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Business Success Values – 4 Secrets to Guard Your Priorities

Business success values are generally determined by the successful results of working smart, insightful strategies and systems, and common sense. All in efforts to deter business failure. Business failure happens to about 95% in the first year of those starting a small business. While business growth declines, business achievement seems an impossibility, and thinking successful business ownership is just for those investing thousands of dollars, the young, struggling Entrepreneur can be encouraged to know that he or she can build a successful, financial enterprise…without thousands of dollars!

Although financial investments are priority to any business adventure, there is more to business success than mere financial gain, if you want repeating customers. Keeping your priorities in check is not as easy as people make it sound. However, whether starting your own business or partnered with someone for a business startup, guarding your priorities, with successful results, happen when business success values are strengthen through Self-Mastery, Taking Action, and building Positive Relationships. When these strengths are cultivated and priorities stay aligned with your goals, you will be able to utilize these four secrets to guard your priorities.

1. Value of Throwing Off Discouragement

You most likely know of people who are marketing Online in an Internet business, offers business advice or strategies, or owns several business companies. It can be very discouraging to a business owner and Entrepreneur to see how all the federal administration changes are affecting the structure and finality of small businesses and their marketing success..not to mention the financial “bottom line.” Discouragement is cousin to apathy and mediocrity, which can both lead you to fear what lies ahead for you and your business. Once you determine your fear, business success values can help you throw off your discouragement. What do you fear most?

2. Value of Mastering Fear

What you fear most is not the end of the world, my friend. There is still hope for you in this changing world and economy. No need to worry about the success results of marketing and marketing value. The value lies in conquering your fears. Mastering your fears is a secret that many fail to discover and cultivate. Although you may have heard that fear is False Evidence Appearing Real, which has its merit, fear is mainly about mindset and perspective. Once you have master your fear, you can overcome procrastination. What are some fears that keep you procrastinating from what you know you need to do?

3. Value of Overcoming Procrastination

Business success values can not strive in the arena of procrastination. Business success, business achievement, whatever you choose to call it, can not flourish if you keep procrastinating the importance of business ownership, let alone…your life! When it pertains to business success values and priorities, procrastination is easy to do. Especially, when you do not know your “why,” don not have a mission, or do not have a specific action plan for your business. Like “cousin” discouragement to “apathy,” procrastination is the offspring of fear. Priorities take a back seat when procrastination is driving. Once you can overcome procrastination, your business success values will help you to draw freely upon your imagination. Financially speaking, where do you imagine you will be 5 years from now?

4. Value of Drawing Freely Upon Your Imagination

Drawing freely upon my imagination is something I call a privilege, a gratitude for self-perspective and self-influence. I am thankful God has granted me an imagination. No one else can control this aspect of my thoughts. I own them. When you imagine yourself being successful, you make what you imagine, happen. Imagination is a powerful experience of the human mind that can help determine successful results with priorities and business success values. The secret of drawing freely upon your imagination takes time to master and is a process.

As children, imagination was an intricate part of our daily lives. We allowed “grown-ups” to convince that we could not do this or that. When we grew up, we still believed what we were taught. I say, get back to your imagination! Dream, dream, and dream some more! Drawing freely upon your imagination will help you throw off your discouragement, master your fears, overcome procrastination, and help you prioritize business success values.

Do not be discouraged when you experience fear. Fear is a natural process of life. Yet, do not let it “rule” over you and/or control you. Be Master over it! I personally have found this to be the most challenging in my own life until I realized I have control over my own thoughts and fears. I now can live a life of business success values that have giving me the secrets to guard my priorities. If you need help with this in your own life and business, ask for help. I can help you with your business success values where you will create your own success story!

Take Your Business Networking to a New Level

For any business, effective networking is an essential component to success. Today, though, the landscape of business networking has changed dramatically. No longer does business networking exclusively involve standing in a crowded room of people, meeting and greeting with total strangers, and exchanging numerous business cards. While such traditional networking is still valid and effective, e-networking done via business social networking sites is just as valuable.

Regardless of what anyone thinks about social networking sites, the fact is that they are here to stay. Sure, they’ll evolve over the years and will likely look very different than they do today, but ultimately they’ll still exist. And while purely “social” social networking sites can have a business aspect to them, it’s important for business owners, executives, and managers to have a strong presence on the tried and true business networking sites (example: LinkedIn).

Why? Because your clients, customers, colleagues, and others look to business networking sites for evidence of your character. For example, when a prospect is thinking about doing business with you, he or she will likely do a social media search for you. Never before did average people have the ability to research anyone or any company they wanted. While in the past background checks were expensive and time-consuming, these days a few mouse clicks and keystrokes can pull up a goldmine of information. That’s why you and your company need to be on business networking sites…and you need to be using the e-networking sites effectively.

The following suggestions will help you become a savvy e-networker with a positive online presence.

• Don’t be a contact collector; be a contact cultivator.

The goal of any networking endeavor is to build relationships, not just to collect business cards. E-networking is no different. If you’ve been on any business networking sites, you’ve likely seen people with 500+ connections. At first you may think, “Wow, that person sure knows a lot of people.” But does he or she really know those connections? Or is this person just collecting contacts?

Rather than accepting and sending invitations to anyone, be mindful of whom you connect with. When you do make a connection with someone, look over his or her profile and then add a personal note to the person where you indicate a shared interest, club, affiliation, etc. For example, you could respond to someone by writing, “I see you attended Northwestern University (or are a member of the Miami Business Association, or have a pet beagle…). I have a similar interest in that I (also attended Northwestern…am a member of the Tulsa Business Association…. have a dog named Snoopy…etc.).” You get the idea. Find a shared interest to build upon that will make you stand out and open the lines for real communication later.

• Have a clear purpose.

Many people think they’re going to get business from being on social media sites. While you can get business from your online activities, this shouldn’t be your ultimate purpose. Rather, your purpose should be to make people aware of who you are by sharing your expertise.

Any business networking site is a place for you to give, not just to get. So to get business from your e-networking activities, you have to contribute meaningful content. You can find many groups to belong to that have strong conversations going. If you post something in the discussion that’s smart and useful (good content), then chances are someone will ask to connect with you. Now you have more people to share your message with.

Other examples of good content are asking thought-provoking questions, posting a motivational quote, and sharing a business tip. No matter what you post, if you get a reply, acknowledge the person for their feedback or contribution. Just as you can’t take people for granted in the brick and mortar world, you can’t take them for granted in the virtual world either. Everyone who reacts to your content is a potential relationship and you need to treat them as such.

When you’re replying to a question someone else poses, try to answer in the early part of the conversation rather than after 100 others have already replied. You want your answer to be in that first page of results. That way anyone who replies after you sees your photo and business information every time. With that said, pay close attention to what the question is and don’t answer anything capriciously. Always remember that your reply is posted forever.

• Add some personal flair to your profile.

Even though this is business, it’s okay to put some personal flair to your profile. After all, no one is all business all the time. Chances are you have some interesting hobbies or other areas of your life that people find intriguing. For example, maybe you collect antique cars, breed prize-winning poodles, tend a vineyard in your backyard, or have the city’s largest yo-yo collection. These are interesting tidbits of yourself that you can weave into your profile to make you appear more “real.”

Additionally, look at the tools and widgets the business networking sites make available to you and use them. You can do such things as post your reading list, link your blog, upload your Twitter feed, and many others. People can get to know you by these additional applications. Even better, they’re very user-friendly and easy to integrate into your business networking persona.

A New Twist on an Old Tool

We are currently in the biggest social media experiment in the world. Those who embrace business e-networking now are essentially the pioneers who will shape how this tool gets implemented and how it evolves. As you move forward, however, remember that your involvement with business networking sites should be just one small aspect of your business building efforts; it’s definitely not an end-all approach for getting business. Essentially, when you use today’s business e-networking tools effectively, you’ll have one more way to connect with clients and prospects so you can build your business and boost your bottom line.

Structuring Small Business Sale Transactions

Selling a privately held business is often romanticized as face-to-face negotiations over business valuations and purchase price. Whether small or large, business transactions can be extremely complex and require a great deal of work behind the scenes. As the size and/or complexity of a transaction increases, the need for innovative structuring options also increases. Deal structure, financing, and tax management must be a proactive process that is addressed at an early stage. In many cases the Seller and Buyer often place all of the focus on the transaction price at the expense of the ‘net results’ of a business transaction. By carefully negotiating the terms and structure of the transaction, a business seller could walk away with a deal that provides a significantly larger economic benefit than a transaction that provides 100% of the proceeds at closing. For asset sale transactions, the ‘allocation of purchase price’ can become another area of negotiation after the price, terms and conditions of the sale have been agreed to by the buyer and seller. Each type of structure carries with it different tax consequences for the buyer and seller, having a material impact on the overall value of the transaction. The type of business entity owned by the seller (C-corporation, S-Corporation, LLC, Partnership, or Sole Proprietorship) in addition to whether the transaction becomes an asset sale or stock sale will have a major bearing on the decisions made in structuring the transaction to afford maximum economic benefits. The purpose of this communication is to advance a few of the techniques available in structuring small business sale transactions and to emphasize the value an experienced team brings in structuring the transaction. Asset sales of pass-through entities (LLC, S-Corp, & Partnerships) are handled very differently than stock-sales of C-Corps and it would be impossible to cover all of the structuring alternatives within this short document. Proper legal and tax counsel should be retained and the cost of these professionals is usually offset by the benefits they bring through their involvement in the transaction.

The following factors will be relevant in structuring the transaction:
1. Legal Business Entity

- LLC

- S-Corp

- C-Corp

- Partnership

- Sole Proprietorship

2. Type of Sale

- Asset Sale

- Stock Sale

3. What is being sold

- Entire business

- Partial Interest / Investment

- Inclusion of Real Estate

4. Installment Sale or component of Seller Financing

5. Who is the buyer

- Financial Buyer (Entrepreneur)

- Strategic Buyer

a. Corporation

b. Private Equity Group (PEG)

c. Family Member (Succession)

6. Plans after the sale (Short term/Intermediate/Long Term)

- Consulting Contract

- Employee Contract

- Covenant not to Compete

7. Personal Tax Situation

STRUCTURING THE TRANSACTION

1. Asset Sale / Stock Sale
Determining what is being sold, the individual assets of a business or the stock in a corporation, will be critical in determining the optimal structure of a transaction. The majority of small businesses that are sold each year are structured as an asset sale. An asset sale is when a buyer purchases all or a portion of the assets of a business (e.g., facilities, equipment, vehicles, real estate, etc) whereas a stock purchase is the purchase of the ownership shares/rights of the corporation – all assets and all liabilities of the entity are retained by the corporation and only a change in corporate ownership has occurred. The following highlights three notable differences between each method; there are many additional considerations so it is critical to consult professional advice to determine the most appropriate method.

Change in Legal/Tax Entity:
With an asset sale, the legal entity and tax identity do not transfer to the purchaser. The Buyer receives a stepped-up tax basis in the assets acquired equal to the FMV purchase price, the point from which new depreciation is started. Under a stock sale, the tax basis of the assets remains unchanged, and all of the tax attributes, including depreciation methods, tax year, corporate tax election, are preserved.

Liability:
With an asset sale, the Buyer’s liability is limited. The Buyer is purchasing some or all of the assets and has the option to identify any liabilities they are interested in assuming. Under a stock sale, the Buyer purchases the stock of the company and assumes all liabilities (known, unknown, contingent or otherwise).

Assignment of Contracts:
Most businesses have contracts in one form or another. The most common are commercial real estate leases, contracts involving business relationships, and contracts with employees. An asset sale transaction involving the assignment of these contracts requires considerably more work and has a potentially a different outcome than a stock sale. Contracts need to be evaluated to determine if they permit an assignment without consent. Should they not permit assignment without consent, third party consent will need to be obtained. In stock sale transactions, the legal entity that is the party to the contract continues, and the general rule is that the contract remains in force between the original parties. (No consent to assignment is needed as assignment typically does not occur). There are exceptions, as some contracts stipulate that a change in ownership of the business will be considered an assignment of the contract. If such a ‘change of control’ clause exists in the contract, the same issues will arise as with an asset transaction. Performing due diligence and having legal counsel thoroughly review all of the company’s contracts will be critical to determine the available options.

2. Covenant Not to Compete (CNTC)
A covenant not to compete (CNTC) is a contractual condition by which the seller promises to refrain from conducting business or professional activities of a nature similar to those of the business being sold. In a contract for the sale of a business, a reasonable value can be allocated to a ‘covenant not to compete’ which is generally enforceable provided it is reasonable and limited as to time and territory. The buyer may amortize this amount over 15 years even though the actual term of the CNTC is usually much shorter. For this reason, buyers often prefer a larger amount be allocated to tangible assets or a consulting agreement with a shorter useful life. In order to be legally binding, it is recommended that some consideration is allocated to a CNTC.

3. Consulting Agreement
Depending upon the goals of the seller/buyer and the complexity of the business being sold, the seller could be retained as an independent consultant. The consulting agreement should specify the schedule of time (days or hours involved), type of training or services provided, the length of the agreement, and compensation. This is a popular structuring method which can benefit both the buyer and seller. For example, the sales price could be lowered in exchange for a lucrative consulting contract. The buyer benefits as they pay less money up front and have the ability to deduct the payments in the year made as a business expense. The seller could benefit by receiving the compensation over a period of several years, possibly reducing the tax impact. There are additional tax related issues to the seller, pertaining to the deductibility of business expenses incurred as a consultant and potential self employment taxes, and it is therefore recommended that proper tax counsel is obtained.

4. Seller Financing / Installment Sale
It is rare for a privately-held business to change hands for an all-cash price. More common in small business sales would be to have a component of seller financing as part of the deal structure. Seller financing is a mechanism where the business owner would fund the sale of their business and/or business assets with a promissory note helping the buyer finance all or a portion of the acquisition of the business and/or business assets, which is then paid back from the business’ cash flow. This type of deal can be very flexible – the seller can adjust the payment schedule, interest rate, loan period, or any other terms to reflect the seller’s needs, business cash flow, and the buyer’s financial situation.

There are several benefits to the business owner in providing seller financing:

Maximization of Transaction Value
Few areas offer more opportunity to negotiate successfully than when it comes to the details of the financing. Many sellers actively prefer to do the financing themselves as they can negotiate the highest transaction value when offering flexible owner-finance terms. In addition, the interest earned on the promissory note will add significantly to the actual selling price. Interest rates are currently hovering at their lowest level in years and sellers recognize that they can get a much higher rate from a buyer than they can get from any financial institution.

Tax Benefits
Seller financing could be a way for the owner to defer tax on the sale of the business. If the sale complies with the IRS installment method of reporting for tax purposes, capital gain taxes could be recognized when payments on the seller financed note are received versus 100% of the gain recognized upon closing the sale. It will be important to consult a tax professional as not all assets would qualify for deferred capital gains treatment. Typically, the assets that have depreciated beyond their original purchase price, such as real estate, are eligible for installment sales, as are intangibles (such as goodwill) that are established during the course of the business.

Completing the Transaction
Seller financing can be a useful tool to complete business sale transactions that need extra financing as part of their structure. The pool of qualified buyers increases exponentially when a portion of the transaction is financed by the seller. For some businesses, carrying back a note for some or all of the purchase price may be the only way to sell the company. The credit market, as a result of the sub-prime financial crisis, is still very tight. The plentiful, easily obtainable, flexible and inexpensive credit that flooded the market several years ago has changed dramatically. Many buyers will leverage bank financing to acquire a business and the majority of these lenders will require a component of seller financing to underwrite the loan. Seller financing, in the lender’s eyes, mitigates risk as they will have the additional confidence knowing that the seller has a vested interest in the business succeeding. The seller, in this instance, will be providing secondary financing to the bank’s acquisition loan (i.e. subordinated debt) for the remainder of the price.

In the event of a default by the buyer on the seller financing note, the seller would have a number of options for recourse and the specifics will vary per transaction based upon the involvement of a primary (1st position) lender, the extent of collateralized assets, in addition to personal guarantee’s made by the buyer. The specific rights will be detailed in the security agreement that is associated with the promissory note and can involve a number of stipulations including restricting the new owner’s sale of assets, acquisitions, and expansions until the note is paid off in addition to specifying the receipt of quarterly financial statements to enable the seller to keep tabs on the business. Having an experienced transaction attorney involved in the drafting of the promissory note will be essential.

5. Earn-Outs
An earn-out provision is an excellent structuring vehicle to bridge the gap on a valuation difference between what the seller expects to receive from a sale and what the buyer thinks a business is worth. Earn-outs are contractual contingent payments in which the purchase price is stated in terms of a minimum, but the seller will be entitled to additional compensation if the business reaches certain financial benchmarks in the future. Although the benchmarks can be calculated as a percentage of sales, gross profit, net profit or other figure, an earn-out is most often based on sales (not profits) and is typically tied to increasing revenue over historical levels. An earn-out is a good way to maximize the total selling price of the business, especially if the seller is confident of future sales and the new owner’s management ability. It is not uncommon to establish a floor or ceiling for the earn-out, and in a down economy, a seller can use an earn-out provision to obtain a value closer to what the business is worth in a healthy economic climate. Earn-outs are favorable to both the buyer and seller. The seller recognizes earn-outs as payment of money predicated on the future performance of the business and is therefore in a position to potentially obtain a higher value for their business than what would be afforded in a traditional sale in the current market. Buyers, on the other hand, are attracted to earn-outs as they pay less money at the time of sale but compensate the seller based upon the future success of the business. Buyers are protected against overpaying for a business that doesn’t meet the projections or growth that the original owners expected. Furthermore, Buyer’s recognize the vested interest the earn-out creates with the seller and the shared goal in the continued success of the enterprise. Most successful earn-outs are achieved when they are limited to one or two variables based upon a solid 3-5 year sales forecast. Earn-out provisions require a greater degree of involvement by the seller, and are most often implemented in conjunction with a seller employment or consulting agreement where the seller is positioned to ensure that all of the steps are being taken to reach the goals. Furthermore, it is also important to specify in the contract the person or firm that will be responsible for managing or reviewing the books and verifying the business’s performance.

ASSET ALLOCATION
In a small business sale, the owner is selling a collection of assets, some tangible (such as inventory, vehicles, buildings, and FF&E) and some intangible (such as software, customer lists, trade names, trained & assembled workforce, patents, non-compete agreements, and goodwill). Unless the entity is a C-Corp and stock is being sold, the total transaction price is allocated sequentially based on the fair market value of the acquired assets. The Tax Code shows that assets fall into 7 different categories (asset classes) based on IRC section 1060 (Form 8594), and requires that the buyer and seller adopt and maintain a consistent purchase price allocation method for tax future calculations that will determine both the buyer’s basis in the assets and the seller’s gain or loss. In most cases, the tax impact on the individual assets sold are measurably different for the buyer and seller and therefore the negotiation of the dollar amounts allocated to each of the 7 categories becomes an important element of the business transaction.

Class I – Cash
Class II – Marketable Securities
Class III – Market to Market Assets & Accounts Receivable
Class IV – Inventory
Class V – Assets Not Otherwise Classified
Class VI – Section 197 Intangibles other than Goodwill and Going Concern
Class VII – Goodwill and Going Concern Value (Residual)

Minimizing taxes plays a major role in structuring and negotiating a business transaction. Many promising deals have fallen through because the buyer and seller couldn’t agree on how to structure the deal to minimize taxes. Typically, the seller seeks to have as much money as possible allocated to assets that would be taxed as capital gains versus assets that would be treated as ordinary income. The buyer on the other hand strives to have a larger weight allocated to assets that are currently deductible or where stepped-up assets could be depreciated quickly under IRS regulations. Particular attention should be paid to the identification and valuation of the “intangible” assets as they can be significant in negotiating terms. While Buyers are often indifferent to an allocation between goodwill and a CNTC, because Sec. 197 allows a buyer to amortize goodwill or a CNTC over the same 15-year period, they will often prefer a larger allocation to a consulting agreement which is able to be expensed in the year paid. Sellers, however, prefer goodwill & going concern allocations (capital gain treatment) over a CNTC or a Consulting Agreement (ordinary income treatment).

ENLIGN strongly advises its clients to seek independent tax & legal advice from professionals who possess an expertise in business transactions. We often find that many buyers have already completed several transactions and have a team of experienced merger and acquisition professionals in place. Conversely, we find most business sellers approaching the sale for the very first time. The resources in place for the seller traditionally are comprised of general business practitioners lacking the strong business transaction experience necessary to address the multitude of issues associated with complex business transactions. ENLIGN does not provide legal, tax, or accounting advice and, for this reason, we have developed the ENLIGN Professional Partner Program (EPPP) to enable our clients to access the expertise of experienced transaction professionals in both accounting and law practices.