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Top 5 mistakes to avoid when selling your business

No matter what stage your business is in, selling is an option on many minds, but there are major obstacles just waiting to trip you up. One expert shares what exactly those are so you will have the advantage.

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So you’ve built a business, and you’re thinking of selling

While many entrepreneurs are not building with an exit plan in mind, a tremendous number are, so we asked FourBridges Capital advisor, Andy Stockett what mistakes he commonly sees businesses make. Regardless of whether you are just starting off, or you have already built a successful brand, if selling your business is even a glimmer in your eye, heed Stockett’s observations below, as he outlines the top five mistakes to avoid when selling your business:

1. Thinking you’re ready to sell when you’re not

For most business owners, selling a company is a once-in-a-lifetime event. Consider how emotionally invested you are in your company, and how your life will change when you let it go. Will you be equally happy and fulfilled doing something else?
You’ll also want to ask some hard questions about your financial expectations. Do you have an idea of your company’s true value? What are your personal financial goals? Will a transaction help you achieve those goals, or could it set you back?

2. Thinking your business is ready to sell when it’s not

Emotionally and financially, you might be raring to go. But is your business?
Some factors can lower your business’s value in a sale or keep a sale from happening altogether. For example: Do you have any contracts that aren’t assignable? Did you agree to a right of first refusal? Is your customer concentration high?
If you answered “yes” to any of those, you could have some issues on your hands. They can be corrected, but it takes time. Identify any problems that can be spotted on the surface, which could keep a buyer from biting. And then, take a deeper look: you don’t want any skeletons lurking in your closet that could scare off an interested party farther down the line.

3. Not having a team of experienced M&A experts

A professional boxer doesn’t go up against an opponent alone. Sure, it’s just the two of them in the ring, but at the very least, he’s got his manager, trainer and agent right behind him. Similarly, a buyer shouldn’t hit the market solo. Before he considers a transaction, he should have an investment banker or financial advisor on his side, as well as an experienced corporate attorney and someone who can provide solid tax advice.
Remember: buyers are pros. If you’re looking to sell to a private equity group, know that they do this for a living. And if you’re considering a strategic acquirer, you’ll often be dealing with experienced business development executives. Be sure you have a team of knowledgeable experts that not only can anticipate issues before they arise, but can also help you resolve them when they do.

4. Assuming you know who will buy your company

Perhaps you have a competitor who has persistently offered for years, or maybe you’re getting calls from a private equity group with increasing frequency. When you get to the selling point, it’s tempting to take the first offer and run with it. But the obvious buyer isn’t always the right buyer. In fact, a lot of them are bottom fishers, and they won’t give you what your company is really worth. So make it an auction – and sleep soundly at night, knowing that you’ve maximized your value.

5. Operating your business as if you’re selling, before you sell

As long as you own your business, running it should be your top priority. The selling process is important, but that shouldn’t take away from daily operations and established corporate objectives. If you decide to skip out on a great contract or choose not to invest in necessary equipment because you think you smell a transaction, that’s risky. You never know what will happen on your end, or on a potential buyer’s end. For many reasons, the most promising deals can stall or completely fall through. So keep your eye on the ball – and let your trusted advisors help you take care of the rest.

The takeaway

Stockett’s advice comes from many years of experience, and avoiding these obstacles can put you miles ahead of your competitors and put you in the best position to be a viable company to buy in the first place. Don’t get ahead of yourself, back your brand with the right time, and never make any assumptions about the future.

Marti Trewe reports on business and technology news, chasing his passion for helping entrepreneurs and small businesses to stay well informed in the fast paced 140-character world. Marti rarely sleeps and thrives on reader news tips, especially about startups and big moves in leadership.

Business Finance

Politicians reconsider PPP rules too cumbersome for small businesses

(BUSINESS FINANCE) The PPP loans may have some changes coming soon, to help small businesses even more by extending the time they have to spend the money.

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Congress has reported talks over fixing parts of the Paycheck Protection Program (PPP), a key program designed to help businesses during the coronavirus pandemic. Changes could range between small tweaks to an overhaul of program requirements. Congress remains divided over a phase four relief bill (passed in the House last week) which includes several of those PPP changes.

The PPP was created to provide forgivable loans to businesses with fewer than 500 employees. Although the Treasury is continuing to offer updated guidance, any significant changes will require approval from Congress.

One of the major potential changes is an extension to the eight-week time frame for businesses to spend their loan money. Senator Marco Rubio (R.-Fla.) is advocating the change. He told reporters “I think the more important thing to change is the time frame in which they can use it for,” Rubio told reporters. “We do need to give them more time to spend those monies.” The hope is to pass those changes before the first PPP loan recipients reach their deadline in early June.

Other changes proposed in the House bill include extending the spending time period to 24-weeks and eliminating the requirement for 75 percent of loan spending on payroll in order to qualify for full forgiveness. The flexibility could allow recipients to allocate money towards rent, another challenge facing small business owners. While Senate Republicans haven’t shot down that option, they’ve voiced concern on the spending rule which was originally designed to keep workers employed. Meanwhile, Democrats argue for flexibility which could support businesses with fixed costs. Both sides are open to discussing a 50 percent payroll and 50 percent additional cost breakdown in a new PPP changes.

The Small Business Administration has reported $195 billion from the $310 billion of the second tranche of PPP has been approved. With no defined plan to reopen the country, small businesses are counting on relief programs. Senior White House advisor Kevin Hassett has said the government can’t continue to lend money to businesses indefinitely. “It is something we can do through Jun, I would, guess if there’s enough cash for that.”

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Business Finance

Unless you call your representative, the IRS will be forced to screw PPP recipients

(BUSINESS FINANCE) Small business owners, can your Covid-19 loans really be forgiven? “Free money” never sounded so good…or bad. The CARES act missed a vital tax hole.

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The Paycheck Protection Program (PPP) portion of the Coronavirus Aid, Relief, and Economic Security Act (CARES) was hailed as a revolutionary life line to small businesses that had to shutter their doors against the plague.

Basically, the Feds said: Keep your expenses up, pay your staff so they don’t have to go on assistance, and not only will we loan you the cash to do so, so long as you can prove it was spent stimulating your business, we’ll not only forgive the loan, it won’t be taxed as income.

Right said, Fed. But some sharp-eyed readers of the letter of the law say they’re too savvy for these loans, and here’s why.

It was announced on April 30th that anything paid with PPP payments won’t be tax deductible.

Specifically, the IRS says, expenses that qualify a business owner loan forgiveness cannot be deducted from 2020’s tax filings, in order to keep people from getting “double tax benefit[s].” You can read up on the tax code citations and legal precedents right here, straight from the tax horse’s mouth.

So what’s happening here is you can “enjoy” free money from the government, but if you were counting on it being non-taxable income, then you’d best count again.

I may be a simple country (adjacent) April, but is the purpose of handing out money somehow… NOT to put business owners AHEAD?

This move strikes me as a ship throwing someone in the water a life-vest… then sailing off without reeling them in.

‘Well you don’t want people to double-dip,’ is a rebuttal I’d expect. Or ‘that’s how the CARES Act was written,’ but right now we’re dealing with people and their businesses needing EXTRA. Not ‘a bit,’ not ‘enough,’ but quantifiably EXTRA help in order to do better than just tread water. We NEED that extra dip… and individual bowls for everyone while we’re at it.

“No half measures,” as a wise, narcissistic fictional criminal once said. Brian Cranston won an Emmy for delivering that line, so I figure it’s stand-by-able.

As of right now, there’s not much that can be done except for business owners to gather and lobby their representatives en masse to alter the language of the CARES Act, or add an amendment to it that allows the IRS to let the deductions business owners need to slide.

As is, strict interpretation of the law doesn’t give our beloved agents enough wiggle room to LET this money be deducted. And I’m guessing that the IRS isn’t really the type of agency to DO interpretative judgements as a matter of course so… the ball is in Congress’ court on this one.

Fortunately, it seems like they’re taking it and running with it!

On May 12, a bill aptly named the HEROES Act was proposed in the house, and it clarifies: “For purposes of the Internal Revenue Code of 1986 and notwithstanding any other provision of law, any deduction and the basis of any property shall be determined without regard to whether any amount is excluded from gross income under section 20233 of this Act or section 1106(i) of the CARES Act.”

They’re reaching past the last stimulus bundle (that I haven’t received my share of yet by the way, cough cough) with a total of three trillion as a distribution goal. That’s a three followed by twelve zeroes, sweeties. And this is all cold, hard, tax free, DEDUCTIBLE cash.

My advice here? Get your letter-writing hands ready, business owners! It’s not a law YET, so keep pushing your politicians as best you can, and telling your friends, (and sharing our articles) And best of luck.


Sidenote from the Editor: Research for this story includes insights from Caleb Ellinger at Ellinger Services (CPA wizard (our word, not his) in Austin who is very well known as serving startup and freelance communities).

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Business Finance

Companies seek brownie points by returning PPP cash they shouldn’t have applied for

(BUSINESS FINANCE) It turns out some large national companies received millions of dollars of the PPP loans that were pitched as for small businesses, what gives?

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The CARES Act, passed last month in response to the COVID19 pandemic, allocated over $370 billion to small businesses in the form of PPP loans. The Paycheck Protection Program (PPP) was hastily ran through Congress, with many of the small details left for the SBA, IRS and other entities to iron out, even though the legislation was over 800 pages.

Now, Bloomberg is reporting that many small businesses are returning loans as the Trump administration issues new guidance for these loans.

PPP loans- confusion over eligibility, rules and restrictions

The PPP was designed to incentivize employers to maintain payroll through the pandemic. The law’s intent was to help small businesses, non-profits and smaller organizations without other resources.
Within just a few days, the money was exhausted.

As Congress allocated more money for the program, it came to light that many larger businesses made requests for the money. Shake Shack, a national chain, received $10 million. Ruth’s Chris steakhouse received $20 million. Even the Los Angeles Lakers received about $4.6 million through the PPP. It should be noted that each of these entities returned the money. Technically, each of the entities qualified under the PPP, too.

Treasury Secretary Steven Mnuchin and the SBA announced that all PPP loans over $2 million will be reviewed to ensure borrower eligibility. The SBA continues to provide guidance for the PPP loans. One financial expert likened it to building the plane while it was still in the air. Some companies are receiving guidance that no publicly traded companies qualify, even though these companies have received PPP funding, and some intend to keep it.

If a company doesn’t qualify for the PPP, they could face criminal charges for making false certifications on their loan applications. This could include statements that indicate the PPP funding is necessary to support ongoing operations.

Return the PPP money or not?

The SBA is giving borrowers a deadline of May 14 to return PPP loans without any legal trouble. Some companies are returning the money, not only because of public backlash, but to avoid problems. The government is sending a message that it will be vigilant over the use of PPP funding. There are still so many questions about how the loans will work and will be forgiven, it pays to tread carefully if you’ve received more than $2 million in funding under PPP.

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