How to set up a business|for busness people
Sep
30
energyquotenet asked:
Everyone has some business acquiantance that can help others to do successful business.
Everyone has some business acquiantance that can help others to do successful business.
How to let all of them know each other.
Fee based business acquitantance service may do it.
Big business service ? Profitbale business service ?
Let me know.
Great thanks.
Colin
Sep
25
watercoloursfmr asked:
I am trying to get a business up and running from home that makes me some quick cash.
I started a tutoring business and it has a few students , but it does not make alot of money. I thought cleaning apts for people would be cash and no responsibility except to do a good job in three hours and go on to the next house . I need to get some cash flow going as I lost my job 5 months ago and need to replenish my funds that I am using from my savings. I posted a few ads on the free websites on the Internet and now I will post a few in grocery stores. What would be a good place to get more ads seen by local people in Canada. I am located in Toronto Canada.
Is it a good business to do apt cleaning??? When mornings? Evenings??? For Adults or Seniors????
Don
I am trying to get a business up and running from home that makes me some quick cash.
I started a tutoring business and it has a few students , but it does not make alot of money. I thought cleaning apts for people would be cash and no responsibility except to do a good job in three hours and go on to the next house . I need to get some cash flow going as I lost my job 5 months ago and need to replenish my funds that I am using from my savings. I posted a few ads on the free websites on the Internet and now I will post a few in grocery stores. What would be a good place to get more ads seen by local people in Canada. I am located in Toronto Canada.
Is it a good business to do apt cleaning??? When mornings? Evenings??? For Adults or Seniors????
Don
sullivan_vl asked:
I am a writer who has filed business write-offs on my personal tax return for 5 years as per the law. I have not made profits in those years. I have been advised by my accountant that tax regulations do not favor my continuing to file business write-off because I have not made a profit so should close out the writing business. How do I go about filing my taxes now? Do I just ignore the past years write offs as thought they were never deductions?
Madeline
I am a writer who has filed business write-offs on my personal tax return for 5 years as per the law. I have not made profits in those years. I have been advised by my accountant that tax regulations do not favor my continuing to file business write-off because I have not made a profit so should close out the writing business. How do I go about filing my taxes now? Do I just ignore the past years write offs as thought they were never deductions?
Madeline
Sep
21
Filed Under (Make Money) by
Willard Michlin asked:
There are many different ways to work out the value of a business. For the small to mid-size business, there are 3 main approaches that are used more than others. These are the Income value, Market value and the Asset value.
In brief, these would be described as follows:
Valuation based on income: One is looking at the potential earning power of the business into the future. Past earnings, expected future growth, owner’s compensation adjustments, and specific risk factors, such as customer concentration, weak management and lack of diversification are all taken into account when income based valuations are used.
Market Valuation: This method of valuing a business is similar to the way one values a house when selling it. What is being looked at here is what the market will pay for the business in question. Basically, one collects information on the sale of comparable businesses within the industry that the business is in. “Rule of Thumb” information is just a summary of many businesses sold with a million variations not being taken into consideration.
With both income valuations and market valuations, we will determine two different price multipliers. One is price divided by gross sales and the other is price divided by earnings. The applicable price multiple is selected primarily on the profitability of the business. For example, a business with high profits would have a higher price multiple applied to it. A business with low profits would be assigned a lower price multiple. When using this approach, one gets a more accurate result when one uses a minimum of at least a dozen comparables of similar type businesses.
Asset valuation: This valuation procedure assumes that a business is worth the fair market value of its tangible (physical) assets plus its intangible assets. Then from these total assets, liabilities or debts are deducted. To value a business that has intangibles, several methods are used. The method that is most employed in this area is the 5-step excess earning calculation. We will not go into the details of how this is done; we are only explaining that there is a method and giving a quick explanation. Do not try to use this method without taking classes or seminars training you in the details of this procedure. IBBA has classes on this subject.
This calculation deals with tangible assets, intangible assets, liabilities and adjustments thereof, to arrive at an estimated value for the business. It figures out what the reasonable return, on the assets, of the business, should be. If the profit is greater, than that number, it is an indication that the business has some intangible assets, which are generating the excess profit.
If the company in question is making little or no money then there will be no intangible assets. When this is the case, the asset valuation method is usually used. This is the case because when a business has capital tied up in equipment and other tangible assets the other valuation methods will come up with a price way below the actual asset value, without considering any good will. Goodwill is not considered because there is no goodwill, when the income method shows low profit. It is understandable that even if a business is making no profit or even loosing money that the seller still wants to get at least what the equipment is worth. That is why this method is used.
The Basic Steps of Valuing A Business
Valuing a business has several basic steps. These steps, when done in this exact sequence, result in a valuation of a business that can be sold. The steps are as follows:
1. In order to do any business evaluation we need to establish two numbers. Gross income-regardless of what the financials report and Total Owners Benefits. To do a quick appraisal, for the purpose of getting a listing, we only need the last full year and the current year to date. Then one does an “add-back” sheet based on the Profit and Loss statement (or tax return) to get a preliminary Owners Benefits. It is important to keep in mind that we do not want to spend hours interviewing sellers and filling out forms, at this stage.
2. In order to market a listing, after the seller has signed up, you need to have the Adjusted Net Income of the business for each of the prior two years plus the “year to date” of the current year. This is done exactly as covered below in “How to Work Out Cash Flow /Net Income”. Note: In some cases, financials for body shops will not be available. In the case of body shops, you can still do the valuations. Simply collect the Gross Annual Income and the Total Owners Income and Benefits regardless of how earned and proceed with the valuation as below.
3. Getting various preliminary value based on the “Rule of Thumb” section of the Business Reference Guide and Common Sense. This guide is written and edited by Tom West and published by the Business Brokerage Press. These numbers need to be taken with a light view since everything is given in ranges. “Rule of Thumb” ideas are a starting point, not a hard and fast rule.
An example of how the values are determined, for an Optical Practice, form the “Rule of Thumb guide, is as follows:
a. Determine what sort of business you are doing the valuation for. In this case an Optical Practice.
b. Look up Optical Practice in the index at the back of the guide and turn to the page indicated.
c. In this case you will see that the “Rule of Thumb” guide for an optical practice (in the 2003 guide) is “68% of annual sales”. This is the only valuation method covered in the guide.
d. Based on the above, if the annual sales were $350,000.00, then the valuation of this business would be $350,000 X 68% = $238,000
4. When using the Business Reference Guide for thumbnail valuations you are getting a range of opinions. Do each one separately and see what the result is. These work best when a company is making $250,000 net income (including add backs) or more annually. The smaller the business is the more you go to the lower numbers in the range for practical valuation purposes.
5. Very small businesses, making less than $100,000 net profit, have to be looked at differently. A capable individual can get a 40-hour per week job earning $50,000. That is only $25.00 per hour worked. This is assuming he doesn’t get paid vacation, holidays and medical insurance. As an owner he will work more than 40 hours and this rate will drop accordingly. If a business is making a small profit, then the first $50,000 needs to be looked at as a salary. In truth, “Rule of Thumb” valuations are totally worthless for businesses making less than $50,000 per year in total owner’s benefits.
The question that comes up here is: Why would anyone buy a job at 3 or more times what he could earn by just simply working for someone else? An individual might possibly buy a job for 1 years’ income, because it has the potential of increasing, and he or she gets to work without a boss. If a business is making $100,000 profit, someone would possibly pay 2 times net profit, for the 2nd $50,000 and $50,000 for the first $50,000. This would give a value of $150,000 for a business profit of $100,000.
We are still talking about buying a job at this level, just a better job. Maybe someone would pay $200,000 to earn $100,000 if the potential really looked good. That would be $50,000 for the first $50,000 and 3 times the next $50,000.
6. A business making $250,000 or more looks more attractive even after you deduct $75,000 for a working owner or manager. A buyer might be willing to pay as much as 4 or 5 times for the remaining $175,000 in profit, because his salary is already covered.
7. If a buyer needs to tie up a fortune in inventory then the desire to pay more for the business reduces. Sometimes a buyer pays for the inventory and wants the business for free, especially if it is making less than $50,000 for a working owner.
Judgment: There is some judgment involved in valuing a business. The guidelines above will help you take the financial figures and apply some workable judgment to them.
8. If the valuations done as explained above are within 10% of each other, or if you only have one valid valuation figure to use, after completing the 6 steps above, the valuation is easy.
9. If you have more than one valuation figure and they are NOT WITHIN 10% OF EACH OTHER, do the following, while taking into account the various judgment factors involved in valuing a business:
a. Use the adjusted net income valuation figure
b. If you cannot get a real adjusted net income figure, then use the annual gross sales figure valuation.
10. If you were using several valuation methods, you would tell the seller what the various methods are; what value was arrived at with each; and your final conclusion along with why you reached that conclusion. The “why” part would be based on the various judgment factor and valuations figure that you arrived at from the above ways.
11. You would then ask seller what price he or she would like to list the business for. Our final conclusion would be the number used as the listing price, unless the seller disagreed and wanted to use another figure. We take the sellers listing price but make it clear what the value of the business is and “why that value” in the client notes.
12. Remember, we advise the seller what the valuations are, but take his or her listing price, only if the seller insists on it.
The Comparable Method
It can sometime happen that, even with the different methods outlined above, a business can be difficult to value. When this occurs, we still have the Comparable Method that we can use.
Kismet Business Brokers is a member of http://www.bizbuysell.com and as such we have access to the “For-Sale Comparable Calculator” on the website. This calculator uses the BizBuySell database of 1000’s of sold businesses to perform its analysis. The Calculator can be used to develop a suggested asking price by simply entering the businesses gross income and/or cash flow.
How to Work Out Cash Flow /Net Income
There is a very specific way that cash flow / net income is calculated. The following is how it is done. When net income or cash flow is asked for we use the “owners benefit” figure. This is the net profit on the P & L (profit and loss statement) plus the owners benefits added back. The owner’s benefits are added back because everything one single owner gets, regardless of its form is not considered a business expense and is added back as profit. Note: Any cash that the owner receives and doesn’t report is considered an owners benefit and must also be added; it is labeled other income.
This is calculated by marking the letter “A” beside each of the following items if they show on the P & L. These items are marked and added to the calculation sheet attached. The items are:
Depreciation and Amortization, IRS Taxes, Franchise Taxes, Interest Expense, Donations, Non-Recurring Legal Expenses or Non-essential expenses. Other Expenses, Owners Medical, Life Insurance for Owners, Pension Plan contributions for owner’s family, Non-Essential Salaries, Health insurance (owner’s family portion), Owners vehicle expenses (lease payments, operating expenses, repairs, gas, depreciation and insurance), Magazine subscriptions, Owner’s Travel, Entertainment, Home office expenses and Home telephone expenses. Any other owners benefit that the seller has hidden in some expense account. Real examples include: a) Personal clothing listed as uniforms. b) Family eating out listed under entertainment. c) Children’s education listed under staff training.
Additional clarification on lease payments is as follows: As discussed in the prior paragraph, lease payments made on personal automobiles are not a business expense and are added back. The buyer many times needs to assume a lease payment on leased machinery. If the lease has a $1.00 buy out or any buy out at the end for less than fair market value of the machinery it is called a financing lease. We treat them like a loan payment and add back 100% of the payments and the seller must pay these loans off or the escrow needs to deduct the balance due from buyer’s cash requirement. We also put these assets on the balance sheet. If the buy-out at the end of the lease, at fair market, on the date of the buy-out, then this is a real lease which is really just a rental agreement. The payments are left as a business expense and are not added back. To find out which kind of lease the seller has will require asking the seller or his accountant.
In order to know how much of the financial reports is “owner’s benefits”, it is required that you go through the financials, with the client, and ask him or her to tell you which expenses should be considered personal benefits. You do not need to take the clients opinion as truth; it just needs to make sense. If it doesn’t, do not use it as a benefit.
If the company is a corporation or LLC, mark as with a “B”, the Owners Salary-husband and wife on the P & L statement and put these numbers on the add-back form. . If the business is a partnership or a sole proprietorship we only add-back the “owners/partners draws” amounts if they show up as an expense on the P & L. These salaries and “owner draws” are of interest only if located on the profit and loss sheet. Do not take salary or draw figures off of the balance sheet. The basic decision in adding back salary is this – Add back only one owner’s salary. Other partners or family members salary that will have to be replaced when the business is sold cannot added back. An explanation of what is added back should be included in the business summary.
Finally, where there is other income, this figure is gotten from the owner and added in the “Other Income” section on the attached calculation sheet. Ask the business owner if there is other income or cash that should be noted, get the figure, verify it as much as possible by having the owner supply information that proves the figure is real and how it is calculated. Write it down on the calculation sheet.
Note: Kids salaries are not added back unless they do not work in the business, or they do work in the business and their salary is much more than a non-family employee would be paid. In this case add back, as a separate item – mark it “C”, and put just the excess portion of their salary on the attached calculation sheet. All figures above are annual figures. The attached calculation sheet is used to calculate the various “add backs”. When completed, it is paper clipped on top of the Profit and Loss for the year being worked out.
Also, there are adjustments that reduce the net income of a business. These go under “Other Expenses.”
If the owner of the business also owns the real estate, the P & L will sometimes not properly reflect a fair market rent. Fair market rent is what the landlord/business owner wants from the buyer in rent. Adjust the rent, up or down, on the worksheet, for the difference between the market rent and what shows on the P & L. Property taxes are not an add back because the tenant is usually responsible for the property taxes regardless of who owns the real estate.
Three different adjusted net income work sheets are done, for each business. These are each of the prior two years plus the “year to date” of the current year. “Year to date” is an accounting phrase that means from the first day of the seller’s tax year to the last date available. If that is the 6-month period from January to June then that is the “year to date.” In conclusion, if you have Profit and Loss Statements for 2003, 2004 and 6 months of 2005, you would do an ad-back calculation sheets for the 2 full years of 2003 and 2004 and a 6 months ad-back calculation sheet for the first half of 2005
Finally, add back sheets are signed by the seller to confirm that the add backs are accurate.
What to does the broker or licensed agent do if the seller will not sign the financials as adjusted by us after all corrections are made?
After the finances have been corrected to the seller’s satisfaction he or she may still not wish to sign them. In this case, the following steps are taken:
1) Ask the seller what adjustments would need to be made for him to be able to sign the corrected finances. Advise him that it is essential that we have the financials signed, as they are his report to the buyer as to the financial state of the business. Make the final adjustments and get the signature(s) of the seller(s).
2) If the seller removed the “other income” from the financials, collect the following information so that we can sell the business that is not showing all the income:
a. How much will the seller carry back and at what terms and for how long?
b. Get a statement showing how well he and his family is surviving from the business and what it costs them to live. What they pay for housing, utilities, children’s education, and other expenses will show what it takes to support the family.
Below are the blank “add-Back” sheet and owner confirmation sheet that are used in calculating cash flow and getting seller confirmation of the figures
OWNER’S CASH FLOW ANALYSIS (ADD BACK SHEET)
NAME OF BUSINESS ______________________________________________
For Fiscal Year Ending ______________ 20 _____
Interim Period: Thru __________________________ # of Months ______
Information Source: Tax Returns () Financial Statements ()
NET INCOME FROM OPERATIONS: $______________
(A) ITEMS
Depreciation and Amortization (Except Business Autos)
IRS Federal Income Taxes or Penalties:
State Franchise Taxes or Penalties
Interest Expense
Interest portion of auto lease payments where it is a financing lease.
Donations
Life Insurance for Owners
Pension Plans contribution for owner’s family
Health insurance for owner’s family
Unusual Legal Expenses or Bank overdraft fees
Personal auto lease payments
Auto repair for owner or family auto
Gas for owner or family auto
Insurance for owner or family auto
DMV License for owner or family auto
Travel, clothing
Entertainment
Home telephone expenses
Home office expenses
Other (Name)
(A) TOTAL: $_________________
(B) ITEMS [take only numbers from P & L – not balance sheet]
Owners Salary (If Corporation or LLC)
Owners Draw or Partner #1 “Draw”
Owner #2 or Partner #2 “Draw”
(B) TOTAL: $_________________
(C) ITEMS
Owner’s wife or kids salaries (If not working in the business)
Owner’s wife or kids salaries [excess portion] (If working in the business and getting much more that non-member staff
(C) TOTAL: $_________________
OTHER INCOME: $_________________
OTHER EXPENSES:(A) (Plus or Minus) $_________________
OTHER EXPENSES:(B) (MINUS) $_________________
ESTIMATED CASH FLOW: $_____________________
Seller confirmation of add backs:
OWNER’S CASH FLOW ANALYSIS
“This information is being provided to buyer, by Kismet Business Brokers, as information received from the business owner for such purposes.
The business owner declares that the information herein is based on figures supplied by the owner and that owner intends that Kismet Business Brokers and prospective buyers rely on such information. Owner further declares the owner has documentation supporting such figures and agrees to provide supporting documentation upon request.
Kismet Business Brokers has not independently verified the information provided herein. Further, buyer(s) are advised to obtain appropriate counsel from legal, accounting and other professionals concerning the purchase of this business.”
Business: _____________________________________________
Business Owner’s Signature: __________________________________________________________
Date: __________________________
Gordon
There are many different ways to work out the value of a business. For the small to mid-size business, there are 3 main approaches that are used more than others. These are the Income value, Market value and the Asset value.
In brief, these would be described as follows:
Valuation based on income: One is looking at the potential earning power of the business into the future. Past earnings, expected future growth, owner’s compensation adjustments, and specific risk factors, such as customer concentration, weak management and lack of diversification are all taken into account when income based valuations are used.
Market Valuation: This method of valuing a business is similar to the way one values a house when selling it. What is being looked at here is what the market will pay for the business in question. Basically, one collects information on the sale of comparable businesses within the industry that the business is in. “Rule of Thumb” information is just a summary of many businesses sold with a million variations not being taken into consideration.
With both income valuations and market valuations, we will determine two different price multipliers. One is price divided by gross sales and the other is price divided by earnings. The applicable price multiple is selected primarily on the profitability of the business. For example, a business with high profits would have a higher price multiple applied to it. A business with low profits would be assigned a lower price multiple. When using this approach, one gets a more accurate result when one uses a minimum of at least a dozen comparables of similar type businesses.
Asset valuation: This valuation procedure assumes that a business is worth the fair market value of its tangible (physical) assets plus its intangible assets. Then from these total assets, liabilities or debts are deducted. To value a business that has intangibles, several methods are used. The method that is most employed in this area is the 5-step excess earning calculation. We will not go into the details of how this is done; we are only explaining that there is a method and giving a quick explanation. Do not try to use this method without taking classes or seminars training you in the details of this procedure. IBBA has classes on this subject.
This calculation deals with tangible assets, intangible assets, liabilities and adjustments thereof, to arrive at an estimated value for the business. It figures out what the reasonable return, on the assets, of the business, should be. If the profit is greater, than that number, it is an indication that the business has some intangible assets, which are generating the excess profit.
If the company in question is making little or no money then there will be no intangible assets. When this is the case, the asset valuation method is usually used. This is the case because when a business has capital tied up in equipment and other tangible assets the other valuation methods will come up with a price way below the actual asset value, without considering any good will. Goodwill is not considered because there is no goodwill, when the income method shows low profit. It is understandable that even if a business is making no profit or even loosing money that the seller still wants to get at least what the equipment is worth. That is why this method is used.
The Basic Steps of Valuing A Business
Valuing a business has several basic steps. These steps, when done in this exact sequence, result in a valuation of a business that can be sold. The steps are as follows:
1. In order to do any business evaluation we need to establish two numbers. Gross income-regardless of what the financials report and Total Owners Benefits. To do a quick appraisal, for the purpose of getting a listing, we only need the last full year and the current year to date. Then one does an “add-back” sheet based on the Profit and Loss statement (or tax return) to get a preliminary Owners Benefits. It is important to keep in mind that we do not want to spend hours interviewing sellers and filling out forms, at this stage.
2. In order to market a listing, after the seller has signed up, you need to have the Adjusted Net Income of the business for each of the prior two years plus the “year to date” of the current year. This is done exactly as covered below in “How to Work Out Cash Flow /Net Income”. Note: In some cases, financials for body shops will not be available. In the case of body shops, you can still do the valuations. Simply collect the Gross Annual Income and the Total Owners Income and Benefits regardless of how earned and proceed with the valuation as below.
3. Getting various preliminary value based on the “Rule of Thumb” section of the Business Reference Guide and Common Sense. This guide is written and edited by Tom West and published by the Business Brokerage Press. These numbers need to be taken with a light view since everything is given in ranges. “Rule of Thumb” ideas are a starting point, not a hard and fast rule.
An example of how the values are determined, for an Optical Practice, form the “Rule of Thumb guide, is as follows:
a. Determine what sort of business you are doing the valuation for. In this case an Optical Practice.
b. Look up Optical Practice in the index at the back of the guide and turn to the page indicated.
c. In this case you will see that the “Rule of Thumb” guide for an optical practice (in the 2003 guide) is “68% of annual sales”. This is the only valuation method covered in the guide.
d. Based on the above, if the annual sales were $350,000.00, then the valuation of this business would be $350,000 X 68% = $238,000
4. When using the Business Reference Guide for thumbnail valuations you are getting a range of opinions. Do each one separately and see what the result is. These work best when a company is making $250,000 net income (including add backs) or more annually. The smaller the business is the more you go to the lower numbers in the range for practical valuation purposes.
5. Very small businesses, making less than $100,000 net profit, have to be looked at differently. A capable individual can get a 40-hour per week job earning $50,000. That is only $25.00 per hour worked. This is assuming he doesn’t get paid vacation, holidays and medical insurance. As an owner he will work more than 40 hours and this rate will drop accordingly. If a business is making a small profit, then the first $50,000 needs to be looked at as a salary. In truth, “Rule of Thumb” valuations are totally worthless for businesses making less than $50,000 per year in total owner’s benefits.
The question that comes up here is: Why would anyone buy a job at 3 or more times what he could earn by just simply working for someone else? An individual might possibly buy a job for 1 years’ income, because it has the potential of increasing, and he or she gets to work without a boss. If a business is making $100,000 profit, someone would possibly pay 2 times net profit, for the 2nd $50,000 and $50,000 for the first $50,000. This would give a value of $150,000 for a business profit of $100,000.
We are still talking about buying a job at this level, just a better job. Maybe someone would pay $200,000 to earn $100,000 if the potential really looked good. That would be $50,000 for the first $50,000 and 3 times the next $50,000.
6. A business making $250,000 or more looks more attractive even after you deduct $75,000 for a working owner or manager. A buyer might be willing to pay as much as 4 or 5 times for the remaining $175,000 in profit, because his salary is already covered.
7. If a buyer needs to tie up a fortune in inventory then the desire to pay more for the business reduces. Sometimes a buyer pays for the inventory and wants the business for free, especially if it is making less than $50,000 for a working owner.
Judgment: There is some judgment involved in valuing a business. The guidelines above will help you take the financial figures and apply some workable judgment to them.
8. If the valuations done as explained above are within 10% of each other, or if you only have one valid valuation figure to use, after completing the 6 steps above, the valuation is easy.
9. If you have more than one valuation figure and they are NOT WITHIN 10% OF EACH OTHER, do the following, while taking into account the various judgment factors involved in valuing a business:
a. Use the adjusted net income valuation figure
b. If you cannot get a real adjusted net income figure, then use the annual gross sales figure valuation.
10. If you were using several valuation methods, you would tell the seller what the various methods are; what value was arrived at with each; and your final conclusion along with why you reached that conclusion. The “why” part would be based on the various judgment factor and valuations figure that you arrived at from the above ways.
11. You would then ask seller what price he or she would like to list the business for. Our final conclusion would be the number used as the listing price, unless the seller disagreed and wanted to use another figure. We take the sellers listing price but make it clear what the value of the business is and “why that value” in the client notes.
12. Remember, we advise the seller what the valuations are, but take his or her listing price, only if the seller insists on it.
The Comparable Method
It can sometime happen that, even with the different methods outlined above, a business can be difficult to value. When this occurs, we still have the Comparable Method that we can use.
Kismet Business Brokers is a member of http://www.bizbuysell.com and as such we have access to the “For-Sale Comparable Calculator” on the website. This calculator uses the BizBuySell database of 1000’s of sold businesses to perform its analysis. The Calculator can be used to develop a suggested asking price by simply entering the businesses gross income and/or cash flow.
How to Work Out Cash Flow /Net Income
There is a very specific way that cash flow / net income is calculated. The following is how it is done. When net income or cash flow is asked for we use the “owners benefit” figure. This is the net profit on the P & L (profit and loss statement) plus the owners benefits added back. The owner’s benefits are added back because everything one single owner gets, regardless of its form is not considered a business expense and is added back as profit. Note: Any cash that the owner receives and doesn’t report is considered an owners benefit and must also be added; it is labeled other income.
This is calculated by marking the letter “A” beside each of the following items if they show on the P & L. These items are marked and added to the calculation sheet attached. The items are:
Depreciation and Amortization, IRS Taxes, Franchise Taxes, Interest Expense, Donations, Non-Recurring Legal Expenses or Non-essential expenses. Other Expenses, Owners Medical, Life Insurance for Owners, Pension Plan contributions for owner’s family, Non-Essential Salaries, Health insurance (owner’s family portion), Owners vehicle expenses (lease payments, operating expenses, repairs, gas, depreciation and insurance), Magazine subscriptions, Owner’s Travel, Entertainment, Home office expenses and Home telephone expenses. Any other owners benefit that the seller has hidden in some expense account. Real examples include: a) Personal clothing listed as uniforms. b) Family eating out listed under entertainment. c) Children’s education listed under staff training.
Additional clarification on lease payments is as follows: As discussed in the prior paragraph, lease payments made on personal automobiles are not a business expense and are added back. The buyer many times needs to assume a lease payment on leased machinery. If the lease has a $1.00 buy out or any buy out at the end for less than fair market value of the machinery it is called a financing lease. We treat them like a loan payment and add back 100% of the payments and the seller must pay these loans off or the escrow needs to deduct the balance due from buyer’s cash requirement. We also put these assets on the balance sheet. If the buy-out at the end of the lease, at fair market, on the date of the buy-out, then this is a real lease which is really just a rental agreement. The payments are left as a business expense and are not added back. To find out which kind of lease the seller has will require asking the seller or his accountant.
In order to know how much of the financial reports is “owner’s benefits”, it is required that you go through the financials, with the client, and ask him or her to tell you which expenses should be considered personal benefits. You do not need to take the clients opinion as truth; it just needs to make sense. If it doesn’t, do not use it as a benefit.
If the company is a corporation or LLC, mark as with a “B”, the Owners Salary-husband and wife on the P & L statement and put these numbers on the add-back form. . If the business is a partnership or a sole proprietorship we only add-back the “owners/partners draws” amounts if they show up as an expense on the P & L. These salaries and “owner draws” are of interest only if located on the profit and loss sheet. Do not take salary or draw figures off of the balance sheet. The basic decision in adding back salary is this – Add back only one owner’s salary. Other partners or family members salary that will have to be replaced when the business is sold cannot added back. An explanation of what is added back should be included in the business summary.
Finally, where there is other income, this figure is gotten from the owner and added in the “Other Income” section on the attached calculation sheet. Ask the business owner if there is other income or cash that should be noted, get the figure, verify it as much as possible by having the owner supply information that proves the figure is real and how it is calculated. Write it down on the calculation sheet.
Note: Kids salaries are not added back unless they do not work in the business, or they do work in the business and their salary is much more than a non-family employee would be paid. In this case add back, as a separate item – mark it “C”, and put just the excess portion of their salary on the attached calculation sheet. All figures above are annual figures. The attached calculation sheet is used to calculate the various “add backs”. When completed, it is paper clipped on top of the Profit and Loss for the year being worked out.
Also, there are adjustments that reduce the net income of a business. These go under “Other Expenses.”
If the owner of the business also owns the real estate, the P & L will sometimes not properly reflect a fair market rent. Fair market rent is what the landlord/business owner wants from the buyer in rent. Adjust the rent, up or down, on the worksheet, for the difference between the market rent and what shows on the P & L. Property taxes are not an add back because the tenant is usually responsible for the property taxes regardless of who owns the real estate.
Three different adjusted net income work sheets are done, for each business. These are each of the prior two years plus the “year to date” of the current year. “Year to date” is an accounting phrase that means from the first day of the seller’s tax year to the last date available. If that is the 6-month period from January to June then that is the “year to date.” In conclusion, if you have Profit and Loss Statements for 2003, 2004 and 6 months of 2005, you would do an ad-back calculation sheets for the 2 full years of 2003 and 2004 and a 6 months ad-back calculation sheet for the first half of 2005
Finally, add back sheets are signed by the seller to confirm that the add backs are accurate.
What to does the broker or licensed agent do if the seller will not sign the financials as adjusted by us after all corrections are made?
After the finances have been corrected to the seller’s satisfaction he or she may still not wish to sign them. In this case, the following steps are taken:
1) Ask the seller what adjustments would need to be made for him to be able to sign the corrected finances. Advise him that it is essential that we have the financials signed, as they are his report to the buyer as to the financial state of the business. Make the final adjustments and get the signature(s) of the seller(s).
2) If the seller removed the “other income” from the financials, collect the following information so that we can sell the business that is not showing all the income:
a. How much will the seller carry back and at what terms and for how long?
b. Get a statement showing how well he and his family is surviving from the business and what it costs them to live. What they pay for housing, utilities, children’s education, and other expenses will show what it takes to support the family.
Below are the blank “add-Back” sheet and owner confirmation sheet that are used in calculating cash flow and getting seller confirmation of the figures
OWNER’S CASH FLOW ANALYSIS (ADD BACK SHEET)
NAME OF BUSINESS ______________________________________________
For Fiscal Year Ending ______________ 20 _____
Interim Period: Thru __________________________ # of Months ______
Information Source: Tax Returns () Financial Statements ()
NET INCOME FROM OPERATIONS: $______________
(A) ITEMS
Depreciation and Amortization (Except Business Autos)
IRS Federal Income Taxes or Penalties:
State Franchise Taxes or Penalties
Interest Expense
Interest portion of auto lease payments where it is a financing lease.
Donations
Life Insurance for Owners
Pension Plans contribution for owner’s family
Health insurance for owner’s family
Unusual Legal Expenses or Bank overdraft fees
Personal auto lease payments
Auto repair for owner or family auto
Gas for owner or family auto
Insurance for owner or family auto
DMV License for owner or family auto
Travel, clothing
Entertainment
Home telephone expenses
Home office expenses
Other (Name)
(A) TOTAL: $_________________
(B) ITEMS [take only numbers from P & L – not balance sheet]
Owners Salary (If Corporation or LLC)
Owners Draw or Partner #1 “Draw”
Owner #2 or Partner #2 “Draw”
(B) TOTAL: $_________________
(C) ITEMS
Owner’s wife or kids salaries (If not working in the business)
Owner’s wife or kids salaries [excess portion] (If working in the business and getting much more that non-member staff
(C) TOTAL: $_________________
OTHER INCOME: $_________________
OTHER EXPENSES:(A) (Plus or Minus) $_________________
OTHER EXPENSES:(B) (MINUS) $_________________
ESTIMATED CASH FLOW: $_____________________
Seller confirmation of add backs:
OWNER’S CASH FLOW ANALYSIS
“This information is being provided to buyer, by Kismet Business Brokers, as information received from the business owner for such purposes.
The business owner declares that the information herein is based on figures supplied by the owner and that owner intends that Kismet Business Brokers and prospective buyers rely on such information. Owner further declares the owner has documentation supporting such figures and agrees to provide supporting documentation upon request.
Kismet Business Brokers has not independently verified the information provided herein. Further, buyer(s) are advised to obtain appropriate counsel from legal, accounting and other professionals concerning the purchase of this business.”
Business: _____________________________________________
Business Owner’s Signature: __________________________________________________________
Date: __________________________
Gordon
Comments Off
Sep
20
thoufic r asked:
I am 21 years old. I have a ambition of starting my own business. To take a first step into business world, i would like to start something small. But, i am looking for more ideas so that i can choose best out of it. So, i just need your help. Do you have any idea on what business i should go on with?
Sean
I am 21 years old. I have a ambition of starting my own business. To take a first step into business world, i would like to start something small. But, i am looking for more ideas so that i can choose best out of it. So, i just need your help. Do you have any idea on what business i should go on with?
Sean
Sep
14
Filed Under (Make Money) by
James Cochran asked:
Today, there are more than 23 million businesses operating as sole proprietorships or partnerships. This accounts for more than 80 percent of all U.S. businesses, according to BizStats.com. Do these structures protect small business owners from certain liabilities, or if a suit was brought against them, could their assets be at risk?
There is a common misconception that limited liability companies (LLCs) or incorporated structures are absolute safeguards against personal liability. As a result, many business owners forgo arming themselves with a small business insurance plan.
While attention to quality control and seamless risk management procedures can reduce the risk of lawsuits, no organization can completely eliminate the threat of a claim. The expense associated with defending litigations, even on frivolous claims, can add up quickly and possibly put a company in financial peril. With just one claim, savings that took years to build can be wiped out and the owner’s personal assets can become vulnerable.
There are a few instances in which a small business owner could be personally liable, including:
. The owner acted in an irresponsible or illegal manner
. They personally injured someone
. The owner signed a personal guarantee for a loan
. The business is not operated as a separate entity
Businesses can prevent the financial pitfalls of defending a claim by arming themselves with a business liability insurance plan. Typically, with business liability insurance policies, four types of claims are covered: bodily injury; property damage or loss; personal injury, such as libel or slander; and advertising injury. A General Liability policy covers all damages, legal fees and settlement charges up to the policy limits for covered claims. This is usually packaged with Property coverage in a Business Owner’s Policy (BOP).
Typically, liability insurance coverage includes:
. Legal costs: General liability insurance will cover litigation costs such as attorney and witness fees, as well as settlement payments.
. Medical costs: Insurance will cover medical costs for individuals who may have been injured on company property.
. Property damage: Insurance will cover fire, theft or other incidents that damage the assets of the business. It insures the company from physical damage to the property as well as the customer’s property.
. Business interruption: Insurance will cover the business in cases of major disasters, such as a fire, that render the business inoperable. If the business is unable to operate, the insurance would reimburse the company for its losses and the profits that would have been made during that time.
Business owners should also consider Professional Liability insurance, also known as Errors and Omissions insurance, which protects organizations against claims of professional negligence and errors or omissions in professional work.
While the cost of safeguarding a business and its owner with liability insurance can be costly, there are several ways business owners can cut down on the expense, including:
. Shop around: Business liability insurance coverages range by company; read up on what is covered and what is not. Review small business insurance quotes from several insurers and compare rates.
. Consider a Business Owner’s Policy (BOP): Rather than purchasing separate types of insurance from various companies, consider purchasing a package of policies. When receiving a small business liability insurance quote on a BOP, be sure to understand what is included in the coverage. BOPs don’t typically include all types of insurance.
. Enlist a specialist broker: If the small business operates in a niche, it will often require specialized insurance to safeguard against unique risks. Insurance brokers will know what coverages are necessary for the business and know where to go for the best rates.
Company liability insurance safeguards businesses from various allegations of negligence, but it also protects them from having to absorb the fees associated with defending a frivolous lawsuit. Protecting the business from these risks provides a foundation for success. Business owners should invest the time to research small business insurance plans and understand what their needs are. It could mean the difference between survival and financial disaster
Nicole
Today, there are more than 23 million businesses operating as sole proprietorships or partnerships. This accounts for more than 80 percent of all U.S. businesses, according to BizStats.com. Do these structures protect small business owners from certain liabilities, or if a suit was brought against them, could their assets be at risk?
There is a common misconception that limited liability companies (LLCs) or incorporated structures are absolute safeguards against personal liability. As a result, many business owners forgo arming themselves with a small business insurance plan.
While attention to quality control and seamless risk management procedures can reduce the risk of lawsuits, no organization can completely eliminate the threat of a claim. The expense associated with defending litigations, even on frivolous claims, can add up quickly and possibly put a company in financial peril. With just one claim, savings that took years to build can be wiped out and the owner’s personal assets can become vulnerable.
There are a few instances in which a small business owner could be personally liable, including:
. The owner acted in an irresponsible or illegal manner
. They personally injured someone
. The owner signed a personal guarantee for a loan
. The business is not operated as a separate entity
Businesses can prevent the financial pitfalls of defending a claim by arming themselves with a business liability insurance plan. Typically, with business liability insurance policies, four types of claims are covered: bodily injury; property damage or loss; personal injury, such as libel or slander; and advertising injury. A General Liability policy covers all damages, legal fees and settlement charges up to the policy limits for covered claims. This is usually packaged with Property coverage in a Business Owner’s Policy (BOP).
Typically, liability insurance coverage includes:
. Legal costs: General liability insurance will cover litigation costs such as attorney and witness fees, as well as settlement payments.
. Medical costs: Insurance will cover medical costs for individuals who may have been injured on company property.
. Property damage: Insurance will cover fire, theft or other incidents that damage the assets of the business. It insures the company from physical damage to the property as well as the customer’s property.
. Business interruption: Insurance will cover the business in cases of major disasters, such as a fire, that render the business inoperable. If the business is unable to operate, the insurance would reimburse the company for its losses and the profits that would have been made during that time.
Business owners should also consider Professional Liability insurance, also known as Errors and Omissions insurance, which protects organizations against claims of professional negligence and errors or omissions in professional work.
While the cost of safeguarding a business and its owner with liability insurance can be costly, there are several ways business owners can cut down on the expense, including:
. Shop around: Business liability insurance coverages range by company; read up on what is covered and what is not. Review small business insurance quotes from several insurers and compare rates.
. Consider a Business Owner’s Policy (BOP): Rather than purchasing separate types of insurance from various companies, consider purchasing a package of policies. When receiving a small business liability insurance quote on a BOP, be sure to understand what is included in the coverage. BOPs don’t typically include all types of insurance.
. Enlist a specialist broker: If the small business operates in a niche, it will often require specialized insurance to safeguard against unique risks. Insurance brokers will know what coverages are necessary for the business and know where to go for the best rates.
Company liability insurance safeguards businesses from various allegations of negligence, but it also protects them from having to absorb the fees associated with defending a frivolous lawsuit. Protecting the business from these risks provides a foundation for success. Business owners should invest the time to research small business insurance plans and understand what their needs are. It could mean the difference between survival and financial disaster
Nicole
Comments Off
Sep
10
Filed Under (Make Money) by
Carmel Dolendo asked:
Starting Up Owning a Business
Having a business and be the boss is always everybody’s dream. Yet only a few who can get through it and make it to the top. One of the main reason why people want to have their own business, is to hold their own time. But in the real world of business it is totally the opposite. Owning a business is not very easy, especially starting it. It takes a great responsibility, a well planned strategy and a great mind to make it work perfectly.
One of the hardest thing to do in Starting Up Owning a Business is taking the first step. Nobody has even gone to a business without any careful planning, even how small the business was. So many questions, so many plans, so many things to be considered before you begin to operate. But a good planning usually end up to a success otherwise it will be totally disaster.
How to Start my Own Business? There are several question to consider in Starting Up Owning a Business. WHAT, WHY, WHERE, and WHEN, these are the common question you need to ask yourself.
What kind of Business do I want?
There are thousand of choices on the kind of business you can have. A restaurant, Beauty Parlor, a Flower Shop, Pharmacy, Developing Center, Arts and Crafts, Real Estate and more of choices. Usually you end up answering this in the field of your interest. It would be more easier for you to do business that you have enough knowledge on the “What kind of Business” you want to have. It will also depend on what the need of the people in the community. You could not expect a successful business of Developing Center when you know that the people in the community doesn’t even own camera. It should be something practical, easy to deal to the people and goal oriented. Goal oriented? In every business, your main goal is to meet the needs of the people, consumer or client. These people has a direct effect on the success of the business and that is what you should always put in mind. Without this goal, business is impossible.
Why I want to have business?
Why is it you want to have a business? In order to answer this, you need to have the goals and objectives. Nobody will start a business that doesn’t have any goals at all. So, if you are going to see yourself five years from now, you try to imagine what you should be doing during that time. Are you doing well with the business that you started? Are you growing and productive? Did your business expand? Are you enjoying the life of success? Or you failed because you did not plan it well. For every business that was planned, there is always a reason behind it. And most of the reasons why people want to have a business to earn without limit and be the boss of their own business.
Where would you want to have a business?
Where? It was a good question. One thing to consider a good business is to find a good location. A location where it is very easy access for the people. A place where there are less competitors. Most important is, a place where most of the people has a need.
Where? Another question you have to think about. Where is your business heading. Is it moving, improving and growing or is it stagnant, not productive losing.
In every business there is always a place of improvement that leads to fast growth. If that is where you want to lead your business
If you are aiming for a fast growing Business,
here are the things you need to consider:
Know the kind of business you have
Meeting the needs of the people
Affordable and reasonable prices of products or services
Aim for quality, quantity will just follow
Always make an update and consider opinions and suggestions of others
Be flexible, always look at the possibility of extending your services or branching out
Don’t ignore failure, that is where you learn and do better
Have a good interpersonal relationship with co-workers, competitors and people
Upgrade yourself on new technology that can be applied to your business
When will be the best time to start the Business?
When will be the best time to start a business? Tomorrow? Next Year? Ten years from now? When you retire? This is what you have to decide if you want to have a business. Having a business takes a time of planning and a decision. It is like taking a risk to reach a certain goal. Some people would decide to go into business after a long year work as an employee then use their retirement money in business. Some would make an investment and little by little they start building up their own business. Starting up is a little bit difficult most of the time because you need to adjust, little income, catching up on the payments, and still learning how to run the business. But once you are there, and getting oriented with the kind of business you have, you will see more challenges to come at the same time enjoying the fruit of your success.
What are the things you need to consider in
“Starting Up Owning a Business”
Permit to operate a business. Get the necessary documents needed to operate the business legally.
Finance. Does your budget enough for the payment of the location or site, materials, employee, construction needed.if not, look for financial assistance that is enough for you to begin with. Start at a minimum cost.
Employee. How many employee needed to start the business, what kind of work they need to do. Qualification of the employee, the work experience and the skills that they will be able to contribute in the business.
Site/Location. Look for a Place that is accessible to the people and easy to locate. People would love to come to a place that is easy access and a place where people usually go.
Knowledge about the business. It takes a great risk of getting into the business that you don’t know or at least an idea about it. Always look at the advantages and disadvantages. The strength and weaknesses of the business. Ask opinions from the people who are into it. And always update yourself with the new issues in the business world.
In every business, there is always a strategy to take. A successful business do not depend on the techniques alone but also on good planning and decision making.
Oscar
Starting Up Owning a Business
Having a business and be the boss is always everybody’s dream. Yet only a few who can get through it and make it to the top. One of the main reason why people want to have their own business, is to hold their own time. But in the real world of business it is totally the opposite. Owning a business is not very easy, especially starting it. It takes a great responsibility, a well planned strategy and a great mind to make it work perfectly.
One of the hardest thing to do in Starting Up Owning a Business is taking the first step. Nobody has even gone to a business without any careful planning, even how small the business was. So many questions, so many plans, so many things to be considered before you begin to operate. But a good planning usually end up to a success otherwise it will be totally disaster.
How to Start my Own Business? There are several question to consider in Starting Up Owning a Business. WHAT, WHY, WHERE, and WHEN, these are the common question you need to ask yourself.
What kind of Business do I want?
There are thousand of choices on the kind of business you can have. A restaurant, Beauty Parlor, a Flower Shop, Pharmacy, Developing Center, Arts and Crafts, Real Estate and more of choices. Usually you end up answering this in the field of your interest. It would be more easier for you to do business that you have enough knowledge on the “What kind of Business” you want to have. It will also depend on what the need of the people in the community. You could not expect a successful business of Developing Center when you know that the people in the community doesn’t even own camera. It should be something practical, easy to deal to the people and goal oriented. Goal oriented? In every business, your main goal is to meet the needs of the people, consumer or client. These people has a direct effect on the success of the business and that is what you should always put in mind. Without this goal, business is impossible.
Why I want to have business?
Why is it you want to have a business? In order to answer this, you need to have the goals and objectives. Nobody will start a business that doesn’t have any goals at all. So, if you are going to see yourself five years from now, you try to imagine what you should be doing during that time. Are you doing well with the business that you started? Are you growing and productive? Did your business expand? Are you enjoying the life of success? Or you failed because you did not plan it well. For every business that was planned, there is always a reason behind it. And most of the reasons why people want to have a business to earn without limit and be the boss of their own business.
Where would you want to have a business?
Where? It was a good question. One thing to consider a good business is to find a good location. A location where it is very easy access for the people. A place where there are less competitors. Most important is, a place where most of the people has a need.
Where? Another question you have to think about. Where is your business heading. Is it moving, improving and growing or is it stagnant, not productive losing.
In every business there is always a place of improvement that leads to fast growth. If that is where you want to lead your business
If you are aiming for a fast growing Business,
here are the things you need to consider:
Know the kind of business you have
Meeting the needs of the people
Affordable and reasonable prices of products or services
Aim for quality, quantity will just follow
Always make an update and consider opinions and suggestions of others
Be flexible, always look at the possibility of extending your services or branching out
Don’t ignore failure, that is where you learn and do better
Have a good interpersonal relationship with co-workers, competitors and people
Upgrade yourself on new technology that can be applied to your business
When will be the best time to start the Business?
When will be the best time to start a business? Tomorrow? Next Year? Ten years from now? When you retire? This is what you have to decide if you want to have a business. Having a business takes a time of planning and a decision. It is like taking a risk to reach a certain goal. Some people would decide to go into business after a long year work as an employee then use their retirement money in business. Some would make an investment and little by little they start building up their own business. Starting up is a little bit difficult most of the time because you need to adjust, little income, catching up on the payments, and still learning how to run the business. But once you are there, and getting oriented with the kind of business you have, you will see more challenges to come at the same time enjoying the fruit of your success.
What are the things you need to consider in
“Starting Up Owning a Business”
Permit to operate a business. Get the necessary documents needed to operate the business legally.
Finance. Does your budget enough for the payment of the location or site, materials, employee, construction needed.if not, look for financial assistance that is enough for you to begin with. Start at a minimum cost.
Employee. How many employee needed to start the business, what kind of work they need to do. Qualification of the employee, the work experience and the skills that they will be able to contribute in the business.
Site/Location. Look for a Place that is accessible to the people and easy to locate. People would love to come to a place that is easy access and a place where people usually go.
Knowledge about the business. It takes a great risk of getting into the business that you don’t know or at least an idea about it. Always look at the advantages and disadvantages. The strength and weaknesses of the business. Ask opinions from the people who are into it. And always update yourself with the new issues in the business world.
In every business, there is always a strategy to take. A successful business do not depend on the techniques alone but also on good planning and decision making.
Oscar
Comments Off
Sep
08
Filed Under (Make Money) by
johndmershon asked:
I want to give my son my business without charging him any upfront money. I would like to pull a small income from the business each month as a retirement. I dont want a share in the business just a guaranteed payment each month. I have been in business since 1983 and have annual average revenue of $225,000. My son has been working with me now for the past 8 years and has shown great leadership skills.
I am concerned about things like tax ramifications of not handling this properly. Our business isnt incorporated instead it is a sole proprietorship. Would it be better to incorporate and retain a share of the business while giving my son the majority? Also I have a house for sale currently but it is pre foreslosure. I have a buyer lined up and we are in the midst of negotiating the home sale. If the house were to fully be foreclosed would this affect the business and perhaps even void the business sale?
Thank you for any honest advice.
Shanshan
I want to give my son my business without charging him any upfront money. I would like to pull a small income from the business each month as a retirement. I dont want a share in the business just a guaranteed payment each month. I have been in business since 1983 and have annual average revenue of $225,000. My son has been working with me now for the past 8 years and has shown great leadership skills.
I am concerned about things like tax ramifications of not handling this properly. Our business isnt incorporated instead it is a sole proprietorship. Would it be better to incorporate and retain a share of the business while giving my son the majority? Also I have a house for sale currently but it is pre foreslosure. I have a buyer lined up and we are in the midst of negotiating the home sale. If the house were to fully be foreclosed would this affect the business and perhaps even void the business sale?
Thank you for any honest advice.
Shanshan
Sep
04
lucy lu asked:
My husband is stuck in a terrible job (like half the country!) and he’s always wanted to own his own business, but he’s not sure of what he wants to do… I was wondering if anyone has ever had their own business, and if so, what do you do? Also, has anyone been successful w/ a business from home? Thanks!
Bret
My husband is stuck in a terrible job (like half the country!) and he’s always wanted to own his own business, but he’s not sure of what he wants to do… I was wondering if anyone has ever had their own business, and if so, what do you do? Also, has anyone been successful w/ a business from home? Thanks!
Bret
Sep
04
Seniorita234 asked:
I am a single mom to a seven month old. I have been staying home with him but now find that I need to start generating my own money.
I am a single mom to a seven month old. I have been staying home with him but now find that I need to start generating my own money.
I have a degree in Graphic Design just acquired in February last year and am a mural artist as well. I have been toying with the idea of starting a design business and/or mural painting business. I don’t have any money to really do any kind of major startup, besides registering the business, but these seem like ideas that wouldn’t take any major investment.
I have a website for my portfolio which needs some polish, but it’s a start. I still am not sure if I should do the graphic design, mural painting, both, maybe just create a website to maintain that I can somehow get traffic to. I don’t know what would be most lucrative and most efficient in time managment. Any suggestions on how to decide, or getting started are appreciated.
Orlene
