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Number 1 Reason For Selling Your Business

What is the Number 1 Reason I hear when speaking to Business Owners about selling their business? Why are you looking to sell your Business? “Because I Am Ready”. For those of you who have owned a business for any period of time this is a response that is fairly easy to understand. I am a business broker based in Florida (and business owner) and speak to many prospective buyers and sellers of companies and understanding the “Why” for both parties is so important in assisting the buyers and sellers of businesses. I really think that most people that have given a fleeting thought to buying a business believe that owners want to sell their company and therefore something must be wrong with the company. Good companies get sold for very good reasons. Being “ready to do something else” is a good reason. A seller of a company needs to be ready to sell. Really- you only really exit your business by 2 means.

1. By your choice-your timeframe, your plan.

2. Not by your choice- closing due to company failure, business conditions, bankruptcy, Forced Sale.

Granted there may be certain undesirable company or personal events that prompts one to “be ready”. An owner may have additional employee problems and decide that enough is enough and that is the impetus to sell ones business. New frustrating regulation, customer problems, and any one of numerous problems an owner may face may be the “final straw” and induce a an owner to pursue the sale of the business. But again for any owner that has owned and managed a business for an extended period of time problems such as these come and go. Business can be going quite well and the owner may just be ready to move on. Actually selling a business while the company is doing well is a well thought out exit strategy for a business owner. And yes problems can and, do come along with the business. Problems within the company does not make a business a bad business. A business owner may “just be Ready” to:

  • retire
  • try something new- a second career
  • want to move or relocate
  • Just be done running the business. I have been running for the last 20 years.

I am not aware of the existence of a Perfect Business. Even the best of opportunities will likely contain issues and or undesirable situations. But if you truly want to own your own business and move into the role of business owner- Understand that good business are being sold by owners that are just ready…. to move on.

How to Manage Your Business and Get Results

The desire of anybody setting up a business is to make profit and sustain the business. But mastering the fundamentals of business success is critical to making any headway in one’s business engagement(s). This is especially so because business is both an art and a science. That is, it is a matter of practical experience, calculation, foresight and fortune.

However, one does not need to be weighed down by the thought of having to master art and science intricacies of business success, because Peter F. Drucker has come to the rescue with his book entitled “How to Manage Your Business and Get Results”. Drucker is a business management consultant of repute who is concerned with the economic tasks that any business needs to perform to be able to achieve enviable results.

He says this book attempts to organise these tasks so that executives can properly organise them so systematically, understandably and reasonably with the possibility of accomplishing tangible results.

Drucker asserts that though practical rather than theoretical, the book has a thesis. He adds that economic performance is the basic function and contribution of any business enterprise, and the major purpose of its establishment. The author stresses that to achieve economic performance and results, a lot of (hard) work is required, and the work has to be thought through and done with direction, method and purpose.

According to him, this book contains secrets of business success, and emphasises the need to focus on opportunities rather than problems in any business engagement.

As regards structure, the book is segmented into three parts of 14 chapters. Part one is eclectically christened “Understanding the business” and contains the first eight chapters. Chapter one is entitled “Business realities”. According to Drucker here, it is a universal complaint that executives give neither sufficient thought to the future. He adds that every executive voices it when he or she talks about his or her own working day and when he or she talks or writes to his or her associates. Drucker stresses that it is a recurrent theme in the articles and management books.

This business management expert says it is a valid complaint and executives should spend more time and thought on many other good things, their social and economic responsibilities for instance. He says both they and their businesses pay a stiff penalty for the neglect. Drucker asserts that to complain that executives spend so little time on the work of tomorrow is futile. He adds that the neglect of the future is only a symptom and an executive slights tomorrow because he or she cannot get ahead of today. Drucker says that too is a symptom and the real disease is the absence of any fountain of knowledge and system for tackling the economic tasks in business.

The business management expert educates that it is a matter of necessity for executives to spend more time and meditation on the future of their businesses. He expatiates that they should also spend more time and thought on their community responsibilities.

Chapter two is based on the subject matter of the result areas. Here, Drucker says the basic business analysis starts with an examination of the business as it is now and the business as it has been bequeathed to us by indecisions, actions and results of the past. He explains that we need to see the hard skeleton, the major stuff that is the economic structure. According to him, we need to see the relationship and interactions of resources and results of efforts and achievements of revenues and costs.

In Drucker’s words, “Specifically we need first to identify and understand those areas in a business for which results can be measured. Such result areas are the businesses within the larger business complex; products and product lines (or services); markets (including customers and end-users); and distributive channels….”

He educates that the analysis of the result areas has to begin with products or services and particularly with a definition of “product”. Drucker says questions regarding product-definition, though not simple, are at least known and understood by every experienced executive. He adds that this alone makes product analysis the best place to start.

Chapter three examines the concept of revenues, resources and prospects. Here, Drucker says every executive today is inundated with figures, and more and more data pour out daily. He educates that many businesses will ask that their financial analyses be based on cost accounting. The author explains that the answer is that it is misuse of cost accounting to derive from it, figures for a particular product’s share of total business costs.

Drucker educates that cost accounting has to find a place for every penny spent, and where the cost accountant cannot document what costs are directly incurred in making this or that product, he or she must therefore allocate. The author adds that the cost accountant can only do so by assuming that all non-direct costs are distributed either in proportion to direct costs or in proportion to the sales price of a product.

In chapters four to eight, Drucker examines concepts such as how we are doing; cost centres and cost structure; the customer as the business; knowledge as the business; and the business being ours.

Part two is generically entitled “Focus on opportunity” and covers three chapters, that is, chapters nine to 11. Chapter nine has the thematic focus of building on strength. Here, the author says analysis of the entire business and its basic economics always shows it to be in worse disrepair than anyone expected.

He explains that the products everyone boasts of turn out to be yesterday’s breadwinners or investments in ego. Drucker stresses that activities which no one paid much attention to later turn out to be cost centres and so expensive as to endanger the competitive position of the company. According to him, what everyone in the business believes to be quality turns out to have little meaning to customers.

Important and valuable knowledge either is not applied where it could produce results or produces results no one uses, asserts the author. Drucker says, “I know more than one executive who fervently wished at the end of the analysis that he could forget all he had learned and go back to the old days of the ‘rat race’ when ‘sufficient unto the day was the crisis thereof’.” The author adds that but precisely because there are so many different areas of importance, the day-to-day method of management is inadequate even in the smallest and simplest business. Drucker says because deterioration is what happens normally – that is, unless somebody counteracts it – there is need for a systematic and purposeful programme. He expatiates that there is need to reduce the almost limitless possible tasks to a manageable number. Drucker stresses that there is need to concentrate scarce resources on the greatest opportunities and results.

In chapters 10 and 11, the author X-rays the concepts of finding business potential and making the future today.

Part three, the last part is based on the general subject matter of a programme for performance and contains three chapters, covering chapters twelve to fourteen. Chapter 12 is tagged “The key decisions”. Drucker educates here that decisions are made and actions are taken at every step in the analysis of a business and of its economic dimensions. He adds that insights are “bled off” and converted into tasks and work assignments. At every step of the analysis there should be measurable results, guides the business management expert.

He says but for full effectiveness, all the work needs to be integrated into a united programme for performance. Drucker stresses that making the present business effective, may require one specific course of action. He adds that making the future of the business different may require a different action. “Yet what is done to make the present business effective inevitably commits resources, inevitably molds the future,” educates Drucker.

He expatiates that what is done to anticipate the future inevitably affects the present business in all its policies, expectations, products and knowledge efforts. The author says major actions in every one of the economic dimensions therefore have to be consistent with one another.

The business management expert adds that conflicts between the conclusions of the various analyses have to be reconciled. He submits that there has to be balance between the efforts, otherwise one effort undoes what another has been trying to achieve. Drucker explains that the hard reality of the present must not be obscured by the lure of tomorrow’s promises.

In chapters 13 and 14, Drucker beams his analytical searchlight on the concepts of business strategies and building economic performance into a business.

If there is one thing that makes this book a classic, it is the depth and creativity of the contents. By segmenting the text into three parts of 14 chapters, Drucker is able to make the book easy to read and study. The number of chapters, that is, 14, creates some poetic allusion as it reminds one of the fourteen-line poem technically called “Sonnet”.

The vehicle of communication, that is, language of the book is still contextually simple despite the technicality of the subject matter. What’s more, the “Stylistics” tool of “graphology” is also employed in the design of the title of the book on the outer front cover where keywords such as “Manage”, “Business” and “Results” are put in capital letters to convey their conceptual importance, while other less important words are in small letters. There is also application of separate colours to the keywords and less important words to show interface between visual distinction and conceptual uniqueness.

Also, the book looks like a typical essay in that it has the introduction, body and conclusion. Another of the enviable achievements of Drucker in this book is the combination of specific economic analyses with enviable knowledge of entrepreneurship or business success.

However, one of the errors noticed in the book is “Acknowledgement” instead of “Acknowledgements”. On page 28, omission of a comma immediately before the word “Figures” from the expression “…it is misuse of cost accounting to derive from it figures for a particular product’s share of total business costs” seems to make the expression ambiguous”. It is supposed to read “…it is misuse of cost accounting to derive from it, figures for a particular product’s share of total business costs”. Also the layout of the book needs to be improved upon to make it (more) eye-friendly.

In a nutshell, this text is a reservoir of effective business management strategies. If you want to run a successful business, then you need to read and digest this book. It is conceptually precious.

Tax Efficient Investments

When it comes to investments there are four types from a tax standpoint:
1. Taxable Investments
2. Tax-Free Investments
3. Tax Advantaged Investments and
4. Tax Deferred Investments

The purpose of this article is to provide an overview of the types of investments that are the most tax efficient.

FEDERAL AND STATE TAX-FREE INVESTMENTS
1. Municipal Bonds – Exempt from state tax of the state in which the obligations are issued
2. Municipal Bond Funds – Exempt from state tax of the state in which the obligations are issued
3. Municipal Bond Trusts – Exempt from state tax of the state in which the obligations are issued
4. Cash Surrender Value Loans
5. Roth IRA
6. Roth 401(k)
7. 529 Plan distributions used for qualified higher education expenses, including room and board
8. Series I or EE Bonds – Earnings exempt if used for qualified higher education expenses
9. Coverdell IRA (aka Education IRA) – Earnings exempt if used for qualified education expenses (tuition:
elementary school, high school, tutoring and college)
10. Earnings on investments held in Health Savings Arrangements used to pay for eligible medical expenses

STATE TAX-FREE INVESTMENTS
1. Treasury Bills
2. Treasury Notes
3. Treasury Bonds
4. Sallie Mae Mortgage Backed Securities
5. EE Bonds
6. I Bonds

TAX ADVANTAGED INVESTMENTS
1. Real Estate Investments
2. Rental Properties
3. Principal Residence – Up to $500,000 ($250,000 if single) of gain excluded
4. Single Premium Life Insurance Products
5. Traditional IRAs
6, Stocks held more than one year
7. Exchange Traded Funds held more than one year
8. Mutual Funds held more than one year
9. Vacation Homes
10. Precious Metals/Collectibles/Coins – 28% maximum long-term capital gains tax rate
11. Real Estate Investment Trusts
12. Qualified Small Business Stock – 50% gain exclusion. Balance subject to 15% long-term capital gains
tax

TAX DEFERRED INVESTMENTS
1. I Bonds
2. Fixed Annuities
3. Variable Annuities
4. EE Bonds
5. Traditional IRAs
6. 401(k) Plans
7. 403(b) Plans
8. 457 Plans
9. Qualified Small Business Stock – Proceeds used to purchase new Qualified Small Business Stock
10. 529 Plan Investment earnings are deferred until used for qualified higher education expenses.

Some of the above mentioned investments may be subject to state and local income taxes as well as the federal alternative minimum tax. For more information regarding this, please consult with a tax advisor or attorney.