Category: Blog

According to the U.S. Small Business Administration and Project Equality, 60 percent of business owners plan to cash out of the business in the next 10 years. For the baby boomer generation, it’s especially important as they contemplate retirement, with this generation reportedly owning 2.3 million businesses. When it comes to getting a business ready for sale, there are many components to review and get organized before looking for prospective buyers.

The first thing owners looking to sell their business are being asked is why they’re selling. This may occur for many reasons – voluntary or not. Some people are looking to retire, while others might be looking to exit their business because things soured with partners. These are just some of the reasons why business owners or partners want to sell their business or stake in a company. Entrepreneur magazine says there are “three ways to leave a business – sell it, merge it or close it.”

According to Entrepreneur magazine, there are many considerations for business owners when they are contemplating selling. For profitable companies, it’s more often due to choosing to sell, but not always. When there’s the desire to sell a business, if the owners can show potential purchasers some or all of the following, chances are it will sell sooner than later and for a fair price: growing income, profitability, and a customer base, along with a business plan and product/services with long-term potential.

Another consideration is timing of the sale. Ideally, getting the business’ house in order will benefit both the seller and the buyer. With this in mind, it’s important to have a few backup buyers in case the first deal falls through. One reason a deal may fall through is because the buyer didn’t qualify for financing before the sales process got serious. This planning can give the business owner and potential buyers time to review, audit and organize financial records; review and determine the business structure; and determine and analyze the business’ customer base. This review and organization will be able to help the new buyer maintain business continuity, if they decide to purchase the business.

The next step is to get documents in order. Organize the cash flow statement, balance sheet and income statements, along with tax returns from the past few years. It’s important to inventory all equipment, intellectual property, trade secrets, etc. to see what can be sold and transferred and verify the current market value of each. Taking stock of both sales records and suppliers, and getting contact information for both will help make a sale more likely. Depending on if the information is proprietary or not, it’s important to have this ready to share, under confidentiality, with potential buyers. An operating manual and a general overview of the business are also necessary in order to show the company’s presence clean and repaired.

Another consideration is how business assets that aren’t so easy to touch will be valued. According to the American Bar Association, goodwill is an intangible asset, such as reputation, along with intellectual property like trademark. The New York State Society of CPAs’ (NYSSCPA) publication, The CPA Journal, reports that goodwill has an indefinite life, and one way to see if it meets the test of being goodwill is if it “is inseparable from the business.”

Another consideration when selling a business is to see its recent cash flow and to calculate it properly for potential buyers. According to the NYSSCPA and the Statement of Financial Accounting Standards (SAFS) 95, cash flow from operating activities (CFO), per the SFAS 95’s statement of cash flow (SCF), is calculated by starting with the net loss or income and then factoring in differences in working capital and non-cash sales.

Once the CFO is calculated, this figure shows how much the business earns from its operating activities, as the name implies. It’s important to see how this figure differs from investing or financing operations that may be ancillary to the company’s irregular financials. Once this information is known, it gives potential buyers an accurate assessment of the company they are buying to see if they’re comfortable with the existing business. Showing a business that’s doing well can help attract buyers at a fair price.

While each business is different and the reasons for exiting it vary, understanding what potential buyers are looking for can increase the chances of a fast sale at a fair price for both seller and buyer.

Sources

https://www.score.org/blog/how-profitably-exit-your-online-business

http://archives.cpajournal.com/2002/0102/features/f013602.htm

https://www.entrepreneur.com/encyclopedia/selling-your-business

https://www.americanbar.org/content/dam/aba-cms-dotorg/products/inv/book/213938/5070556_SamCh.pdf

The Challenge of Accounting for Goodwill

http://archives.cpajournal.com/old/14152806.htm

https://www.sba.gov/blog/7-tax-strategies-consider-when-selling-business

According to the U.S. Chamber of Commerce, the level of usage and data swirling around the internet is expanding at an accelerating pace. The amount of data on the internet globally during 2020 amounted to 3 trillion gigabytes; and 2022’s traffic is expected to increase to 4.5 trillion gigabytes. As a result, the U.S. Chamber of Commerce is concerned about the challenges American companies will have when it comes to business competitiveness.

According to a survey from Statista titled “Challenges encountered as a result of digital transformations in global organizations as of 2020,” there are common challenges that businesses are facing, such as:

• 51 percent of respondents said that “skill gaps have opened up on traditional teams as top talent moves to digital teams or products”
• 48 percent said that “cultural differences or conflicts have arisen between traditional and digital teams”
• 41 percent also mentioned that “traditional teams have struggled to keep up with the pace of how digital teams work”

With so many issues businesses face as technology races ahead, it’s important for organizations to recognize and adapt to the dynamics of digital commerce. According to Harvard Business Review (HBR), it’s important to align the business and its goals correctly, especially when it comes to getting the most out of software development. For example, when companies buy software, they generally use third-party software for all their needs. While accounting and human resources functions may be fine for standardized uses, there are often situations when a personalized approach is needed to provide customers with a memorable experience.

HBR suggests businesses take certain steps that can make the journey easier and more effective in the long run. The first thing to do is identify current information technology-focused employees, because they’re the most closely aligned and ready for the transition. Along with looking for outside talent, it’s important to let internal software developers have an active role in the process.

It’s also important to let developers be stakeholders (along with accountability for failure) for solving organizational challenges versus giving them rigid assignments. Don’t focus exclusively on punishing failure; instead, encourage developers to analyze, pick apart reasons why failure happened and how future experiments can incorporate learning from past failures. Include developers in discussions with the people who will be using the software (other employees and customers who will be using it in the future).

Let’s look at Domino’s mobile application development as a case study. They were able stand out by improving their app with a feature that gave customers the ability to track their order from when it was being prepared to delivery. This process included increasing the efficiency of its systems, practices and techniques, along with having employees who performed advertising related functions work closely with software developers. It helped their stock price increase dramatically, performing better than many publicly traded technology companies.  

One challenge for businesses going forward is since there are still tens of millions expected to come online with broadband, the amount of data and traffic will only increase. When it comes to broadband service requirements set by the Federal Communications Commission (FCC), they are at least 25 Mbps to download and 3 Mbps to upload. According to the FCC, approximately 14 million Americans lack broadband, with as many as 42 million reporting lack of access, according to Broadband Now Research. New York City’s Mayor’s Office of Technology reports that 18 percent of NYC residents lack broadband, making it problematic to work from home, access government services online, make doctor appointments, etc.

According to a December 2021 Digital Trade and U.S. Trade Policy report from the Congressional Research Service, there’s no stopping the expansion of trade in the digital world. It found statistics from the Department of Commerce for the “digital economy,” where 9.6 percent of GDP was generated from this sector. It also found that 7.7 million workers were employed because of this approach to commerce. However, unless businesses take care to ensure the same level of communication is accessible, formally and informally, there may not be the same level of efficiency for remote workers.

According to MIT Sloan Management Review, remote workers are at a disadvantage when it comes to indirect types of learning employees have compared with in-person settings. Whether it’s before work starts, during break or lunch time, or interacting with or observing a customer or client, employees working virtually have little to zero of these types of passive opportunities to learn on the job. Be it an additional comment after signing off an email, having a few opportunities to chat or talk online during breaks or similar, this type of passive informal communication needs to be addressed to make up for the in-person experiences other employees have.

While the way work will be conducted in the future can’t be predicted, it will certainly include using the internet – and for many employees, it will involve some time away from the office.

Sources

https://www.uschamber.com/international/ten-trends-in-2022-global-perspectives-for-business

https://www.statista.com/statistics/1133436/challenges-digital-transformation/

https://hbr.org/2021/01/in-the-digital-economy-your-software-is-your-competitive-advantage

https://docs.fcc.gov/public/attachments/FCC-21-18A1.pdf

Mind the Map: The Hidden Impact of Inaccurate Broadband Availability Claims

https://sgp.fas.org/crs/misc/R44565.pdf

https://sloanreview.mit.edu/article/overcoming-remote-work-challenges/