Mike

A: As a general rule, buying a business can be a very good idea, but as with everything else in this economy, to make sure it will be a successful venture, you have to proceed with caution and do your due diligence.

First the pros: With a pre-existing business, you should have a pretty good idea of what you are getting. The business makes X number of dollars in profit a year, has Y number of customers, and so on. The kinks should mostly be ironed out and the brand is already established. All good, that.

There are two potential pitfalls, as I see it:

1.      First, you have to make sure that the success of the business is not due to the current owner. If the customers, for instance, are his personally and not really those of the business, that is a red flag.

2.      Similarly, you need to be extra certain, given the economic times we are in, that the business will remain as profitable as it has been in the last few years.

When it comes to buying a business, there are few people more knowledgably about the process – selecting, financing, etc. – than the folks over at BizBuySell.com. The site is one of the top marketplaces for businesses and franchises for sale. It lists everything from inexpensive home-based businesses to gas stations, large ventures, franchises, and more.

So to better answer your question, I called up Mike Handelsman, the general manager of BizBuySell.com and spoke with him.

Like any good business coach, he thinks you need to begin with the basics: “Start with a self analysis, decide what you are good at, figure out whether you are an entrepreneur (aside: The Small Business Bible can help with that!), and then start thinking about the sort of business that fits your interests and affords you the right type of income.”

Once you pass that self-analysis test, then it’s time to start digging in. BizBuySell.com for instance, allows you to find all sorts of businesses for sale in your area. You can see how much they are going for and what other requirements may be needed.

Once you start to really get serious, Handlesman suggests that you check into hiring a business broker, for several reasons.

·        First, good brokers will help you make a smart decision.

·        They also know what is for sale in your area.

·        They will help you with loan options. And finally, and importantly,

·        They are paid by the seller, not the buyer.

When I asked Mike Handlesman if it is possible to buy a business with no money down, that is, with 100% seller financing, he answered that is possible, but it won’t be easy, noting, “Most sellers have been waiting for 20 years to retire and won’t want to wait longer to cash out.” But you never know; you just might find someone willing to help you get started if they see that you will be able to pay them off in a few years.

“But remember, the danger of finding a seller willing to do 100% financing is that the business may not be very viable.”

Rather, he noted, partial seller financing is far more commonplace, and likely to happen. In fact, Handlesman noted, “if you have some money, or some financing lined up, it’s a buyer’s market. There are distress sales out there.”

If you want full or partial seller financing, the expert gave these tips:

·        “Show that you have a high likelihood of success” – you have experience, contacts, etc.

·        “Offer aggressive terms” – a 3 year note, that sort of thing.

·        “Work with a broker.”

·        “Engage the seller as a consultant for six to 12 months” – that way, you up their income.

Buying a business, especially with some seller financing, is another option in this challenging economy.

Today’s Tip: Want to find a broker, or get the value of a business? BizBuySell helps with those too. Steve says check it out.

If you are like many companies, you’re already looking for ways to trim off a little fat. That could come in the form of not ordering as much inventory, looking for employees to lay off or any other cost-cutting measures.

As a matter of fact, many small business owners are already in a panic, with doomsday visions in their heads.

It’s time to stop and take a deep breath.

Fact Check

Look at the facts. Yes, we are in an economic downturn. Because of this, sales are down across most industries as people prepare for a recession.

In many respects, this could be making matters worse. By hoarding finances out of fear of a depression, we may well be speeding up its arrival. An economic downturn, whether or not it turns into a recession, can’t be predicted.

There is no way to know when it will end and everything will bounce back to normal. However, the one thing history does tell us is that it WILL bounce back. That means you can put those doomsday visions out of your head. The end has not come – rather, this is just a bump in the road.

An intelligent businessperson will prepare for the economic downturn and possible recession – but won’t panic.

Manage Debt

Part one of making it through an economic downturn is to manage your debt. Many companies live off a plan of leveraging their debt, counting on being able to roll current loans into new ones when they come to term.

This may not be an option the next time around. Instead, you need to build up your cash reserves so you have a comfortable nest egg in place the sit on during the economic ride.

Broaden Your Customer Base

While the U.S. Dollar may be having a tough time and the U.S. economy may be reeling, that does not mean the rest of the world is having the same problems. While U.S. buyers may be a little more reluctant right now, there are plenty of other countries around the globe ready and willing to find new suppliers.

Try to broaden your base of customers, and add new international clients into the mix.

Investing

If you have managed your debt well and built up a cash fund for your company, this may be a great time to invest in new items for your business. While everyone else is clamming up and afraid to buy, you can use this time (and your extra cash!) to expand your offerings, pick up new customers who want those items – and possibly take the lead in the race against your competition.

Changes in the economic tide are nothing new. Financial markets go up and down as they have for generations. The key to weathering the down times is to keep your wits about you and plan well while taking advantage of any new opportunities.

Rachael

A: I would have to say, I get more variations on this question than any other: “Where the heck can I get some of this free government startup money?”

I’m not exactly sure where this urban myth comes from, this idea that there are government agencies out there just waiting to give out free money to start a business.

I suspect that the main culprit is Matthew Lesko. You know, the wacky guy on those infomercials with the question mark suit who is always talking about free government grants and programs.

Do they really exist? Are there free federal grant dollars available to fund a business startup? Let’s find out.

Lesko received his MBA from American University and his company, Information USA, has published many books on the subject of “free” government programs over the past few decades. His books generally point out programs that people may or may not know about which offer some sort of assistance – everything from Medicare and Medicaid to SBA loans, energy assistance, and farm subsidies.

But actual free money turns out to be a pretty rare thing.

Indeed, the York State Consumer Protection Board issued a report in 2004 stating that some of Lesko’s claims of free money are exaggerated (in relation to his book, Free Money to Pay Your Bills.)

This is not to say that grants are not available on the federal level. They are. Indeed, the federal budget is chock-full of programs that grant funds for such things as:

* Scientific research
* Educational endeavors
* Defense services and products, etc.

Moreover, there are plenty of programs that help minority, veteran, women, and disabled business owners, but again, none that I could find offer actual free start-up capital for individuals. Most of this assistance is technical and advisory in nature.

When the federal government does offer grant money to promote small business, it almost exclusively goes to state and local governments. According to the smart folks over at About.com, “By far, most government grants are applied for and awarded to other federal agencies, states, cities, colleges and universities, and research organizations.”

So it seems that free federal money to start a business is more myth than fact.

Next then, let’s consider programs on the state and local level. Here we find a bit more help. For instance, many communities offer incentives for small businesses to set up shop in economically distressed areas, although these incentives often take the forms of tax breaks or rent subsidies rather than grants per se. There are also plenty of incentives today to make your business greener, but again no, no free money.

What about private, non-profit grant makers? These are organizations with very specific goals in mind, who work hard at fund-raising, and who fund only the most worthy, cost-effective programs. Some may help with business capital if that is the business they are in and you meet their very specific criteria and stringent prerequisites. No one gives money away willy-nilly. Expect to be thoroughly vetted to make sure that what you are proposing is what they want you to be doing.

Expect to also spend a lot of time and effort in the process. Applying for and getting grants is a difficult, rigorous process, often requiring expert assistance. “Grant writer” is a job for a reason.

And understand this too: Grants come with strings. In the remote chance that you do find and get a business grant, you will also be expected to thoroughly account for whatever money you get and spend it exactly in accordance with the strict guidelines of the grant maker. Failure to do so will land you in plenty of legal hot water.

At a time of huge federal government deficits, an incredibly expensive war with no end in sight, and recession, you are looking for free government money? Think again.

If it sounds too good to be true, it probably is.

Today’s Tip: One place to find out what state and local assistance is available to your business is the online Catalog of Federal Domestic Assistance; a database of all federal programs available to state and local governments, organizations, various groups, and individuals. Once you locate a program that may be a fit, contact the office that administers the program and learn about the application process.

Once millions of Americans began applying for and getting credit cards, the credit card companies began seeing dollar signs – and out of greed, destroyed something that was meant for good.

While the concept of having a credit card may be great, once you try to take advantage of a card with all the perks and extras, you may notice that it feels more like a ripoff than a good deal.

Fees

Many credit cards have lots of extra fees. You get charged for making a payment late. You get charged for going over your credit limit. You even get charged a fee for transferring money from your credit card to a bank account.

How can one little card have so many fees?

Some credit card companies claim they exist to help you rebuild your credit. Somehow they also think they are helping when you have pay $250 dollars just to get a bad credit credit card which has a very low credit line.

Interest

The Annual Percentage Rate (APR) is the next hidden evil in credit cards. If your credit score is high, then you get a low annual percentage rate. If you are like most Americans, your credit score is far from high – and you end up with an APR of 11 or 12 percent.

Unless you do the math, you may not realize just what that interest rate really means. Let’s say you go to the store and spend $100 dollars on a TV. The bill comes and you only send the minimum payment due.

Then next month, you’re charged interest on the balance. Once again, the credit card company will ask you to pay a minimum fee, and then charge you the interest again. At the rate they ask you to pay, you could be paying that $100 TV off for years.

Ignore the Ads

Many a financial advisor will advise that you spend with cash, to minimize the interest risks. The credit card companies are battling this. You may have seen a popular commercial on TV. Everyone is shopping and having a good time using their credit cards until someone pulls out cash to pay for their purchase.

All of a sudden, the music stops and life is pretty much on hold until they pull put their credit card and swipe it – and everyone goes back to having a good time.

What kind of picture is that sending to our young men and women getting out of school and going into the real world? The lesson they are learning is that you are not popular if you do not have a credit card.

This has turned us into a society where everyone is trying to have what everyone else – has even though they cannot afford it.

This is supposed to help boost the American economy. The obvious question is how you and your business are going to spend your share of the stimulus check.

Put It Back Into the Business

As a small business owner, you want to invest the money. Buy something that is going to make your business earn more income, and help the economy.

Equipment

You may need to buy new equipment. If you buy more equipment, you are giving money to the company that makes the equipment (keeping their employees working).

You will also have to hire people to run the equipment, thus doing your part of keep to help alleviate the unemployment issue.

Real Estate

If you have been thinking of expanding, you can make a positive impact on the real estate market by using the money to move to a bigger office, so you can be more productive.

Security

Is there something that you have wanted for a long time but have not had the money to afford? Now that you are going to have the money, this is an excellent opportunity to make that purchase.

Maybe you have been thinking about getting a security system. While your business may be running just fine without one, having one will give you more peace of mind when you close shop for the day and go home.

Evaluate Your Needs

How you choose to spend the money will depend on what kind of business you have. All businesses have unique needs, even businesses that are in the same category. If you have a restaurant, your establishment may need to the money for completely different purchases than the restaurant down the street.

By this time, the wheels in your head should be spinning as you contemplate the best ways to spend your tax rebate check so that it positively impacts your business.

You may want to make a list of the ways you can spend your rebate to best benefit your business. In addition, ask your employees and get their feedback. When it comes to knowing what will make you business more productive, your employees may have ideas that will make the business run more efficiently, that you may have not considered.

Start Shopping

No matter how you choose to use your money, the key is to spend it. That is why we are getting it in the first place. Keep in mind, however, that this is a one-time thing.

If you invest the money in something that is going to be profitable to you now and in the future, then your business’ future will be bright. Conversely, if you choose to spend your money on something frivolous, your future will not be as bright as you would like it to be.

The business tax rebate is being given out to be spent in an effort to aid the economy. Do not simply put it in your bank account and leave it there. Also, do not blow it without thinking it through and making a wise decision.

However, times have changed.

The Yuan has been creeping up over the past year and is continuing to gain strength, while the Dollar is struggling in the world market.

For retailers, the impact is crystal-clear. It shows up on their invoices. As the Yuan gets stronger, the items they purchase from China are costing more. In some cases, prices have doubled over what they were just a year ago.

For larger companies, while this is an annoyance, they can spread out the impact throughout their products and company sectors. For small businesses, this is not as easily accomplished.

So what is a small business to do?

Measure the Impact

First, take an honest look at what impact the rising Yuan is having on your business. If you regularly manufacture items in China or order products for retail sale, look closely at the increase you have seen in the past year.

Now, think about what will happen to your bottom line if things continue on this track for awhile.

Adjust as Possible

Now that you know what could happen if things keep going this way, it’s time to prepare for the worst. What can you change about your operations, sales, etc, to keep things going at your current levels while this economic shift takes place?

It may mean increasing your retail prices, or learning to do more with less in other aspects of your business for a little while.

Another option is to look into temporarily using less expensive materials or supplies to offer the same products, while waiting for the market to level out again.

Wait it Out

History shows that these economic fluxes usually level out. While it may seem painful right now, the economies of the world are often like a roller coaster ride. There will be peaks and valleys, but it will all even out eventually.

Do not make the mistake of making a rash decision like as getting rid of your Chinese suppliers, because of the current increase. Just have patience.

While the shift of the Yuan into record territory these last few weeks has many people in a panic, the smarter path is to take a deep breath, plan for this trying period and look forward to when the markets are once again on the level ground you are accustomed to.

When a business gets into financial trouble, they can contact a merchant cash advance provider, or MCA. Getting these loans is easy and you do not need collateral to get them, as you do with banks.

Why Business Owners Resort to MCAs

The reason most business owners go to a MCA is that they cannot get a loan at a bank. A business can borrow up to $150,000 dollars and agree to pay it back – for a loan fee of 25% or more. These loans are paid back to the MCA provider, which takes small portions of the business’ credit card sales until the loan has been paid in full.

Repayment usually takes about six months.

A merchant cash advance loan should only be considered if there is absolutely no other option . That 25 percent or more that you have to pay back in fees could be better spent helping you increase your business’ profits.

The High Cost of Repayment

In the event that the loan does not help and the company goes out of business, the merchant cash advance provider has no recourse as long as the business owner clearly followed the terms of the contract.

If a merchant cash advance provider feels that their contract has been broken, then they can take whatever action they feel is necessary to get their money. Often that even includes taking the business owner to court.

This is yet another reason that taking out a merchant cash loan is not the best idea. As a small business owner, your goal is to stay out of court -not get dragged into one.

Modern MCAs – Making a Killing at Your Expense

A decade ago, there was only one merchant cash advance provider. It was called AdvanceMe. They only lent approximately $10 million dollars a year. Now there are MCAs all around the world, and they lend out over $700 million dollars a year, on average.

Choose Carefully

> Before making this decision, weigh all of your options:

> Is there any other place you can get the money?

> Do you have any family and friends that can help?

> What are you taking out this money for?

> Will this loan considerably increase your bottom line?

> Can you run your business without it until you can afford it?

> If the cash advance is for making a purchase, is it necessary that you get the money right now?

A Last Resort

If you have tried every other resource possible, and nothing has worked, then and only then should you consider going to a merchant cash advance provider. The most important thing to consider as you take this step is to make sure you can afford the regular payments.

Merchant cash advances can be a good thing to have, but only if you are in an especially tough spot. When you are having trouble paying the bills, or need to expand your business in a pinch, this can be the money that saves the day.

If you decide to go the MCA route, remember to read the contract carefully. A merchant cash advance is not an advance you get just because you need some extra cash.

Working much the same way that a more traditional business loan works, the big difference with a peer-to-peer loan is that it’s funded by private individuals, which can include friends and family, and managed by larger companies. These include Prosper, Virgin Money, Lending Club, Zopa and GlobeFunder amongst others. The business owner gets the loan they need, and it’s carried out like a normal business transaction, with all the relevant protection and repayment options.

While it’s not quite as prevalent as a traditional business loan yet, the amount of business owners and entrepreneurs now using the peer-to-peer option is growing considerably. For example, both Virgin Money and Lending Club provide a peer-to-peer business loan to as much as 20% of their overall borrowers. The same goes for Prosper, with the average peer-to-peer loan sitting at between $9,000 to $21,000.

The reason for the increase in the amount of business owners looking to the peer-to-peer business loan option is that the more traditional lenders are tightening their belts. Due to poor stock markets and higher defaulters, banks and financial institutes are turning down borrowers whose credit is good, since the risk factor is too great. Without the peer-to-peer option, this would result in many more businesses falling by the wayside, which would simply add to the low confidence in the business markets.

Another reason for the increase in peer-to-peer loans is that it allows people who may not have a business “head” to become involved in a business they’re interested in. Although not a partner as such, a lender of a peer-to-peer loan feels like they are contributing to that business’s success, and this leads to more opportunities for borrowers to find the money they need.

If you’re considering a peer-to-peer loan for your business, or even if you’re considering becoming a lender yourself at a later date, make sure that you carry out a few simple checks, to ensure that you don’t end up out-of-pocket later on. These checks include asking for references or credential checks from interested parties. You should also check the company out at the Better Business Bureau, which can advise of any complaints raised about the company in question. Even a simple search engine check will bring up any negative news about any peer-to-peer lender, and will potentially save your business thousands.

How would you feel about hiring an accountant who puts the interests of the IRS before those of you or your business? What’s that you say? You wouldn’t like it? That’s what I thought you’d say…but what if I told you you had to?

Unfortunately, that may be the case.

(I mean, I won’t force you to but a much stronger influence might…what was their name again?…..oh right! The Government.)

The Small Business and Work Opportunity Tax Act of 2007 stipulates that those who prepare returns containing an understatement of tax due – which the preparer "knew or reasonably should have known" – will be subject to penalties amounting to "the greater of $1,000 or 50% of the income" the preparer received for that particular federal return.

The act also expands the definition of tax-return preparer to cover those handling any federal return, including those for estate, gift, excise, and employment tax.

According to a recent Fortune Small Business article there are a bevy of downsides to this new legislation including:

• The act has the potential to injure the close personal relationships many small businesses maintain with their accountants.
• Smaller businesses may need to prepare more documentation than previously required. In turn, accountants may be less apt to take clients at their word.
• In some extreme cases, accountants may ask for far less data, hoping they will be less liable the less they know, which would put more of the legal burden on entrepreneurs.

So it sounds a bit like intimidation doesn’t it? And it would appear that the government would end up with a lot of free (and somewhat covert) auditors. How do you plan to handle this new legislation? Are you going to write your congressman? Did you even know this tomfoolery was afoot?

And for those of you who do end up getting audited this tax season (for real) check out How to Survive an Audit of Your Business- And Live To Tell About It

The bank is going to check on the history of the potential owner to see what their financial situation is. Unless they have outstanding credit and a strong track record of successfully running businesses the chances are they will be unable to obtain a loan to buy your equipment, customers, buildings, or other assets.

If you have succeeded in business the chances are you possess a good amount of the entrepreneurial spirit. That spirit gives you a can do attitude and where there’s a will there’s a way so you most likely will find a way to get your business sold.

A prospective buyer who has enough cash for a down payment and some decent collateral can many times work with the owner of the company and talk them into carrying the loan. It works just like carrying a loan on a house or property. And one advantage is you know exactly what the collateral is worth because it was your business!

Selling a business is difficult and banks won’t just automatically allow the person who wants to buy your business to take over your loan even if they do have enough for the down payment. In fact, they may not even consider the success of your company due to the fact that it will be run by a new owner.

Carrying the loan when you sell your business can work for many people, except in a couple of glaring exceptions. If the future owners of your business decide to stop paying you are suddenly back in business as you will have to repossess you company. Repossessing a business is difficult and not an easy position to be in. Make sure you conduct due diligence on the people you are considering carrying the note on your company for.

The second instance where selling your company and carrying the debt won’t work is if you need the money out of the business quickly. But what do you do if you can’t find a cash buyer or someone who can qualify to buy the business? You carry the loan yourself and then look for an alternate buyer to purchase the debt.

Start with banks and local firms who purchase debt just be aware they are going to discount the loan, which means they will buy it for less than it is worth. This is the cost you will pay for cashing out the debt, but remember, when you sell the debt it is no longer yours to carry and you can take your proceeds and do with them what you want.

Ensure you consult a business law attorney prior to selling your debt and ensure you are aware of all of the tax implications from the sale of the debt as well.