Becoming a Business Owner: What Does Business Ownership Entail?
For millions of Americans, owning a business is a lifelong dream. That dream is certainly attainable, given that, at any given moment, 16% of Americans are actively running their own company.
We might be a nation of entrepreneurs, but that doesn’t mean that business ownership is for everyone.
After all, being a business owner comes with a vast list of responsibilities, not to mention the extra graft needed to ensure that your company beats the odds and survives long enough to make a profit.
If you’re serious about the business of business, read on to find out exactly what successful business operations entail in 2023.
Building a Strategy
This is a bit of a catch-all term that covers many different business owner tasks. Before you even register your company and pursue funding, you need a strategy.
You need a strategy that demonstrates how you will exceed beyond the competition to attract paying customers in the short and long-term. Without a strategy, you simply do not have a company.
Staying On Top of Finances
What is a business owner, if not the person who keeps the lights on? Building a successful business requires a strong overview of the financials.
You might not need to know about every cent coming in and out of the company, but you should know how healthy your finances are and how much access to ready, liquid cash you have at any given moment.
Staying on top of finances also means leading funding efforts whenever they are needed, and ensuring that everyone gets paid on-time and in-full.
Securing Your Business Ownership
Perhaps the defining business owner role is to, you know, own the business. This means securing all of the necessary permits, registering the company in your name with the relevant authorities, and successfully applying for any sector-specific licenses you might require.
It also means being proactive when protecting your intellectual property through patents and copyright, so that no-one else can benefit from your good ideas.
By getting the legal aspects of “ownership” nailed down, you will be better able to enjoy your success.
Staying Compliant
People often assume that a business owner can do whatever they want within the confines of their company. However, this is very much not the case.
Being a business owner – especially one that employs people and services end-consumers directly – comes with a vast array of new responsibilities.
You are responsible for the health, privacy, and even the convenience of the people that your company serves. You must follow all applicable state and federal laws pertaining to employee and consumer protection, and there are hundreds of these.
Failure to stay compliant will result in serious financial penalties for your company at best, and lengthy jail time for you at worst.
Generating Sales
No matter how good your business idea is, you’ll never make a buck if you don’t have some kind of sales plan in place. Your job is to oversee how your business will actually convince customers to part with their money.
This means hiring the right salespeople and marketing talent, deciding on your messages to the consumer, and co-creating a strategy to turn one-time purchasers into lifelong loyal customers. Without a steady stream of sales, you won’t get very far.
Handling Your People
A business lives and dies on the dependency of its people. As the business owner, you are ultimately responsible for your people and their performance.
You will have the final say on who you recruit and who you retain. It is your job to decide how to smooth over any interpersonal issues that might arise in the workplace, and ensure that everyone gets along and works together as an effective team.
If your people are not empowered to do their job to the best of their ability, you and your company will lose out.
Building Logistics
If you sell physical products, you’ll need a way to either make them or transport them so that they get to your customer. This means that one of your major responsibilities as a business owner is to set up a smooth logistics chain. Let’s say your company makes luxury bath soaps.
For this, you’ll need the correct oils, lye, colorants, fragrance oils, and binding agents. You’ll also need facilities to manufacture the soap, and reliable ways to get the finished soap bars to customers and to partner stores.
All of this requires a well-oiled logistics machine, with partners that you trust. Remember, managing relationships with your logistics partners is essential in order to keep costs low.
Delivering Excellent Service
Let’s not forget about the customer. All it takes is one bad customer experience to seriously set your business back. Remember, people read those Google reviews, and those reviews have a serious impact on your ability to attract new business.
That’s why it is ultimately up to you to ensure that your company delivers excellent service to everyone who interacts with your company in any way. This means putting together a solid customer service policy.
It also means training all of your customer-facing employees on the art of good service, and incentivising those who exceed expectations to keep up the good work.
Utilizing the Tech
People often forget to consider just how important technology is to the functioning of virtually any business, no matter what industry or size that business might be.
You need to make sure that customers can easily pay you, which means adopting the most popular and convenient payment technology.
You need to follow data protection laws, which means you need to have the relevant software that will keep your customers and their transaction data safe.
All of this and more requires not only technology, but company-wide training to ensure that everyone knows how to use it.
Is It Time to Make An Exit?
It’s no secret that business ownership is a significant undertaking. You have responsibilities as a business owner. You are responsible for your people. For your customers. For your finances. For your compliance. The list goes on.
If you’re a business owner who wishes to relinquish these responsibilities and try something new, we are here to facilitate. We can help you sell your business to the right people for the right price, ensuring a smooth and lucrative exit for you and your team.
Get in touch with our friendly and professional team to find out how to make it happen.
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An Overview of Term Sheets
If you’re planning on a business agreement to buy or sell a business, you’ll want to know about term sheets. These non-binding agreements will help with progress for both parties. The information covered in the term sheet should include everything from pricing and terms to special considerations. You can expect it to be between one and five pages in length.
What is the Difference Between a Term Sheet and a Contract?
When a term sheet is created, it demonstrates that there is an agreement between the buyer and seller and a business transaction is possible. However, neither party is bound to this transaction. On the other hand, a contract is typically a legally binding agreement that would hold up in a court of law.
What are the Pros and Cons of a Term Sheet
While it can be beneficial that a term sheet is non-binding when buyers and sellers are exploring the terms of a deal, it’s also important to know that a term sheet can come with risks. Due to the fact that it covers many details about the potential deal, it can instigate either the buyer or seller pulling out of the deal if they are unsatisfied with the contents of the document.
On the positive side, a term sheet can serve to greatly expedite negotiations and help things progress faster. Further, it can save time by making sure that the conditions of the deal are understood and accepted before formal documents are drawn up. It can play a huge role in clarifying objectives and circumventing misunderstandings that could ultimately end a deal at a later stage.
Putting Term Sheets to Work on Your Behalf
One of your goals with your term sheet should be to create a situation that is beneficial for all parties. When a verbal agreement between a buyer and seller is put down on paper it can help a deal begin to take form and actualize in the near future. In the end, a term sheet can help a deal move along and ultimately be successful. It’s the perfect first step towards a completed deal.
If you have questions about how a term sheet fits into your overall plan to buy or sell a business, this is a question that can be addressed with your business broker, M&A advisor, or attorney.
Copyright: Business Brokerage Press, Inc.
The post An Overview of Term Sheets appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
How to Trigger a Bidding War for Your Business Sale
Nearly 50% of businesses fail within the first five years in the United States. For the ones that do succeed, it’s rare for owners to run their companies indefinitely.
There often comes a time when entrepreneurs want to sell their businesses. Starting a bidding war can cause the business sale to come out in your favor. However, not everyone understands how to facilitate this process.
We’ve put together a brief guide on what you need to know. Let’s get started.
Preparing For the Sale
The first step for selling your business is making sure you’re prepared. You’ll want to obtain a professional opinion on the value of your business. This could involve getting a business broker, investment banker, or accountant involved.
You should also gather financial information and documents like tax returns and corporate records. If you have intellectual property associated with the business, such as trademarks or copyrights, make sure those are properly documented as well.
Deciding Sale Structure
You could opt for an asset purchase or a stock purchase. You’ll also need to consider if there are contingencies that need to be attached to the business sale.
For example, you may want a clause stipulating that the buyer assumes responsibility for any liabilities associated with your business. This will go a long way when it comes to protecting you in the future.
Establish an Asking Price
Once you’ve decided on the sale structure, it’s time to set an asking price.
You should base this price on the market value. It’s in your best interest to mention intangible assets like client relationships that your business brings to the table.
Make sure to take into account any liabilities associated with the sale, as well.
Creating a Pitch
You’ll want to emphasize positive points and unique attributes that might draw buyers in.
Make sure to include plenty of information about your operations, customer base, and financials. Your pitch should also include a timeline for closing the sale. Otherwise, your potential buyers won’t be able to make a reasonable offer.
It may be worth consulting other professionals about your pitch. They can provide insight into changes you need to make. The better you prepare your pitch, the higher chance you have of success.
Establishing Urgency
This is the most important step when handling a business acquisition offer. It’s essential to create a sense of urgency for potential buyers and get them excited about the prospect of buying your business. Try to limit their decision-making time to encourage them to act quickly and make offers that align with what you’re asking for.
Urgency will also allow you to capitalize on the excitement of potential buyers, as they might be willing to pay a premium price for your business.
Negotiating
Many people struggle with this while managing a business purchase.
You need to be able to negotiate a good price for your business while also ensuring that both parties are satisfied with the outcome. When negotiating, it’s important to remain composed and professional. Do not take things personally, but rather focus on the facts at hand.
Be prepared to make concessions or counteroffers if necessary.
Part of effective negotiation is understanding when to back down and when to stand your ground. For instance, it’s in your best interest to negotiate for the highest possible price, but be flexible if it’s clear that a lower offer is reasonable.
Finishing Up
The sale of your business should be mutually beneficial for both parties. Make sure you get a written agreement that outlines all of the details and contingencies involved in the sale.
Also, make sure to keep up with any tax obligations or fees associated with selling your business. This could involve capital gains taxes or fees for transferring the title of your business.
Once the sale has closed, be sure to inform any creditors and clients that are associated with the business. This will help ensure a smooth transition and prevent any miscommunication down the line.
Mistakes to Avoid
One of the most common mistakes when selling a business is not knowing the full value of the business. You need to have an accurate understanding of what your company is worth and how much it could bring in from a sale before you begin negotiating.
Another mistake is failing to set realistic expectations for yourself and potential buyers. Setting unrealistic expectations often leads to disappointment, so make sure you have a clear idea of what your goals are, as well as what’s reasonable and achievable.
Don’t be afraid to ask questions or seek advice from professionals throughout the process. The sale of your business is an important decision that requires careful consideration. Having access to helpful experts can help ensure the best possible outcome for everyone involved.
Finally, don’t rush the process. Take your time to research, strategize, and negotiate to get the best deal for your business. A successful sale can set you up for future success, so make sure it goes as smoothly as possible!
Start a Bidding War
A bidding war can go a long way when it comes to selling your business.
It allows you to see how much buyers are willing to pay and can drive the price up well beyond your initial expectations. Keep the above information in mind so that you can make the decisions best for your company.
Looking for more information on how we can help? Feel free to contact us today to see what we can do.
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Is Your Deal Really Going to be Successful?
If you’re selling your business and things are looking positive with your buyer, you might be tempted to start resting easy. If you have a signed letter of intent, you might be even more tempted to think that things are pretty settled. However, the fact of the matter is that much can be uncovered during the due diligence process, and that is often when deals start to fall apart. Due diligence is an essential step that protects buyers, and sellers should be well-prepared to have things in good shape far in advance. Let’s take a closer look at some areas where a deal can potentially go awry.
Products and Equipment
When the sale involves a business that handles manufacturing, equipment is carefully evaluated during due diligence. Buyers will be thinking about any potential environmental issues that could affect the business. If you’re selling a business and have loose ends with your equipment or facility, this should be handled in advance if possible.
Buyers will also be looking at the various product lines and inventory. They will be considering how the sales are spread among the product lines. For example, if one product makes up the majority of sales, that can raise red flags in the mind of a buyer. They will also think about supplies and how likely they are to be stable once the business switches hands.
Buyers will want to look at breakdowns of customers so they can consider the company’s market share and also where the sales are coming from. Similarly, to only having one product, if a business only has one or two key buyers, that can be a source of concern for buyers.
Intangible Assets
When you are selling a business, your buyers will also be thinking about the assets like intellectual property. Will all trademarks, patents and copyrights be transferred during the sale? If not, it can be a big source of concern for buyers.
Buyers will also consider the state of the human resources department. Sellers should be aware that buyers will be typically looking for established staff members who are unlikely to leave. This is another area where sellers have the opportunity to prepare in advance to achieve optimal results.
Sales Issues
Your prospective buyer will want to carefully examine accounts receivable. So if you have bad debt, you might want to sort out these kinds of issues before the due diligence phase. They will also want to have a firm understanding of everything that is included in the sale. Oftentimes during due diligence, a buyer finds out that equipment or patents are not included with the sale, and it quickly derails the deal.
If you’re selling a business, you’ll want to put yourself in the buyer’s shoes and consider what you would want to see if you were buying a business. Anything that you can do in advance to improve your workforce, equipment, premises, and financial records is highly recommended. The goal is to have a smooth transition for the buyer, and anything that could stand in the way of that taking place should be analyzed and improved if possible. When you work with a business broker or M&A advisor to sell your business, you will have an expert in your corner to help sort out the details.
Copyright: Business Brokerage Press, Inc.
The post Is Your Deal Really Going to be Successful? appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Can You Avoid Capital Gains Tax on a Business Sale?
The long-term capital gains tax rates vary between 0%, 15%, and 20% based on the taxpayer’s income. However, you might be wondering if you can avoid capital gains tax when selling your business.
Have you thought about the impact of taxes on your business sale profits? You want to make sure that all of your hard work pays off. With tax planning, you can maximize profits. We understand the ins and outs of business sales, and we’re here to help explain how to avoid capital gains tax when selling a business.
Nobody likes paying more taxes than absolutely necessary. Taking time to research and use strategies and keep more money in your pocket at the end of the day. With our expertise, we can help you identify ways to minimize or even eliminate any additional costs associated with selling a business.
If you want to make the maximum amount of money when you sell your business, you can attempt to minimize capital gains tax. Learn more here and see what strategies you can take to increase business sale profit.
What Is a Capital Gains Tax?
Capital gains taxes apply to profits earned from the sale of assets such as stocks, real estate, and businesses. It also takes into account other investments in non-tax-advantaged accounts.
When selling an asset after acquiring it, the U.S. government considers any gain on the sale as taxable income. The capital gains tax is calculated by subtracting the original cost of the asset from its total sale price. Taxes are only due when you sell the asset, not while it is held.
How Is the Sale of a Business Taxed?
Capital gains tax is a type of tax that is levied when you sell an asset for more than its basis, or what you paid for it. The IRS assesses two types of capital gains tax: short-term and long-term.
Short-term capital gains are taxed at the same rate as ordinary income, which depends on your business’s tax bracket. Long-term capital gains receive more favorable treatment. Currently, the long-term capital gains tax rates are 0%, 15%, and 20%, depending on income.
When applying capital gains tax on selling a business, the IRS typically looks at each individual asset that the business owns. It does this rather than seeing the sale merely as one single entity or asset. This applies if the business is structured as a sole proprietorship, partnership, or limited liability company (LLC).
How to Avoid Capital Gains Tax on the Sale of Business
It is not always possible to completely avoid capital gains taxes on a business sale. However, strategic planning can help reduce the amount of capital gains tax that is owed.
Consult a financial advisor or a tax professional to determine if any tax reduction tactics may be beneficial in your situation. Some options include discounting stock, exchanging assets for other assets, and making donations to qualified non-profit organizations.
Negotiate Wisely
During negotiations for the sale of a business, allocating more of the purchase price to capital assets rather than depreciable assets can be beneficial.
Taking time to negotiate will help you get the most favorable allocation according to IRS rules. When done correctly, this can result in significant savings on capital gains tax.
Consider an Installment Sale
An installment sale is an option for selling a business that can help to spread out the capital gains tax liability.
By receiving payment in multiple installments rather than all at once, taxes can be paid over a longer period.
Watch the Timing
Selling a newer business? Timing is critical when it comes to capital gains tax. To take advantage of the more favorable long-term capital gains rate, You should hold onto the business and its assets for at least one year before selling.
Sell to Employees
If you own a C-corporation, one way to minimize capital gains tax is by selling the business to your employees through an employee stock ownership plan (ESOP).
Doing so avoids the need to look for outside buyers and allows cash from the sale to be rolled into an investment plan, thus deferring capital gains tax.
Explore Opportunity Zone Reinvestment
Business owners can defer capital gains tax through December 31, 2026, by reinvesting capital gains from a business sale into an Opportunity Zone.
To qualify, capital gains must be invested within 180 days of the sale. While this doesn’t eliminate the tax obligation entirely, it does allow for the payment to be deferred.
Tax Planning Tips
There are several things to do in advance of your business sale to lessen the amount of capital gains tax you will need to pay. Get yourself off to a great footing by following these tips.
Talk to a Financial Advisor
To understand the potential financial implications of selling a business, it’s important to consult a qualified financial advisor. Research tax advisors in your area, and interview them to determine which one is right for you. Find an advisor who will provide detailed advice about how to avoid paying so much capital gains tax.
Keep Detailed Accounts and Use a Tax Calculator
Use a tax return calculator to get an instant estimate of how your income, withholdings, deductions, and credits influence your tax refund or balance due amount. Understanding exactly what your accounts look like will help you and your accountant make the best decisions on the sale of your business.
Find Out if There Are Taxes to Be Aware Of
In addition to planning for federal taxes on the sale of a business, it’s important to assess what you might owe in state taxes. If you do business in a state without an income tax, you have an advantage.
But if not, it’s necessary to consider how you can minimize the amount of tax owed on the sale. Talking with a tax professional who is well-versed in your state’s tax laws can give valuable advice and assistance.
Looking for Tax Advice?
Selling a business can be an intimidating process, but with proper tax planning and advice from experienced professionals, you can make sure that the sale of your company is as profitable as possible.
Although you probably won’t be able to avoid capital gains tax entirely, by enlisting an accountant you’ll be able to maximize profits while minimizing associated taxes. Speak to an advisor at Fusion today to discuss the sale of your business.
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