Posts Tagged ‘Peter C. Brehm’

Succession Planning Workshops

Monday, January 16, 2017 @ 11:01 AM
Author: Peter Brehm

SCORE-Workshop-Succession Planning Series flyer

Together with SCORE and Northeast Bank, on March 2, 2017, and March 16, 2017, Business Law Center will be hosting two seminars geared towards helping small business owners protect their business, and improve the value of their business.

In Session 1, Succession Planning – Preparing to Leave Your Business, you will learn:

• Why should I have a plan?
• What happens to my business when I die?
• What happens if my partner dies, gets disabled, or divorced?
• How to get my business ready to sell?
• Could I sell my business now? And retire?
• How do I protect my family?
• How do I minimize taxes?

In Session 2, What’s Your Business Worth? you will learn:

• How can I determine the value of my business?
• What is the value of my goodwill?
• How do I decide how much insurance I need?
• What are my partners’ shares worth?
• Can I buy them out?
• Can my employees afford to buy me out?

For more information, and to register, you can go to SCORE’s website HERE or you can contact our office.

Peter Brehm

952-943-3904

off

Preparing Your Business for Sale

Thursday, January 12, 2017 @ 10:01 AM
Author: Peter Brehm

I have been working with small businesses for nearly 20 years, and I can’t say how often I have seen sellers leave money on the table because they hadn’t prepared their business for sale.  People buying small businesses are usually looking to buy a job, and are seeking confidence that they can make your business work for them.  The more turn-key the business, the better it will be for the buyer.  Which is why franchises are so successful. 

If you think you will be selling your business one day (and you probably will), here are some basic steps you can take to help make your business easier to sell, and make it more valuable.

1.      Eliminate the Black Box.  Obviously, buyers want to know if your business is making money, but presenting a potential buyer with historic EBITDA, revenue, or cash flow numbers is not enough. Buyers aren’t buying your profits from last year, they are buying the profits they might earn in the future.  If they don’t feel confident that they will be able to replicate what you earned, they will pay less for your business.  Be prepared to explain not just what your business made, but exactly how sales, marketing, equipment, suppliers, customers, intellectual property, and labor contributed to your profits.  You are, after all, the world’s foremost expert on your business, and should be able to explain how it runs in detail.  When buyers can see how your business makes money, they will be more confident that they can make money too. 

2.      Eliminate You from Your Business.  Think about your business as a money printing engine.  If a buyer purchased that engine, would it run efficiently without you, or are you the only one that knows how to prime it, or where the throttle is?  As a small business owner, of course you are vital to your business, but you must take steps demonstrating to a potential buyer that the engine will run efficiently without you.  Help you buyer visualize your business without you.  Identify key employees, and start delegating responsibilities to those people.  Prepare a transition plan that explains how you will help train and mentor your buyer in your business.  Communicate to your buyer exactly how he will be able to retain your key customers, vendors, and employees. 

3.      Clean up Your Books I.  When you own a small business, and there is enough money coming in to cover your expenses and pay expected profits, there is little incentive to keep great looking books.  But your profit and loss statement (P&L) and balance sheet say a lot about your business, and speak volumes about your attention to detail.  When a client presents me with financial statements prepared by a professional accounting firm, my confidence in those numbers goes up.  If all they have are tax returns, or some hastily assembled P&L, my confidence goes down, and I will generally advise my client to either walk away, or make some ridiculously low offer.  With the advent of QuickBooks, and other online accounting packages, there is simply no good reason why you should have bad books.  Hire a good bookkeeper or accountant, and get your books in order.   

4.      Clean up Your Books II.  I get it, you are a small business owner and you want some of the perks of owning a small business.  So, you decide to buy a building and have your company pay (mildly excessive) rent to you.  You hired your son to be your bookkeeper for $75,000 a year in stead of paying a bookkeeper $10,000.  You bought a company condo in Florida, and decided that the company could really use a yacht and a Porsche 918 to run (business related) errands.  I’m not here to judge (well maybe I am a little), but if those expenses are on your books when you present your P&L to a buyer, you are shooting yourself in the foot.  When you are getting ready to sell, stop thinking about reducing your tax bill (and living like a Rockefeller), and clean up your books.  Get a real estate agent to give you’re the market value of your rent.  Reduce salaries paid to family members to market rate (or just hire someone else).  Eliminate all non-business related expenses from your business.  Your books should reflect the most efficient operation of your business to get you a better return.

5.      Make Your Business Shiny.  Quick question:  who has more leverage, a person who looks like they must sell, or a person who looks like they don’t have to sell?  Years ago, I worked with a man who owned a restaurant and decided that he was going leave his business in a couple years.   So, for close to three years he spent next to nothing to fix his equipment, his furniture, his fixtures or anything else.  When buyer came around and saw the mess that was waiting for them (torn carpets, ovens on their last legs, dated furniture, and worn out fixtures), it directly reduced what they were willing to pay.  More importantly, the buyers knew that the seller had to sell, otherwise he would have to absorb the costs of updating the FF&E.  He had painted himself in a corner.  When you present your business for sale, it should look like you could run it for another 10 years if you wanted to.  Operate your business as if you will never sell, until you do.  Keep your vital equipment in good repair, replace worn fixtures, keep employment agreements up to date, enforce non-compete agreements, protect your copyrights and trademarks, and update your vendor and customer agreements. 

There are, of course, more things you can do, and each industry has other steps that might be useful. But, if you can take simple steps that will give potential buyers confidence that they can replicate the success of your business, you will  be more likely to sell your business and get paid fairly for it.

Peter C. Brehm, J.D., LL.M., CVA

off

DOL Overtime Rule Changes on Hold

Wednesday, November 23, 2016 @ 10:11 AM
Author: Steven Ness

U.S. Department of Labor’s new unlegislated rules (to become effective on December 1) regarding overtime pay were indefinitely halted.  On November 22, 2016, a federal judge temporarily blocked the Department of Labor from implementing and enforcing a final rule that would have altered the way workers are classified as exempt from overtime pay under the Fair Labor Standards Act (FLSA).  A temporary sigh of relief for many small and medium sized businesses with “hybrid executives” who perform a variety of tasks/functions.

While this means the implementation of the rule has been delayed, and it will not go into effect on December 1, 2016 as expected, it could easily be implemented in the near future. Proactive employers that already implemented policies consistent with the new rules may have a difficult time reversing those new policies.  It is always prudent, if unsure, to consult legal counsel for additional guidance.

off

Seminars on Business Valuation and Buy-Sell Agreements

Thursday, September 22, 2016 @ 12:09 PM
Author: Peter Brehm

At Business Law Center, we we do a number of things to help small business owners plan for the future. In conjunction with SCORE and Northeast Bank, on October 27, and November 3, 2016, we will be hosting two seminars geared towards helping small business owners protect their business, and improve the value of their business.

In Session 1, Succession Planning – Preparing to Leave Your Business, you will learn:

• Why should I have a plan?
• What happens to my business when I die?
• What happens if my partner dies, gets disabled, or divorced?
• How to get my business ready to sell?
• Could I sell my business now? And retire?
• How do I protect my family?
• How do I minimize taxes?

In Session 2, What’s Your Business Worth? you will learn:

• How can I determine the value of my business?
• What is the value of my goodwill?
• How do I decide how much insurance I need?
• What are my partners’ shares worth?
• Can I buy them out?
• Can my employees afford to buy me out?

For more information, and to register, you must go to SCORE’s website HERE.

off

Proposed IRS Regulations May Eliminate Valuation Discounts for Gifts of Family Ownership

Sunday, September 18, 2016 @ 10:09 AM
Author: Peter Brehm

On August 4, 2016, the IRS published in the Federal Register a set of proposed new regulations under Chapter 14, Section 2704 of the Internal Revenue Code. These proposed regulations would have a significant impact on the valuation of private business entity interests for transfer tax (estate, gift, and generation-skipping) purposes.  Currently, business appraisers will examine real world restrictions on ownership interests (such as limitations of voting rights, control, etc.), and will often apply significant discounts to stock that is gifted to family members.  The discounts are intended to reflect the reality that potential buyers will pay less for stock that is restricted than it will for stock that is not restricted.
Under the proposed regulations, appraisers would be required to conduct valuations assuming hypothetical circumstances that often do not coincide with market conditions.  In other words, appraisers would be expected to assume that restrictions of the stock being transferred do not exist. This would cause them to determine a fair market value that ignores otherwise applicable valuation discounts, resulting in a value determination that may not match what the market would actually pay.
If these regulations are enacted in December 2017 as planned, valuation discounts for transfer interests will essentially be eliminated.  This will redefine how these interests are valued and most likely limit the financial benefits of these transfers.  The proposed changes would affect anyone who plans to transfer equity interests to family members. It is essential to approach this process in the company of a seasoned business valuation expert who is adept at navigating the complex authorities in action during these transfers.

off

When Doing Nothing Can Cost You Everything: Why You Need a Business Succession Plan

Thursday, February 11, 2016 @ 12:02 PM
Author: Peter Brehm

No business owner would deliberately risk the very enterprise that could help fund his or her retirement and prove to be a lasting legacy. Yet, an owner who has failed to plan for business-succession or exit upon retirement does exactly that. Here’s how to avoid the sometimes substantial cost of doing nothing.

“Albert” is the 63-year old owner of a profitable retail operation that boasts annual sales (revenue) of around $1 million. Since launching the business 20 years ago, Albert runs the day-to-day operations full time, and has been drawing an annual salary of about $60,000 in recent years. He also employs four part-timers to run the cash registers and stock shelves now and then. Currently, the entity holds about $125,000 worth of inventory (based on current purchase price of items) and around $100,000 in equipment. A quick estimation of the business’s value can be gauged by applying the rule-of-thumb similar businesses (ones selling the same product or service) use in his geographical area: calculate 50% of average annual sales over the past three tax-reporting years.

In Albert’s case, that would amount to a business worth roughly $500,000 (business value including equipment, good will, etc.).

The strain of working 12-hour days in retail is starting to take its toll on Albert’s health, however. Albert agrees that he can’t keep up his current pace much longer, but has procrastinated on actually coming up with a business-transition or succession plan, feeling confused and overwhelmed at the thought of it. “I’ll probably just work until I can’t anymore,” he laughs. When his friends ask what he’d actually do if he were unable to work, he scoffs, “That’ll never happen.” A few weeks later, a fall from a ladder puts Albert in the hospital for several weeks. With no one to take his place, Albert thinks it best to consider closing up for a while, if not permanently. “It had a good run,” he says, thinking that this outcome was probably inevitable.

An All-Too Familiar Story

off

Minnesota’s B Corporation – The Public Benefit Corporation

Wednesday, November 12, 2014 @ 09:11 AM
Author: Peter Brehm

Many of our clients at Business Law Center are more than great business people, they are great people who do more for their communities than just create wealth.  The problem for some for profit companies is that the primary, if not exclusive purpose for the company is to create profits for the shareholders.  So, if the board of directors approves a program donating 10% of the company’s profits to a charitable organization, or cancels a lucrative contract with a business because it was using child labor, some (or all of the shareholders) could take action against the board for making decisions for reasons other than company profits.

Enter the B Corporation.  Minnesota’s new (effective January 1, 2015) Public Benefit Corporation.  Not to be confused with non-profit corporations, the B Corporation has shareholders, profits, and the board is required to consider, the impact of all actions on the financial interests of the owners.  Also, unlike a non-profit, there is no public agency that will force to the company to pursue its purpose.

However, like a non-profit, the corporation may also require the board to consider factors other than profits, and shields the directors from liability from doing so:

     In discharging the duties of the position of director of a specific benefit corporation, a director:

          (1) shall consider the effects of any proposed, contemplated, or actual conduct on:

                (i) the pecuniary interest of its shareholders; and

                (ii) the specific benefit corporation’s ability to pursue its specific public benefit purpose;

          (2) may consider the interests of the constituencies stated in section 302A.251, subdivision 5; and

          (3) may not give regular, presumptive, or permanent priority to:

               (i) the pecuniary interests of the shareholders; or

              (ii) any other interest or consideration unless the articles identify the interest or consideration as having priority.

There are two types of B Corporations:

General benefit corporations are required to pursue a net material positive impact from its business and operations on society, the environment and the well-being of present and future generations. In addition to this broad obligation, general benefit corporations may also state a specific public benefit, or benefits.

Specific benefit corporations are required to elect only to pursue one or more positive impacts, or reduction of a negative impact, on specified categories of natural persons, entities, communities or interests other than shareholders (in their capacity as shareholders). This narrower obligation allows the specific benefit corporation to focus its mission on one or more explicit benefits without the general societal concerns required of general benefit corporations.

The B Corporation should not be confused with C Corporations or S Corporations, in that it is not a tax designation, it is really just a subset of a typical Minnesota corporation governed by 302A.  Any new or existing corporation may elect to become a B Corporation though it original articles, by amending its articles to comply with the statute, or through a merger.   Any election to do so, however, will permit unhappy shareholders to be bought out.

Finally, one of the significant drawbacks of the B Corporation, is the requirements of transparency.  Every year, the company must file an annual report with the Secretary of State.  That report is public, and must detail how the company sought to fulfill its public purpose.  If the company is a general benefit corporation,  report must be based upon an independent third party standard for similar companies.

Peter C. Brehm

off