The Entrepreneurs Advocate

The Cult of Personality No-No

Many entrepreneurs are do-it-all, take charge types who cannot delegate any business duties. Their argument is that no one can do it better than them. The problem with this scenario is that the owner has created themselves a job, not a company. There is only one constant in this world- change. The owner will inevitably become sick, be ready to retire, lose their fire, divorce, die, etc. What value has been created that can be transferred to a new owner?

Your company has more value and would be stronger if it can be run without you. In this increasingly relationship driven world, the critical customer, vendor and partner relationships need moved to your management team. You are one person and you can only do so much. If you spread your current work load among key employees, what important tasks could you now dedicate precious time to?

The potential buyers of your company want solid systems and procedures in place. The “one man band” will drive many prospective buyers away and will lead to fewer and smaller offers. Ask yourself every day, can I delegate the current task I am working on? Is this the wisest use of my time? What would happen to my company if I couldn’t work?

Your goal should be to minimize your company’s need for you to maximize the selling price when you exit.

Price Cutting, A Race to the Bottom

In this tough business environment, it is tempting to cut prices to pick up or hold onto sales. However, margin erosion has to be monitored carefully.

See the following chart:

As you can see, small changes in price can greatly affect profit and plant/people utilization. If you are forced to cut prices, costs need attacked aggressively.

SBA Urges Lenders to Offer Loan Deferement Relief

Note: “I found today’s press release from the SBA very interesting.” Chris

WASHINGTON – In response to the financial crisis, the U.S. Small Business Administration today announced it is strongly encouraging its participating 7(a) lenders and Certified Development companies to work with business borrowers to provide them with the flexibility they need to keep their businesses running during these difficult economic times.As access to credit and capital has tightened, many businesses face increased challenges in meeting their financial obligations. This is especially true of small businesses hit hard by the recent economic slowdown that are now unable to make payroll, or purchase essential inventory.

SBA is reminding participating lenders they have the authority on a case-by- case basis to extend temporary payment relief for qualifying borrowers with 7 (a) and 504 loans who are struggling to make their payments.”The SBA is here to help small businesses during these difficult economic times. We are encouraging our lending partners to follow suit by extending three-month payment deferments on their SBA guaranteed loans to qualified borrowers who need relief,” said SBA Acting Administrator Sandy K. Baruah. “We recognize that small business owners are faced with challenging decisions right now. By providing three-month deferments to qualifying borrowers who are struggling, our lending partners can help small business owners free up the capital they need to maintain their businesses.” If a deferment longer than three consecutive monthly payments is needed for a loan, borrowers can work directly with their lenders who in turn will work closely with the SBA to identify the best solution.

How to Tap into your 401k or IRA to buy a Business using a VERSA

You can utilizing a Versatile Entrepreneur Retirement Savings Account Plan (VERSA).

The VERSA Plan structure allows you to rollover your 401(k), or other qualified plan, into the equity of a new or existing business without the burden of taxes or penalties. Frequently we are asked if the VERSA Plan is a loan. No, it is not a loan. It is equity.  In addition, it meets all of the equity requirements of commercial lenders and the SBA alike.  The capital that is rolled into the VERSA Plan is used to buy the equity of the company just as you would buy a mutual fund or a stock in your qualified plan.  That stock is then held in the plan for the benefit of the business owner. 

One caveat, your new company needs set up as a “C” corporation by the lawyer who sets up the VERSA for you. We have used the VERSA numerous times for Entering clients or Entering Buyers to access their retirement funds with no tax penalty.

Alaska glaciers grew this year, thanks to colder weather

“I can’t resist poking at the anti-capitalist crowd-CC”

By Craig Medred | Anchorage Daily News

Two hundred years of glacial shrinkage in Alaska, and then came the winter and summer of 2007-2008.

Unusually large amounts of winter snow were followed by unusually chill temperatures in June, July and August.

“In mid-June, I was surprised to see snow still at sea level in Prince William Sound,” said U.S. Geological Survey glaciologist Bruce Molnia. “On the Juneau Icefield, there was still 20 feet of new snow on the surface of the Taku Glacier in late July. At Bering Glacier, a landslide I am studying, located at about 1,500 feet elevation, did not become snow free until early August.

“In general, the weather this summer was the worst I have seen in at least 20 years.”

Never before in the history of a research project dating back to 1946 had the Juneau Icefield witnessed the kind of snow buildup that came this year. It was similar on a lot of other glaciers too.

“It’s been a long time on most glaciers where they’ve actually had positive mass balance,” Molnia said.

That’s the way a scientist says the glaciers got thicker in the middle. Read the complete story at adn.com

Prime rate drops to 4.5%

“Note: Since this was written, the prime has dropped to 4% and furthur rate cuts are possible.-Chris” 

One item not receiving a great deal of attention through the financial crisis is the fed’s action causing the prime interest rate to drop from 5% to 4.5%.

Many business loans are prime based, so this will be welcome relief for many business owners. In addition, interest rate are very low for those who qualify. Banks are hungry to make loans in their narrower preferred categories. SBA loans are still being made (albeit with tougher rules) and funding certain business acquisitions and franchise purchases are in many lender’s sweet spot.

 These are advantageous times to buy a business since multiples are down and lenders will be your willing due diligence partner to make sure their monies are safe.

The Structured Sale, A different method of tax deferral

The Structured Sale is a unique type of installment sale whereby specific installment payments are secured by an annuity   issued by a major, well-known life insurance company. 

The Structured Sale is established pursuant to Internal Revenue Code 453, Installment Sales. By separate agreement with the Buyer, a third party assignment company becomes the substituted obligor for the Buyer and receives the cash not taken by the Seller at closing.  Upon receipt of the funds, the assignment company purchases and becomes the owner of the annuity that secures the specified installment sale payment obligation.

Available in all fifty states, the Structured Sale can also be used in a large down payment and a Seller’s Carry Back Note sale.

Andrew Hull,

www.deferthetax.com