What Every Entrepreneur and Family Business Owner Should Know When Selling Their Business

Recently, a very informative white paper was published that covered what every entrepreneur or family business owner in the process of selling their business should know.  To get the full article, click here. 

If you have questions about selling or valuing your business for sale, contact Chris Blees or Austin Buckett.

How to Build Value in Your Company | Rob Slee

In case you missed Rob Slee’s engaging presentation about “How to Build Value in Your Company” on Tuesday, you can find the presentation materials here.

If you were unable to make the presentation or have questions about the value of your business, please contact Chris Blees or Austin Buckett.

Interested in attending our future events? Contact Stephanie Johnson.

You’re Invited: Rob Slee presenting on Creating Value in Your Company

Call or e-mail Stephanie Johnson at (719) 579-9090 or sjohnson@biggskofford.com for more information or to reserve your seat!

How Can You Prepare to Exit Your Business | BiggsKofford’s Entrepreneurial Series

Last week at BiggsKofford’s monthly breakfast, Entrepreneurial Corner, Chris Blees, CPA, CM&AA, and Austin Buckett, ACA, CM&AA, presented on how to garnish the most value out of your business when the time for transition is right.

You can find the PowerPoint presentation here.

If you were unable to make the presentation or have questions about preparing to exit your business, please contact Chris Blees or Austin Buckett.

Interested in attending our future events? Contact Stephanie Johnson.

IRS Expands Use of Correspondence Examinations

The IRS has expanded the use of correspondence examinations of individual income tax returns. The IRS initiates a correspondence examination by mailing either Letter 566 (CG), often termed an initial contact letter, advising the taxpayer that a return has been selected and listing the items to be verified, or a CP 2000 notice, which contains proposed adjustments based on information documents issued by third parties, such as Forms W-2, Wage and Tax Statement; 1099-MISC, Miscellaneous Income; and 1098, Mortgage Interest Statement. The examinations are handled at an IRS Service Center or campus.

Please notify us if you receive correspondence from the IRS. Do not assume the change(s) proposed in any IRS correspondence is correct. Often, it is not! Let us review the correspondence and respond on your behalf.

When the IRS receives returns, it compares them against norms for similar types of returns. The IRS develops the norms from audits of statistical random samples of returns that are selected as part of the National Research Program, which the IRS conducts to update return selection information.
The IRS typically selects returns for correspondence examinations based on data indicating that the taxpayer has not reported income, claimed improper deductions, or claimed erroneous tax credits. Some typical items for which the IRS requests verification include alimony, moving expenses, various itemized deductions, casualty losses, employee expenses, Schedule C receipts and expenses, foreign tax credits, earned income credits and education credits.

Unlike a field examination, a correspondence audit is not assigned to a specific examiner. When the IRS receives correspondence, the file is assigned to an auditor. If there is no response from the taxpayer, the process moves through an automated system. After a certain period of time, the IRS issues a second notice, and if there is no reply, it will issue a statutory notice of deficiency or a 90-day letter.

The IRS has been having workload problems in timely responding to taxpayer or practitioner letters that provide the requested information or express disagreement with proposed adjustments. Often correspondence is not assigned to the auditor who reviewed earlier documents. Correspondence tends to not be reviewed for several months, resulting in the IRS sending letters advising the taxpayer that it needs additional time to review the correspondence. When the IRS finally issues reports, in some cases the proposed adjustments are not correct because proper consideration and evaluation have not been given to the documents and substantiation furnished by the taxpayer or his or her representatives.

If you have any questions, please call your contact at BiggsKofford at (719) 579-9090.

Cultivating Ideas within Your Organization

Every business once started out as an idea in someone’s mind. While that initial idea is the source of the business, it is the continual stream of ideas that keep a business vibrant and give it a sustainable competitive advantage, which is even more important in today’s environment than ever.

However, too often you hear people say “I don’t know what else we could do to improve this business” or “We have tried a lot of things, and we’ve found that what we do know is the only way for this business to operate properly.”

The main reason for this situation is not for a true lack of ideas but the fact that new ideas are most likely to be rejected that are considered. This is due to our thinking system, which is nurtured from birth, to prove the truth of existing ideas rather than change them.
To the extent that a new idea means we have to change our thinking, our natural inclination is to reject it because change is hard, possibly risky and implies that what we’ve been doing is wrong. There are many idea-destroying tactics that have been developed, including some of these common ones:

• Point out the main reasons a new idea won’t work rather than looking at the benefits of the idea first.
• Tell the proponent that they do not understand the broader issues of the business.
• Say that you have already tried it before, and it didn’t work, even if it was the execution that caused the idea to fail initially.
• Say that something has been done the same way for 50 years, and there is no reason to change it.

There are many more idea-destroying tactics that get deployed in businesses on a daily basis, but in order for a business to overcome these and give an opportunity to benefit from a continual stream of ideas, the business leaders need to develop a culture within the organization that challenges the status quo and continually seeks to improve processes.

It is important to remember that the ideas do not need to be big to make an impact on the business. In fact, there are very few big things that a business can do to make it more successful, but there are most likely many little things that could be improved. Yet small ideas are often overlooked precisely because they are small ideas and do not warrant doing anything about.

There is an opportunity for improvement in virtually every business process, but in most businesses there are several problems that prevent improvement:

People who are close to the improvement opportunity have no channel to communicate their suggestions, they don’t know how to make a suggestion, suggestions are killed early and there is no formal system for getting ideas into action.

To overcome these problems and create an environment that welcomes and makes the most of teams suggestions, businesses can incorporate some of the following ideas:

• Communicate to the organization that innovation is a priority.
• Challenge everyone in your organization to look for improvement in everything they do and talk about this at every opportunity.
• Eliminate the idea-destroying behavior and replace “can’t do” language with “can do, will do, help-me-do”.
• Create formalized opportunities for ideas to be heard. This could be accomplished through planned meetings between departments and/or creating a suggestion box for everyone to access.
• Praise and reward all ideas, not just good ones. Such as verbal recognition in team meetings, movie vouchers, team lunches, etc.
• Have senior team members’ work alongside their team and cross department teams to get a different perspective on processes.
• When evaluating ideas, force the person who does not like the idea to spend five minutes discussing the benefits of the idea and the person’s idea it is to spend five minutes discussing the negative aspects of the idea.
• Create a cross functional idea group that meet on a regular basis to discuss new ideas or issues that there areas are having.
• Ensure employee performance review feedback to incorporate a section for discussing ideas, especially at the management level.
• IMPLEMENT, IMPLEMENT, IMPLEMENT. Failure to perform this step will negate any efforts done above and kill innovation and team motivation. Therefore, there needs to be a formal process to convert an idea into an action.

Creating an environment that welcomes and listens to the ideas of the entire organization is not designed to create an atmosphere of unconditional empowerment. Ultimately the CEO and senior management need to make all the critical business decisions and clearly defined processes, responses and systems for approving, and implementing ideas will allow the team to feel empowered but know who is in control.

Austin is a manager at BiggsKofford, specializing in Mergers, Acquisitions and business consulting and a Principa Alliance member.

Capital Markets Update

As we began 2011, we took a look into a myriad of crystal balls, dealt tarot cards and spoke to many soothsayers to see if we could determine what the future holds for the coming year with regard to the private company capital markets for such things as raising capital, selling or buying a company.

Overall the expectations indicate that we should see a slight improvement in 2011 over 2010, which might not seem like a great story, but at least it’s a step in the right direction. Here are some of the expectations for 2011:

• Many of the surviving banks will be looking to increase their lending in 2011, as older loans have been paid down (or written down), and they have to put money to work. However, underwriting policies have not eased up, personal guarantees will be mandatory in most cases and banks are still very selective over the industries that they lend to (Yes, this means that land development loans are still not in available!).
• Interest rates are expected to rise by the end of 2011, although only by 0.5 percent during the year.
• Bank lending for business acquisitions has increased from the lows of 2009. This has mainly impacted the larger deals (>$50m in value),but these trends tend to flow down the food chain, so we expect there to be more availability to finance larger portions of smaller deals. This should result in a continued uptick in business valuations at the smaller end of the market, albeit a small uptick.
• Business valuations for companies in certain industries have already seen large increases. In particular, ‘hot’ industries that are likely to remain of interest in 2011 include telecom, technology, media, chemicals, energy and healthcare. Real estate, construction and agriculture remain towards the bottom of the list in terms of deal interest.
• Private business owners are optimistic about growth, with 79 percent of those surveyed expecting to see growth opportunities in 2011.

We certainly hope that 2011 is at least as good as expected, but only time will tell if these expectations were well grounded or dumbfounded. If you have questions about where the capital markets are going, please contact Austin Buckett.

Data used in this article comes from information and reports provided by GF Data Resources, LLC, Mergermarket and Pepperdine Private Capital Markets.

Five Questions to Ask Any Accountant…Before You Hire Them

Finding an accountant for your small business can seem like a bit of a chore. Considering that most of us run in the same circles or are members of similar professional groups.  There is also the fact that many new clients have trouble understanding exactly what it is that BiggsKofford can do for them, so it’s no wonder that choosing someone to help you think big picture when it comes to your company’s financial matters can be so difficult.

To make things a bit easier for you, here are five questions you should ask any accountant you’re thinking about hiring:

What are your specialty areas?

As with any other field, most accountants have specialties and areas of expertise. Whether it’s helping to smooth out cash flow, making payroll easier, or dealing with lots of liquid assets, you should find out what your accountant really likes working on, and whether that strength is likely to be important to your business.

Do you have experience with businesses like mine?

Just as important as the first question, an accountant with a similar client base will have an easier time understanding what your needs are, not to mention anticipating the sorts of challenges you’re likely to face. What’s more, accountants who work with the same industry and client types can do a better job of keeping up on news, laws and trends.

Could I speak to two or three of your existing clients?

It’s always a good idea to check a few references before you pick a new accountant. While it’s unlikely that any professional is going to give you the name and phone number of an unhappy client, you can still get a good sense of whether the accountant is one who is willing to go the extra mile, or does just enough to keep clients satisfied.

How long have you been practicing?

While a lack of experience isn’t necessarily a huge deal – after all, we were all new once, you should know from the start if a newer accountant is going to be cutting their teeth with your business’ books and tax planning. Experience is a great teacher, and someone who’s been around the block a few dozen times is going to be a lot less prone to the kinds of simple errors most professionals make early in their careers.

How do you like to work?

This is probably one of the most important, but overlooked, questions you can ask an accountant you’re thinking about working with. That’s because, assuming you are only meeting with men and women who are qualified, competent and professional, what’s really going to be important is whether your personalities and working styles are going to mesh together. No matter what their skills are like, maintaining a good relationship with your accountant requires a certain degree of compatibility.

Of course, these questions are only a starting point; as you get to know a few different accountants and evaluate their strengths and personalities, you’ll probably think of several more questions. Consider using these as a starting point and remember that doing a bit of interviewing now can help you find the person who can save you a lot of time and money in the long run.

BiggsKofford has many specialty and industry niches, and we would be glad to see how we can help move you and your company from one success to the next.  If you have questions about our services, please contact Kurt Kofford.

New Year’s Resolutions for Your Business

What is your New Year’s Resolution? About 40 percent of Americans will make a resolution this year, yet less than 20 percent of them will be successful. Despite the fact that most of us look to improve our surroundings, we have a very low success rate when it comes to identifying what those improvements are and acting upon them.

Unfortunately, the same trends seen on a personal level can be seen at the business level. Most businesses do not have a clear strategy or focus on where they want to be in the future and, as such, do not have goals established to get them there. For example, a common goal in business is to increase revenue (especially after the last few years), yet this type of goal setting has two main issues that usually prevent it from being maximized:

• First, it is not specific enough, so we don’t know what level of increase would be deemed a success or what specific steps we will take to achieve the goal.
• Second, it might not be aligned with our overall goal of increasing the value of our business. For example, we could win some new contracts but if they are unprofitable or a drain on our resources they could actually lessen our bottom line or have minimal impact despite significantly increased effort.

Another interesting statistic with regard to New Year’s Resolutions is that as people age, the likelihood of them setting resolutions decreases. The thought being that over time people get disenchanted with this process, as the success rate is low. However, the success rate is a function of poor implementation, rather than the goals themselves. If we can improve the way we set goals, then we can improve the likelihood of success and ultimately increase our chances of meeting our goals rather than leaving it to chance.

Before setting any goals, it is important to set your overriding goal first and then ensure all other goals are aligned. For example, if your primary goal with your business is to sell it when you reach 60 years and retire, then maybe buying a new facility when you are 56 is not a good goal. You would likely not own the new facility long enough for it to create significant value, and your resources might be best served being invested in other areas. Alternative goals that would be appropriate would be to determine who you would most likely sell to when you do sell, what value a buyer might place on your business in its current form and what parts of the business should you focus on over the next four years to increase its value the most.

Once you have an overall goal established, keep these three things in mind with all other goals and your chances of success will greatly improve:

1. Ensure your goals are achievable. Setting goals too high can be demoralizing for your team if they have a very low percentage chance of actually happening. Setting goals that can be a stretch but have a good chance at being exceeded if the stars align can give everyone the right amount of motivation to work towards them.
2. Be specific. Once you have determined your goals, start creating a plan around how to achieve them. For example, if you goal is to increase your revenue in 2011, you will need to determine specific targets to aim for over the course of the year: what type of clients you will want to win, how to increase revenue from and what your marketing plan will need to look like in order to achieve these specific revenue goals.
3. Be flexible. Don’t lose sight of your original goals during the year. Monitor your progress throughout the year on a regular basis. If situations have changed or things aren’t working out as quickly or as well as you had predicted, feel free to adjust your goals rather than abandoning them once they look out of reach.

If you have questions about how to move your business to the next strategic level, please contact Austin Buckett.

Payroll Updates

As the end of the year approaches, it is important to update your payroll systems for new payroll requirements.

Beginning 2011:

• EFTPS Mandate

Virtually all businesses will have to switch to the Electronic Federal Tax Payment System (EFTPS) for all federal tax payments starting in 2011. The familiar paper voucher deposit system is going away for any company with quarterly employment tax liability of $2,500 or more. The IRS penalties for non-compliance are 10 percent for taxes paid by check.

Beginning 2012:

• Expanded 1099 Reporting

Under a mandate of the Health Care Reform and Small Jobs Act, businesses will be required to report all payments made in 2012 in excess of $600 for services or merchandise to the IRS on Form 1099. Under current law, businesses send Form 1099 for payments in excess of $600 for rent, interest, dividends and non-employee services when these payments are made to entities other than corporations. The reporting expansion now includes corporations and payments for services, including services performed on rental properties owned by an individual. The expanded reporting requirements begin with payments made in 2012.

In order to file the required Form 1099, a business would have a vendor complete Form W-9. Business owners may chose to gather need information and update accounting systems now in preparation of these changes.

• W-2 Reporting of Health Care Coverage Costs

The health care reform legislation requires employers to include the aggregate cost of employer sponsored health care coverage on employees’ W-2s for tax years starting on or after January 1, 2012. The original deadline was pushed back a year from 2011 to allow employers to make changes to their payroll systems and procedures to comply with this rule. A penalty will be imposed for non compliance beginning with 2012 W-2s. The amount reported is informational only and will not be includable in employee earnings.

If you have any questions about how your business needs to prepare for this, please feel free to e-mail Deborah Helton, CPA, or call her at (719) 579-9090.