FEBRUARY 13, 2013
BY WALLY SAUCEDO CPA
The Internal Revenue Code (aka Tax Code) is the most complex set of tax laws in the world. Tax professionals are overwhelmed with tax laws for Individuals, Corporations, Partnerships, Limited Liability Corporations, Limited Liability Partnerships, Estates, Trusts, etc. The Tax Code was created by business men for business men. Therefore, “you have to be in business for yourself to take advantage of the Tax Code”.
The Good News is: It has never been easier to build a thriving business doing what you like, helping those you know can benefit from your knowledge. By installing Planning, Policies and Procedures in your business you can create a valuable asset which you can someday sell, or manage from a distance, etc.
According to research from SellabilityScore.com, Seven in 10 business owners in the United States expect to exit their company in the next 10 years. Approximately two thirds of all business owners who were asked said they would seek the advice of their accountant, thus ranking the CPA as the most trusted professional among all advisors.
Succession Planning is best considered an investment, not a cost when you hope to get a great return on your business investment and you should invest handsomely for this good advice. To maximize the value of your business before exiting and selling it consider the following:
Streamlining Your Products and Services
Follow the 80 20 Rule: 80% of sales and / or profits come from your top 20% of products and services. Focus on your money makers and isolate the less profitable offerings. Rank the product and service lines by gross margin and eliminate the lowest-margin offerings. Then rank offerings by marketing differentiation and eliminate the most commoditized offerings in favor of higher-margin differentiated products and services. The most sellable businesses are the ones that offer a few things better than anyone else.
Cashflow Consulting
When selling a business, the buyer has to write two checks: one to the owner seller and the other to fund the working capital of the newly acquire business. The more cash the new business owner needs in order to run the business, the smaller the check that the new buyer will cut to the old owner. The inverse is also true: the less cash the new business needs to operate the more money the new buyer gives to the seller. CPAs can show old and new owners how to reduce their working capital needs by creating a positive cash flow cycle.
Business Model Reengineering
By reengineering the business into a recurring model through monthly or quarterly service/maintenance contracts or subscription offerings, you can dramatically increase the value of the firm. For example, the typical home security company sells for 0.75 times the installation revenue and two times the service contract (i.e., “monitoring”) revenue. It’s the ongoing service and maintenance contract that buyers are willing to pay a premium for—not the one time installation work.
Annual Valuation
Most business owners use their Profit & Loss statement as their report card. Adding an annual valuation statement to the reporting package helps in understanding that business value depends on a wider set of factors than just profit at the end of the year.
Tax Planning
Many owners simply focus on the multiple they get paid for their business. What’s ultimately most important is the after-tax proceeds of the sale. You must develop a tax plan that allows you to maximize the after-tax proceeds from selling the business.
Wealth Management
Congratulations, you just sold your business for a bundle of money. When one door closes, another opens. Instead of thinking of the sale as the end of your journey you must now consider wealth management services for your new found personal wealth.
Wally Saucedo CPA is the founder of MyWealthGuru.com a coaching firm specializing in integrated Life Values Planning, Business & Professional Planning, and Personal Financial Planning.
Wally says:
“If you want to take advantage of the tax code you have to be in business for yourself”
“When you take the profits out of your business and drop them into your household, it’s like another business with incomes and expenses, and it has to be treated like a business if you want to get to where you want to be”
“I am always looking for a better solution for my clients”
“I have a solution before the client even knows there is a problem”
Mr. Saucedo can be contacted at admin@wallysaucedo.com and guarantees he can find lost money you didn’t know existed. Take the assessment at www.MyWealthGuru.com.
