NOT use hard-money and MCA lenders. If the seller offers financing, insist on conventional terms and be prepared to have it subordinated to conventional lenders. If you find that you must use aggressive financing, it is a sign you are overpaying or swallowing more than you can chew and you should consider walking away.
Next, don’t forget working capital. We see it again and again. Buyers think that income and EBITDA or broker’s SDI equate to free cash flow. For most businesses, that’s not even close and you must incorporate the working capital and capital expenditure needs into your projections and financing. If you are not sure what all this means, ask an accounting professional to help you project cash flow.
Lastly, pursue operational excellence. This one also might seem obvious; however, you should only invest in a business you fully understand and in line with your experience. This is critical for assessing the opportunity as well as running the business. If you find a business you think you love but lack the experience, consider bringing in an operational partner.
In conclusion, I’ll use an analogy: you are about to board a ship headed into a storm of unknown magnitude. Be sure that the boat is sound and gassed and that the captain (you!) is experienced. Doing so will give you the best possible opportunity to achieve entrepreneurial success.
For more information about Gulf Coast Small Business Lending, please contact:
Jim Frey, SVP – Business Development Officer
Gulf Coast Small Business Lending
Office: (724) 259-3182
Mobile: (724) 600-4409
by Harvest Business Advisors | Apr 27, 2020 | Business Financing, Harvest Business Advisors Team, Newsletters, SBA - Small Business Administration, What's New
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.
by Harvest Business Advisors | Apr 14, 2020 | Blog, Business Financing, SBA - Small Business Administration
Paycheck Protection Program
Currently the Paycheck Protection Program is out of funds. It is likely that Congress will approve more funds. It is not clear when.
The Paycheck Protection Program overall allows for the payment of 2.5 months salaries, rents or mortgages, and utilities and will be forgiven if certain conditions are met.
Forgiveness is based on maintaining salary levels. The unforgiven portion has a 2 year maturity and an interest rate of 1%.
Salary is fairly broad and includes wages, cash tips, commissions, health care benefits, insurances, vacation or sick leave, retirement benefits and state and local taxes assessed on the compensation of the employee.
It is capped at $100,000 per employee and the employee must be in the United States. Benefits can be above the cap.
Details are provided below.
To prepare for the application process:
- 2019 financials and federal payroll filings (940, 941) need to be in good order.
- Some banks may request W-3’s and W-2’s.
- Leases, invoices or bills for utilities and other source documentation must be provided.
- If you are self-employed, tax returns and 1099’s from clients will be required.
More comprehensive information can be found at the Small Business Administration website.
Economic Injury Disaster Loan Emergency Advance
The Economic Injury Disaster Loan Emergency Advance is a $10,000 advance directly from the SBA that does not have to be repaid.
The Company must meet SBA size tests or have less than 500 employees. At least one source indicated that the advance will be given at the rate of $1,000 per employee.
The Company can be a charity, church, business, or self-employed person.
The loan application requires tax returns and evidence of harm. The loan amount is make-up for the harm. It is unclear from summary information how that will be calculated.
A summary with a reasonable level of detail is available here.
Please feel free to reach out to us with questions or issues. We have many resources available and can easily refer you to the appropriate expert if necessary.
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.
by Harvest Business Advisors | Apr 6, 2020 | Blog, Business Broker 'Bites', Business Financing, Home Page, SBA - Small Business Administration, What's New
April 5, 2020
We wanted to share some of the reliable resources and information we’ve found most useful as we’ve researched the CARES Act for our clients.
The CARES (Coronavirus Aid, Relief, and Economic Security) Act was passed 3/27/2020. It is a $2.2 stimulus package t- You are likely getting multiple notices about it from multiple sources. Please work with your accountant and/or lender for information that is current and applicable to your particular situation.
For an overview please read this New York Times article, “FAQ on Stimulus Checks, Unemployment and the Corona Virus Plan ”
In addition, we recommend The Small Business Owner’s Guide to the CARES Act from the US Senate Committee on Small Business Entrepreneurship
Paycheck Protection Program Loans
The Small Business Administration has detailed information about their Paycheck Protection Program – you can apply for amounts equal to 2½ months of average payroll.
The funds can be used for payroll, benefits, mortgage, rent, and utilities. Interest rates are capped at 4%, and the loans can be partially or fully forgiven if the business maintains certain employment levels.
While the loan program was expected to be live on Friday, April 3, we know that most banks are still putting the program in place. Most should be ready for your application business on Monday April 6. This specific program appears to be a first come, first served until the funds run out; don’t wait! Start today.
Reach out to your existing bank relationship first, many, if not all banks will process existing clients before accepting new applications.
Payroll Taxes
Businesses can generally defer payment of employment taxes in 2020, with half due by the end of 2021 and the other half by the end of 2022. Some companies severely affected by the coronavirus may be eligible for a credit to reduce those taxes. Please consult your financial advisor for details.
SBA Overview of Assistance: Provided by the Small Business Administration, this COVID-19 Relief for Small Businesses guide is comprehensive and current (as of today!) and an excellent resource to help see the big picture of Small Business assistance programs.
Bottom line:
- Connect with your accountant and your bank.
- Prepare your financials documentation, especially payroll documents.
- Don’t delay – act as soon as possible.
- But be patient – every one is learning and finding their way with this very new legislation.
There are sure to be revisions and new programs. Stay informed and stay healthy.
And we cannot emphasize this enough, if you would like to reach out to any of us to discuss these programs, we are happy to talk with you, share what we know and help you plan.
Greg Caruso (GCaruso@HarvestBusiness.com) 609-664-7955
Ed Davis (EDavis@HarvestBusiness.com) 301-325-7687
Richard Stopa (RStopa@HarvestBusiness.com) 703.307.1187
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.
by Harvest Business Advisors | Mar 31, 2020 | Blog, Business Financing, Home Page, Maryland, Richard Stopa, SBA - Small Business Administration, Virginia, Washington DC
The Small Business Administration now has a page on their website dedicated to Small Business
Guidance and Loan Resources regarding Coronavirus (COVID-19).
There you can quickly access information about:
Each local region also has resources available:
Maryland District Office
New Jersey District Office
Pennsylvania (Eastern) District Office
Virginia District Office
Washington Metropolitan District Office
In addition, the SBA is also offering regular webinars on applying for SBA Disaster Loans.
Be certain to check with your local and state Economic Development Administration for additional
support and resources. Many are offering grants to help businesses weather this crisis.
We are reviewing the CARES Act passed by Congress and will more to share about that legislation and
how it may benefit businesses very soon.
We hope you and your family and your employees are doing well and doing what you can to “flatten the
curve” to shorten this down time and return to normal soon. We are here and would be happy to
connect if you need to talk.
Clients choose Harvest Business Advisors for our sage advice on profitably growing their business, accurate business valuations, and when the time is right, a 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.
by Harvest Business Advisors | Mar 24, 2020 | Blog, Business Financing, Exit Succession and Planning, Home Page, Maryland, Richard Stopa, SBA - Small Business Administration
Over the past several weeks I’ve been talking to business owners who are either current, prospective or past clients of mine about how COVID-19 is affecting their business.
I’ve been telling them while the number of buyers seeking information about businesses that are currently for sale has declined over the last several weeks, for the first 12 weeks of 2020, economic indicators consistently signaled a strong and growing economy. Rate of inflation has been: LOW. Unemployment rate has been: LOW. Housing demand is: UP. Consumer Spending is: UP.
Depending on the industry, some businesses, like commercial construction, accounting service firms, B2B and B2C services, certain IT sectors, and government contractors are still doing well continuing work on current jobs and submitting bids on future work. Other business owners, however, are now feeling the effects of COVID-19 on their business.
So, what should a seller or a potential seller of a business do until the COVID-19 curve flattens out and this problem virus is history?
-
- Continue running the business hard, fast and lean.
- Call and talk to all your customers. Ask how the virus is affecting them.
- Prepare a short-term cash flow forecast.
- Review your short-term business plan.
- See if your company can provide services and/or products to support the fight against COVID-19.
- Review your bank covenants.
- Contact your bank and other financial providers and obtain their continued support. In addition, financing and other assistance is being offered at the Federal and State levels.
- If you were planning on selling your business this year, prepare and place the business on the market now since it may take up to a year to locate the right buyer as the economy improves. Also, many people who have lost their jobs due to the virus will be considering buying a business as an option to finding another job. Banks are still lending and the U.S. Government, through agencies like the Small Business Administration and the Veterans Administration, as well as state governments will have programs to help buyers purchase small businesses. This helps both sellers and buyers.
- Connect with me at Harvest Business and let me help you if I can. Even if you just want to talk, I’m happy to have a conversation.
If you have a good business with consistently solid financials and strong business attributes now is a good time to think about your exit plan and perhaps even begin preparing to put your business on the market. Whether you want to sell your business now or at some later time, my best advice is to stay focused, keep going and use this time to plan for the future.
(If you find yourself with a little time, we wrote an ebook – “Ten Ways To Increase the Value of Your Business Before You Sell” – that might be the perfect thing to read!)
This post was written by Richard Stopa, Harvest Business Advisors Partner
Richard Stopa
Partner
Rstopa@HarvestBusiness.com
703-307-1187
