Bottom Line Management, Inc. is excited to host the first 2011 FREE 2 hour monthly seminar entitled "What You Need to Know When You Are Ready to Sell or Buy a Business" on March 16, 2011.

Preparation is a key factor in buying or selling a business. This free seminar provides an overview of the buying and selling process, offers specifics on how to successfully prepare yourself and pitfalls to avoid.

This Seminar is for:

• Individuals who are interested in either buying or selling a business.
• CPA/accountants interested in providing information to clients interested in buying or selling a business.
• Attorneys interested in providing information to clients interested in buying or selling a business.
• Business Professionals.

To register: Click on the link of the date you prefer below and you will be guided through the easy registration process. If you have any questions regarding registration or the seminar, please contact Bottom Line Management, Inc. email: info@botline.com or call: (770) 977-7334.

If you guessed “jail”, you have either owned a retail store or worked in one. In my 25 years of being a business broker, I cannot tell you how many hundred times a buyer prospect has said to me, “I want a light manufacturing company or a distribution company but not retail. If you wonder why owning and working in retail is like a form of jail, keep reading.

With retail, you are faced with periods of inactivity and loneliness interspersed with periods of extreme activity. There is no way to know when you will be inundated with customers or left staring at cobwebs. Even taking a bathroom break can cause you to lose valuable business.

With retail, you have decisions to make as to what days you are open and what hours you work each day. If you are in a mall, those decisions are made for you by the warden or more affectionately known as the property manager. Even if you know from experience that on certain days and during certain hours, there will not be enough business to justify paying employees and keeping the store open, you are forced into hard labor regardless of the expense.

Then you have the issue of store openings and store closings. Most new business owners start out opening their stores early in the morning and closing them late at night. Then over time, they try to find an employee they can trust to do one or the other or both. But if that employee calls in sick or doesn’t show up for any other reason, the owner has to stop whatever they are doing and head back to the store.

This means those dinners, movies, sporting events, children’s activities, social events, etc. will be unexpectedly interrupted and quite a bit of disappointment will occur. Thus you never know when your life schedule will be thrown out of kilter. This uncertainly takes a toll on all family members.

Of course you have the issue of the lease agreement. The lease is a form of handcuffs that binds you to a commitment regardless of personal or business circumstances. The restraints are made tighter by way of the personal guarantee that is required where one or both spouses figuratively and literally imprison themselves. Should you ever try to seek relief from the lease agreement, it is solely in the hands of the landlord or property manager to determine whether your sentence is made shorter or if you can be paroled.

In the fourth quarter of every year, you have good news and bad news. For the most part, retail businesses live or die based on fourth quarter results. This is after enduring and trying to survive the first nine months of the year. And you always have to watch your back to make sure the competition doesn’t manhandle you.

Then we can deal with public failure coupled with embarrassment and humiliation. Your credit record will be severely damaged if you file for bankruptcy or break your lease. Items other than bankruptcy will damage your life for 7 years, and a Chapter 7 bankruptcy will hang over your head for 10 years. You will have a record that will haunt you for a decade and affect the cost of anything else you attempt to buy, finance, lease or rent. Your record will be expunged after 10 years, but the scars will last a lifetime. Applying for a job, renting an apartment, buying a car, obtaining different types of insurance, buying a home, etc. will always be constant reminders of your incarceration.

So in conclusion, anyone considering the purchase or startup of a retail business needs to fully understand everything that’s on the line. One false step by you or an employee can have life long and devastating circumstances for you and your family members. Now, I hope you understand why you should think jail when the word retail is mentioned or suggested.

Even though there maybe challenges as outlined in the article having the right tools such as using a business broker will not only help you avoid some of these pitfalls but will help make the sale or purchase of a business a smooth and successful one.

The most important reason to use a business broker is to have someone who routinely must “think outside the box.” Someone who has worked in this industry for over 20 years has probably seen almost anything imaginable. They have been called upon to mediate transactions in order to help sellers and buyers put their egos aside for the benefit of the deal. Creativity can save a transaction that has been stopped dead in its tracks. The business broker brings this creativity to the equation to help solve the problem and make everyone a winner.

Most people will purchase or sell only one business in a lifetime. You’ve got to get it right the first time. Let Bottom Line Management, Inc. show you what we can do for your bottom line. As leaders in business sales, acquisition, valuation and management services for over 25 years, Bottom Line Management, Inc. has accrued experience in over 200 industries and exceeded the expectations of hundreds of clients.

Beginning in March 2011, a FREE 2 hour seminar will be offered monthly to help people sell and buy businesses. The seminar is entitled “What You Need to Know When You Are Ready to Sell or Buy a Business.” Registration is required and attendance is limited. Stay tuned for more details – visit our website for updates.

Loren Marc Schmerler, CPC, APC is President and Founder of Atlanta based Bottom Line Management, Inc. He has been a business consultant for 40 years, a business broker for 25 years, and a public speaker at Inc. Conferences, BellSouth Symposiums and STAPLES new store openings. During the early 1990’s, Mr. Schmerler was the first and only business advice columnist for Sam’s Club where he used actual case histories to illustrate business problems and their solutions. Mr. Schmerler has experience in more than 200 types of businesses and/or industries. Bottom Line Management, Inc. offers both Seller and Purchaser representation.

2011 is a great time to buy or sell an existing business. Read why 2011 is a good time to become your own boss or sell your business to move onto a new project.

Reasons to Buy a Business

1. Many baby boomers are reaching the retirement age of late fifties or early sixties. From my experience, the most common age when business owners call me is 62. They are tired of working 40+ years since high school, the last 15 to 20 years as owners of their own businesses. The available supply of good and well established businesses has never been greater.

2. When you find a business you want to buy, the owner will be more receptive to both traditional and creative financing. Traditional financing would be where an owner holds a note for part of the purchase price. Interest rates are roughly 6% for owner notes at the current time. Creative financing would be assumption of liabilities or earn outs. Earn outs are based on a percentage of sales above certain thresholds.

3. SBA preferred lenders are more willing to make loans due to relaxed federal guidelines and the elimination of certain costs and fees. While you will not be able to obtain an 80% loan like the good old days, you should be able to easily obtain a 65% loan with you making a 25% down payment and the owner holding a 10% note.

4. Vendors are highly motivated to make sales. Their businesses have suffered financially during the last 2 years. As a result, you should be able to purchase inventory, supplies and other materials at substantial cost savings.

5. Due to the millions of unemployed workers, the labor pool is loaded with qualified and motivated prospective employees. Additionally, existing employees at the company you purchase will be highly motivated to stay with the company, since finding another job will be quite difficult.

6. You are now able to use 401k funds, IRA funds, Sep-Ira funds, etc. to purchase a business. There are many tax advantages to doing so, and you can control how much you may yourself for salary and how much you keep within the C Corporation tax free.

Reasons to Sell a Business

7. With millions of unemployed workers living off of their savings and retirement plans, there is a high demand for good businesses. And due to the unprecedented demand, multiples of Owner’s Discretionary Cash Flow are exceeding 3 where in the past the multiples ranged between 2 and 3. Thus there will never be a better time to put your business up for sale.

8. Since unemployed people have had their 401k plans and savings devastated, and they are tired of only earning .25%, they need an alternative plan. The tax code allows them to purchase a business using retirement funds and creating a C Corporation. Once the Corporation is created, all profits can grow tax free, and the new owners are not obligated to disburse profits, dividends or salaries.

9. If you are in your late 50’s or early 60’s, there is no way to know what the future may hold. Regardless of your current health, it can change unexpectedly. Or you may have issues with aging parents. By selling now, you can remove some of the uncertainty.

10. If you are willing to provide owner financing for some or all of the purchase price, you can earn interest in the range of 6% which is more than 20 times what a bank will pay you.

11. SBA financing is loosening up which will allow more prospective buyers to have an opportunity to buy your business.

12. There comes a time when quality of life becomes more important than money. Only you can decide if obtaining freedom trumps obtaining money and to what extent.

13. There are investment vehicles that will allow you to defer most or all of the seller’s proceeds. Thus there will be little or no tax liability due in the year of sale. You can work with a financial professional to set up a residual income stream that will meet your needs and spread the capital gain over many years.

If you are unsure of what type of business opportunity to purchase or looking to sell your business but are unfamiliar with what steps to take, Bottom Line Management, Inc. provides a FREE Consultation with no obligation.

Bottom Line Management will work with you to determine how your strengths and interests will align successfully with businesses that are available in the marketplace and explain the entire selling process. Call (770) 977-7334 or click here to contact Bottom Line Management, Inc. to schedule a FREE business broker consultation.

Author’s note. After helping sellers and buyers for more than 20 years, I have found that honesty, integrity, full disclosure, patience and a willingness to consider various alternatives makes the probability of success for all parties very high.

Bottom Line Management, Inc., leaders in business sales, acquisition, valuation and management services for over 25 years in over 200 industries have always exceeded the expectations of the hundreds of clients they have served. They are now pleased to announce their expansion into Website Brokerage Services.

Bottom Line Management, Inc. recognizes the fast growing industry of selling and buying online businesses can be very lucrative and rewarding. The expansion is designed to help clients achieve their goals in the online business industry.

Bottom Line Management, Inc.’s proven buying and selling process provides each client with the tools to make the sale of their website or purchase of an online business a smooth and successful one.

Bottom Line Management, Inc. assists clients interested in buying an online business navigate through the numerous and varied website businesses available in the marketplace to successfully find the right business.

In the selling process, Bottom Line Management, Inc. negotiates the best deal possible for clients and specializes in valuating businesses. Due to extensive experience in small business management consulting, Bottom Line Management, Inc. frequently finds innovative ways to increase the value of a business prior to the sale.

Bottom Line Management, Inc. was founded in 1986 by Loren Marc Schmerler, a Certified Professional Consultant and an Accredited Professional Consultant. Schmerler is thrilled to provide website brokerage services to clients states, “Bottom Line Management, Inc. has sold every home-based online business we have listed and we are proud to have helped dozens of buyers become successful entrepreneurs.”

Bottom Line Management, Inc. offers a free website business broker consultation either in person or on the phone to help clients get started on the right path in the buying and selling process.

Click here for more information about Bottom Line Management, Inc.’s website brokerage services.

About Bottom Line Management, Inc.

Bottom Line Management, Inc. is a business brokerage firm with more than 25 years experience selling businesses in over 200 industries serving clients nationwide and internationally. Bottom Line Management, Inc. was founded by Loren Marc Schmerler, a Certified Professional Consultant and Accredited Professional Consultant with a passion for helping business owners understand and maximize their bottom line.

Bottom Line Management’s federally registered slogan, “Your Bottom Line Is Our Foremost Concern”, reinforces its constant desire to put the client’s best interests ahead of its own. The firm has saved its clients millions of dollars by showing them how to “work smarter” and use their resources more effectively and efficiently to maximize the value of their businesses when they are ready to implement their exit strategy.

Bottom Line Management, Inc. is a member of the International Business Brokers Association (IBBA) and the Georgia Association of Business Brokers (GABB.) Loren Marc Schmerler is also a Business Brokerage Press Industry Expert.

Contact:

Loren Marc Schmerler CPC, APC, President
Bottom Line Management, Inc.
2985 Gordy Parkway, Suite 424
Marietta, GA 30066
770-977-7334 office
lms@botline.com

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We are excited to announce our new Bottom Line Management, Inc. YouTube Video Channel that offers Free tips and updates about buying, selling, or optimizing your business!

Check out our first video:
“Key employees and the Sale of Your Business” discusses the importance of retaining key employees when selling your business, when to tell your employees you are selling your business and more.

Click here to Subscribe to Bottom Line Management, Inc. YouTube Channel>>

If you are a seller, it’s lonely at the top. Normally, you have your spouse, your partner and possibly your CPA and attorney to assist you in making major decisions. But in reality, it falls upon your shoulders to determine whether you should or should not sell. Many times, a CPA or attorney will encourage you to stay in business because they want to retain you as a client. They do not understand the importance of freedom to an entrepreneur who has invested blood, sweat and tears over many years and now wants to take a break or a breather. Your attorney and CPA are very important in the completion of the sales process after you have made the decision to sell.

A business broker who has been helping sellers and buyers on a daily basis fully understands the trade-off between personal freedom and financial freedom. They are not oriented towards bodily retention. They are oriented towards retention of goodwill. There is tremendous personal satisfaction in having been the causal agent for matching the needs and wants of a seller and buyer who each have differing objectives.

When working with a seller, they have to maintain communication and keep telling the seller to keep their powder dry. When working with a buyer, they have to control excessive enthusiasm. There is a delicate balance that must be maintained in order to have a successful conclusion.

A business broker knows experts in various professions that can be brought to the table when necessary. It might be a CPA, an attorney, a financial planner, an investment advisor, an insurance agent, an EPA expert, a real estate appraiser, or an equipment specialist, etc.

The business broker is the quarterback for the team. They need to know when to pass the ball to another expert and let them run with it. They need to know when a conference call with the seller and buyer is adequate. They need to know when a face-to-face meeting is necessary. And most importantly, they need to know when to let the seller and buyer bond with one another. Excessive interference based on insecurity will kill the deal as quickly as inadequate personal involvement.

The business broker constantly serves as the “reality check” for the seller or the buyer. When the seller says “I want x dollars and it must be all cash” as the asking price, the business broker knows that emotion is driving this statement, and that over time, personal freedom will allow the seller to become more negotiable.

When the buyer says “find me a company for $150,000 where I can earn $100,000″, the business broker will present the buyer with a list of companies where they can earn $100,000. But the buyer will quickly find out that their expectations may differ greatly from what the market has to offer.

The most important reason to use a business broker is to have someone who routinely must “think outside the box.” Someone who has worked in this industry for over 20 years has probably seen almost anything imaginable. They have been called upon to mediate transactions in order to help sellers and buyers put their egos aside for the benefit of the deal. Creativity can save a transaction that has been stopped dead in its tracks. The business broker brings this creativity to the equation to help solve the problem and make everyone a winner.

Author’s note, Loren Marc Schmerler, Bottom Line Management, Inc., President & Founder. After helping sellers and buyers for more than 20 years, I have found that honesty, integrity, full disclosure, patience and a willingness to consider various alternatives makes the probability of success for all parties very high.

Step #1: Define your goals.

Determine what you hope to gain from your new business and be honest with yourself. Understand your strengths and weaknesses and any limitations you may bring to a new business. Outlining your goals and capabilities upfront will be the cornerstone of your success.

Step #2: Get your finances in order.

Put together a comprehensive Personal Financial Statement and be sure that your bank records, tax returns and personal bookkeeping are up-to-date. Depending on how you choose to finance your purchase, you will need any or all of this documentation at your fingertips.

Step #3: Find the right fit.

Finding the right business starts with selecting a qualified and experienced broker. BLM has expertise that is both deep and wide in over 200 industries. We will guide you in researching prospective sellers and help you to target the right fit.

Step # 4: Create a business plan.

Know what you want to do with a prospective business and where you want to take it before putting in an offer. With clear objectives for the future, you will understand what you are willing to negotiate for the business, and you will have a plan of action from Day One of ownership.

Step # 5: Put in an offer.

Bottom Line Management will work with you to craft an attractive offer to your prospective seller. We are skilled negotiators and will get you under contract quickly, while minimizing the “back and forth” time.

Step # 6: Complete due diligence.

Examine the books and records of the company you wish to purchase carefully. We encourage you to work with a CPA during this process to ensure a clear stamp of approval of the business’ financial health.

Step # 7: Close the deal.

Bottom Line Management will work with you from contract to closing to ensure that all the necessary paperwork is in order and that the business has seamlessly transitioned to you.

Step # 8: Make the transition.

Upon purchasing a new business, you will typically have a training and transition period negotiated with the former owners of the business. This period generally lasts about 4 weeks. It is important to understand what has made the business operate successfully prior to your ownership and assess what changes will be made in the future.

Author’s note. After helping sellers and buyers for more than 20 years, I have found that honesty, integrity, full disclosure, patience and a willingness to consider various alternatives makes the probability of success for all parties very high.

I had been promising myself that this article needed to be written before another day passed. To put it in perspective, you must understand the simple reality check I routinely perform when I first meet with business partners, husbands and wives, or single owners of a business. It is fun for me to perform a visual analogy where I hold up my two hands parallel to one another and perpendicular to my chest.

I explain that the right hand is the “money” hand and the left hand is the “freedom” hand. The “freedom” hand signifies that the primary reason for selling the business is to obtain freedom so that other priorities can be pursued or handled. I always ask my prospects where they fall on the spectrum between money and freedom.

Examples of preferring freedom to money might be that one of the owners has a health problem, or that there are aging parents to look after. Another common reason for freedom is simple burnout. Whenever a person has worked 15 to 20 years at the same business, they simply get tired and need a change.

You might be surprised to know that 95% of the time my prospects indicate that freedom is more important than money. But what about the other 5%? Why do they say money is of greater importance? Possible reasons include: I owe the bank x dollars; I owe relatives x dollars; I owe myself x dollars; I have put blood, sweat and tears into this business and want to get paid for it; I want to get back every dollar I put into the business, etc.

I explain to my clients that I am willing to list their businesses for whatever price they desire, but there are risks to consider. Everyone understands the expression “I don’t want to leave money on the table” by pricing the business too low, but not everyone understands the danger of overpricing a business and scaring off bonafide prospects who might have bought the business had it been priced correctly.

Given today’s economic environment, I now need an extra hand. Most business owners in their late 50’s and early 60’s thought they would be able to retire and live off of interest, dividends, pensions and social security. But, when their personal fortunes plummeted by 40% to 50%, all bets were off. Now I am hearing people tell me that they prefer freedom to money, but they must sell their business for enough money to be able to live freely.

So the selling strategy must be somewhat altered. A listing price must be adequate to meet the owner’s financial needs so that they can be free to live their lives comfortably. If they cannot sell the business for the correct amount, they will have to accept that they may not be able to retire and may have to continue owning the business and working in it whether they want to or not.

I would like to make another observation about setting an initial asking price too high. Contrary to what you might think, a buyer will not make an offer, even a low-ball offer, if he or she feels the price is unreasonable. They will simply continue looking until they find something they feel is priced more reasonably. Then several months into the listing, the owners will lower the price and tell me that freedom is looking a whole lot more important than it did at first. So they will ask me to contact anyone I spoke with previously when the listing was over-priced. When I do as requested, two equally bad things may take place. Either the potential buyer has found something else and is no longer interested – or worse yet, they now think there is something wrong with the listing since we are now chasing them instead of the other way around.

In conclusion, you need to do a great deal of soul searching before deciding whether now is the right time to sell your business – and if so, at what price. Our firm will be happy to meet with you to discuss your options.

Author’s note. After helping sellers and buyers for more than 20 years, I have found that honesty, integrity, full disclosure, patience and a willingness to consider various alternatives makes the probability of success for all parties very high.

Tip #1: Give yourself a reality check.

Do you have the courage to take the entrepreneurial leap? Forget about the cozy comfort of the corporate environment where you can have someone else take out the trash, clean the bathroom, get your coffee, pick up your dry cleaning, etc. The buck stops with you, and you will be taking 100% responsibility for everything.

Do you have adequate working capital for one or more years? If you are a start-up, you may not see a return on investment for a few years. If you are buying an existing business, the best laid plans of mice and men can sometimes become undone. Most, if not all, undercapitalized businesses will fail eventually. I have seen some fail in months while others have a painful death of years.

Have I gotten your attention with my cautionary tales? Remember that buying a business can be the most fulfilling, yet the most challenging, experience of your life. It’s best to be prepared about what you may experience because that preparation will likely be the key to your success.

Tip #2: Learn the upside of hiring independent contractors.

In your new business, do you want to manage employees or just yourself? Using independent contractors is a great way to operate a business if you are sure they will perform to your expectations and standards. Managing employees often forces you to worry about issues dealing with health insurance, retirement benefits, employment tax, workers’ compensation, overtime, etc.

As stated by the IRS, three characteristics are used to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.

• Behavioral Control: Covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
• Financial Control: Covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
• Type of Relationship: Relates to how the workers and the business owner perceive their relationship.

Tip #3: Step back and observe.

Do you know what your strengths and weaknesses are? Are you strong at selling, strong in finance, strong in operations, strong in marketing, strong in supervision, strong in organization, strong in customer service, strong in planning, etc.? It is highly unlikely that you can do all the preceding well. When you purchase a business, it’s important to understand exactly how you will fill in the blanks with other resources.

My best advice is the old adage: If it’s not broken, don’t fix it! Would you be able to leave a business alone that is not broken for at least 3 months after the purchase? It’s important for you to take the time to observe from the inside how the business operates and examine where there’s room for improvement. If you don’t do this, you risk the possibility of self-destructing, scaring off your loyal customers and running off your employees.

During your 3-month observation period, I encourage you to have regular meetings with your staff and keep the communication open. Solicit their advice, counsel and suggestions for improvement and positive change as they see it. Then, as you make changes, be sure to explain why you are “trying them out” to see if things improve. If they don’t, put your ego aside, admit your mistake and return to the basics. A little humility goes a very long way.

Tip #4: Create strategic alliances.

Are you willing to create strategic alliances to protect the health of your business? I encourage you to regularly share your financial statements with your banker, CPA and attorney. Your banker can give you a line of credit, your CPA can give you excellent tax advice and help you understand the numbers, and your attorney can help you avoid litigation or any other worst-case legal scenarios.

As a business owner, would you be able to admit when you have made a mistake? Are you willing to take full responsibility for it and do whatever is necessary to correct it? If you stay in denial until the bitter end, there may be no way to recover from your error. This is probably the most important thing to remember: You will not have a boss leaning over you to correct you. If you do not work with your strategic partners to keep your business running smoothly from the inside out, it may prevent you from achieving the highest level of success.

Author’s note. After helping sellers and buyers for more than 20 years, I have found that honesty, integrity, full disclosure, patience and a willingness to consider various alternatives makes the probability of success for all parties very high.

Tip #1: Make sure you really want to sell your business.

First, ask yourself the tough questions: Are you bored, burned out, ill, have a new child, have aging parents that need your assistance? Or, are you simply unhappy with how much money you are making? If you’ve answered yes to any of these questions, you may not need to sell your business. Quite possibly, what you may need is some guidance to get it back on the right track.

An experienced business consultant can help you refocus to see the forest for the trees. You might find out that once you start making enough money, you do not want to sell after all. But, if you conclude that selling is what you want to do regardless of any of the above-mentioned variables, then you should proceed to the next step.

Tip #2: Rate the “curb appeal” of your business.

After you are 100% sure that you want to sell your business, I suggest that you drive up to your business to determine if the following applies to you: Are there any potholes in your parking lot? If so, fix them before a buyer shows up. Is the landscaping out of control or unappealing? If so, replace it with attractive shrubbery that is well-maintained.

Are the windows clean? If not, get them washed. Is the building exterior clean? If not, schedule a professional pressure washing. Does the roof look old or damaged? If yes, then make the necessary repairs. Does the building need to be painted? If so, get it done.

In brief, be objective to ensure the “curb appeal” of your business has no obvious and easily correctible issues. This may seem like overly simplified advice, but remember that a buyer will be paying a considerable sum of money for your business. You don’t want to turn a prospect off with a bad aesthetic first impression.

Tip #3: Look around the inside of your workplace.

Once you have fixed any exterior issues with your business, it is now time to examine the interior from top to bottom. Start with the ceilings. Are there any water stains from roof leaks? If so, fix the leaks and replace the tiles. Are there any light bulbs that need to be replaced? If so, get on a ladder and put in new and shiny bulbs. Does any of the furniture look ratty? If it does, either repair it or replace it.

Are there scrape marks on the walls? If yes, then have them repainted. How about your employees’ desks? Do they look organized or out of control? Insist that your employees maintain neat and orderly working areas. How about the rest rooms? Are they an embarrassment? If so, clean them up and keep them tidy. Are they handicap accessible? If not, make arrangements to bring them up to code.

Most importantly, look at your office with a keen eye. Remember that when a buyer tours your business, you want them to visualize becoming the owner and being proud to do so.

Tip #4: Evaluate your infrastructure.

After you have fixed any interior “physical” issues with your business, it is now time to look at job descriptions, policies and procedures. First and foremost, you need to draft your own job description that covers what you do daily, weekly, monthly, quarterly, semi-annually and annually. It should be very detailed, and make certain you have someone proofread the final product and correct any errors.

After you are satisfied with your job description, ask all of your employees to complete theirs. This process has several benefits: First, your employees will see how much they actually do. Second, it will give you a chance to see if they are doing what you think they are doing. Third, it will tell you whether they are doing what they should be doing. When all the job descriptions are complete, place them in an organized binder labeled “Job Descriptions.” Then, you will move on to policies and procedures.

Tip #5: Assess your policies and procedures.

Now that you know what you do and what all your employees do, it’s time for policies, procedures and controls. With regard to employees, you need to cover hiring, evaluations, probations, vacation, sick days, holidays, etc. If your company has positions where employees must have background checks, drug tests, reference checks, etc., you need to speak with a labor attorney to dot all your i’s and cross all your t’s.

When asking a prospective employee to complete an application, it is best to stay away from questions that deal with pregnancy, military status, race, national origin, etc. If you decide to hire an employee, make sure they complete a W-4 form, an I-9 form and the appropriate state form. Should your labor pool have a large number of Hispanics, you will need to consult with a labor attorney to insure you do not hire illegal immigrants. Severe penalties can result. With regard to vacations and sick pay, it is best to let them accrue a day or less for each month worked. More policies and procedures will be discussed in Tip Number 6.

Tip #6: Stay current with all your employee evaluations.

It is very important to stay current with all employee evaluations. Employee morale can be devastated if reviews are delayed or not given at all. Plus, it is grossly unfair to ask a new owner to review employees with whom he or she has never interacted. A prospective owner will most certainly ask about employee turnover and employee tenure. But one question that is rarely or ever asked is whether you have any “problem” employees.

That brings up the issue of probation. Probation can be a way to successfully rehabilitate a wayward employee, or it can be the final process to document a termination in such a manner that a legal challenge to the termination will not prevail. When an employee is put on probation, the leash should be very short. The employee must know exactly what behavior will be tolerated and what behavior will lead to immediate termination. Interestingly enough, putting a person on probation sometimes leads to an outstanding employee.

Tip #7: Keep your financial statements current.

Nothing frustrates a prospective purchaser more than asking for current financial statements and tax returns and being told that they are not available. Worse yet is being told that a date cannot be given for when they will become available. Talk about red flags. How can you run a business without current and accurate financial statements?

The short answer is that you cannot do so. As a business owner, you must anticipate the purchaser’s questions regarding all financial matters and have current statements to defend your answers.

When I say financial statements, most people think of a profit and loss statement (also called the income statement.) But the balance sheet is equally important. The combination of these statements tells you whether a business is losing money and gives you a picture of the company’s financial health. There are certain subtleties to keep in mind. For instance, a high level of inventory can indicate several different things. Maybe much of it is obsolete or slow moving. It can be a purchasing mistake that will hurt a business or a brilliant purchase at a great cost. Only with thorough investigation will you determine the true answer.

Tip #8: Ensure your tax returns are in tip-top shape.

Have you filed all your tax returns? Specifically, I mean monthly sales tax, monthly state withholding, quarterly payroll taxes, quarterly state unemployment insurance, annual unemployment insurance, annual ad valorem, annual corporate tax, annual state tax and any local, county, city or other special taxes.

It is absolutely critical that you are current with all these returns to instill confidence in your business’ prospective purchaser. But when it comes to sales tax, if you have not filed and paid all returns, there are very negative consequences. The penalties and interest are exorbitant, but in addition, unpaid sales taxes become the responsibility of the new owner. I was once at the closing table waiting for the checks to be written when the Georgia Department of Revenue called and told the closing attorney that the seller had not paid sales tax for the last 3 years. Upon hearing this, the buyer stood up and left the closing. Needless to say, the company was not sold and eventually shut its doors.

While we are on the subject of taxes, you need to have a heart to heart talk with your CPA regarding taxes when you sell your business. Should the sale be an asset sale? Should the sale be a stock sale? There are bona fide reasons for each type sale. An asset sale limits your exposure for past liabilities, errors and omissions. An example would be a product liability claim for a structure or machine that becomes faulty. A stock sale allows for ease of transferring contracts presently in force. A stock sale is also critical in the medical industry when a Medicare number might be involved. But there is another angle. The stock sale allows for the company to be sold for less money while still letting the owner realize the same or greater after tax position.

Tip #9: Understand the meaning of due diligence.

What is due diligence and how do you prepare for it? Due diligence is the process where the buyer tries to validate everything you have represented both verbally and in writing. The buyer will scrutinize your financial records, your legal records, your employment records, etc.

With financial records, the process starts with the tax returns, goes backwards to the financial statements, goes backwards to the general ledger, goes backwards to all source documents that include bank statements, deposit slips, check stubs, cancelled checks, vendor invoices, client/customer statements, etc.

To prepare for the financial side of due diligence you should assemble tax returns, financial statements, general ledgers, bank statements, deposit slips, check stubs, cancelled checks, vendor invoices, client/customer statements, etc. for the last 3 years. Tax returns, financial statements and related items should be in date order from the most current to the oldest. Vendor invoices and client/customer statements should be in alphabetical order first and then in date order for each vendor or client/customer. Employment records should be filed alphabetically, but you better make sure you have a W-4 form, an I-9 form and a state form (G-4 for Georgia) for every employee.

Tip #10: Tie up your legal loose ends.

There is a legal side to the due diligence process as well. Are you a valid legal entity such as a partnership, corporation or LLC? Is your annual filing of officers and registered agent current? Have you maintained your Corporate Minutes and held annual Board of Directors and Shareholders meetings?

Do you have outstanding liens for debts that have been paid off? If so, you need to contact the creditor and ask them to remove them. If this is not done, the closing attorney will have to withhold funds in escrow until the actual status can be determined.

Have you paid all of your payroll taxes? If not, you may have undermined a possible sale. Have you paid all sales tax that is due? If not, I can tell you from personal experience that this can demolish a probable sale. Is there any outstanding litigation that affects you as either a plaintiff or a defendant? Are all your employees legal, and do you have proof? Are there any patents, trademarks or service marks that need to be protected? If real estate is involved, do you have a deed to prove ownership? Do you have a plat that clearly shows boundaries of the property? Do you have any contracts with vendors or clients/customers? Is your company minority owned, and if so, how would a change in ownership affect your business?

Author’s note. After helping sellers and buyers for more than 20 years, I have found that honesty, integrity, full disclosure, patience and a willingness to consider various alternatives makes the probability of success for all parties very high.