If you own a company, you’re likely aware of roughly how much profit you’re earning and how much you’re selling. You’re also surely familiar with all the investments made in terms of gear and infrastructure.
However, it’s a safe bet that, in many cases, you won’t know the _true _value of your business unless you perform a proper business valuation Long Island ventures could be particularly prone to fluctuations in value due to high competitiveness. This is a bold claim that bears elaborating upon.
The value of a business is comparable to the value of a house, despite the obvious differences. Your house could be bathed in gold and embedded with precious gemstones on every corner, but these elements by themselves are not enough to get an accurate value of the property isolated from other variables, since it doesn’t exist in a vacuum.
For example, the neighborhood’s conditions, and access to essential services like schools, hospitals, or public transportation could definitely alter the price of real estate.
The same happens in the case of businesses. Small businesses, especially, could be positively or negatively affected by the local economy, market conditions, and depreciation. For this reason, the aid of financial professionals is crucial, because they can incorporate all these metrics more accurately into their business valuations.
Long Island ventures ought to be subjected to business valuations often. The purpose of a business valuation Long Island or elsewhere is not solely reduced to a company sale (in which case, you would contact a competent business broker who would it). Let’s unpack this idea for a bit.
Purposes Of a Business Valuation Long Island
Apart from selling your business (which is the most common context in which a business valuation could take place), there is a myriad of other situations which could call for an exhaustive valuation:
* INCREASE SHAREHOLDERS: If you want to get new partners and increase the number of shareholders, it’s important that you know the true value of your company and its shares to guarantee transparency in the whole process.
* FUNDING: Companies don’t get funding based on speculations. The best way to get a sizable loan from a respected financial institution and under the best repayment conditions is by showing how much your business is _really _worth based on accurate external and internal data.
* PERSONAL ISSUES: One of the most common personal events that could prompt the need for a business valuation – believe it or not – _is a divorce filing_, in which case the judge would ask for an accurate business valuation in order to include your enterprise as an asset for the division of property. As well, other potential family problems of similar nature could raise the necessity for a business valuation.
Business Brokers and Business Valuations
Long Island business brokers would only perform these business valuations whenever there is a sale involved. If you are attempting to sell your trade, you won’t need to hire another professional to do it while the broker takes care of other aspects of the sale, for most brokers also have the necessary qualification to define the true value of your company.Read More
Whenever you wish to sell a business, it’s always a good idea to count on the assistance of a good business agent.
However, you should not expect the business broker to take care of all the problems. Some Long Island business brokers can be overly picky when deciding to list a business for sale, which is highly understandable once we consider the complex regulatory framework that must be complied with, coupled with overload owing to the recent spike in demand for business brokers.
Simply put, you would have to convince, not only a prospective buyer but, at times, even your own Long Island business brokerage firm that your venture is worth dealing with. Good brokers can offer assistance to companies with specific and workable management glitches, but that doesn’t mean that they alone can turn the tides in your favor without your input. In several situations, they could simply decline to list your business to protect their reputation and save time and money.
These are, in a nutshell, the main reasons your business may not pass muster in the eyes of a Long Island business broker:
For one, business brokers sift out clients who are overly intransigent or emotional when it comes to their business’ valuation. We find this point worth elaborating upon:
In terms of business valuations, feelings are not weighed into the market value of an asset, but it’s the market that ultimately determines how much said asset costs. As a business owner, you may think your business is worth a given amount, but, bluntly speaking, the market doesn’t care about your subjective estimation.
It’s the role of a Long Island business broker to give an objective assessment and to inform sellers of how much the market is willing to pay for their business so as to not give false hopes or expectations. By doing that, brokers are behaving in their clients’ best interests, because a fair valuation ensures a quick and successful sale.
Another factor to keep in mind is the willingness on the part of the client to provide pertinent documents and information to the broker in a timely manner.
Brokerage firms require the most accurate data possible about the companies they sell. To that effect, they should be able to ask tough or uncomfortable questions (just as a lawyer would) to satisfy potential buyers who would also likely ask those same questions and, in consequence, secure the best outcome possible for their clients. If brokers are denied this possibility, they’ll reasonably see no point in going forward with listing a company they have no knowledge about.
This goes without saying, but it bears highlighting. Business brokers appreciate transparency in a company’s dealings. In that sense, clients must have clean books and regular access to comprehensible financial statements, and the broker must rest assured that the owner has a good relationship with the IRS and is not prone to engage in tax evasion.
By keeping your business in order, financially speaking, you’ll boost the confidence of not only the broker but also the potential buyer, for they will feel more comfortable entering a deal with a law-abiding citizen.
Poorly-managed businesses are instant deal-breakers for Long Island business brokers and buyers. By poorly managed, we don’t just mean businesses that trade at a loss, but also those that are wholly reliant upon the owner’s permanent engagement and that operate in an improvised fashion.
A prospective buyer should have access to a comprehensive and detailed manual about how the company operates on a daily basis and should verify that the company can survive without the owner for at least a month. Brokers will likewise demand their clients to have these instruments handy and will oversee that these conditions are met.
Owners may know what transpires inside their companies down to the most minute detail, but they shouldn’t expect buyers or brokers to acquire the same knowledge the hard way. Good business brokers could provide guidance as to how processes, systems, and manuals should be laid out, but they’re not required to do all the heavy lifting. If these issues are not fixed, a broker is not bound to list a business that is, for all intents and purposes, unsellable.Read More
As the federal government and the state governments look for more ways to bring in money, the independent contractor status is a likely place for them to look. After all, by using independent contractors rather than employees, employers don’t have to withhold taxes, provide workers’ compensation, contribute to unemployment compensation, or provide any benefits such as 401-k programs, health insurance or other benefits. Plus you can use and discontinue independent contractors as needed.
Certainly, in this age of home-based businesses, the use of outside sources makes a lot of sense. Outsourcing a lot of business needs has been done for years and will only increase with growth of small business. Most one-person and small businesses don’t need full-time employees. Many requirements can be outsourced to independent contractors who in turn outsource many of their requirements.
It is the use of workers who are classified as independent contractors, but are really employees that can cause legal issues. FedEx Ground has been in the middle of this type of legal dispute for several years. FedEx claimed that their drivers were franchisees and therefore independent contractors; several drivers (and later the IRS) challenged that status, claiming that the drivers were really employees.
Here are some basic distinctions between independent contractors and employees:
Lack of employers’ direction is one major difference. In other words, the worker is left to his or her devices and does what the particular job requires without direction from the employer.
Is the worker working primarily for one employer or working for several employers on an as needed basis?
The worker is not in the same general business as the employer. A full-time consultant in the same line of business as the employer might be considered an employee. If the employee has his or her own business and also works for other companies, he probably would be considered an independent contractor.
Just because the worker creates an LLC or even an S-corporation doesn’t necessarily protect both sides from being classified as an independent contractor.
The federal government and the states are narrowing the definition of an independent contractor. One must definitely be truly independent to be considered an independent contractor. FedEx franchises (for lack of another term) wear FedEx garb, have FedEx logos on their trucks, and deliver FedEx packages on defined routes. However, we understand that they buy their own trucks and can sell their FedEx routes. But, consider the old saying: If it looks like a duck, acts like a duck and makes duck-like noises, there is a very good chance it is a duck. The battle goes on, but the penalties for violating the status of your people can be very expensive.
A recent article in the Boston Globe reported that although more attention is on the large, primarily publicly held companies, more and more people are making their living by operating their own businesses. In fact, nationally, over 500,000 new businesses are started every year. What this means is that over 10 percent of workers are “either starting a business or working at one that is less than 3 1/2 years old.” And, as indicated by frequent reports, new businesses create new jobs.
Those people who start businesses generally do not have their own funds available for start-up expenses. This is due in part to the fact that bank and SBA funding is not available to them. In addition, fewer than seven percent of new or prospective business owners will receive actual venture capital funds. So, where does the money come from? Second mortgages, credit cards, and family loans are the most common sources of start-up funds. The Globe added that “over the past few years, more than 80 percent of Inc. Magazine’s Fast 1000 companies have been started with about $50,000 or less.”
The article concluded with a plea for “seed” capital and funding from both public and private sources. Perhaps this article and similar ones will lead the way towards the recognition that those who own and operate their own businesses deserve a less arduous journey toward making the right start.
Small companies are the innovators. The need for large companies to acquire small companies is necessary in order for the former to capture new products and services. According to Fortune magazine, “Big companies almost never innovate. This is unfortunate because innovation is one of the few ways to gain proprietary advantage and stay profitable. It’s not that innovation itself is rare – it’s occurring everywhere. Which means, mostly, elsewhere. And as engineers and inventiveness continue to flourish in China and India, elsewhere moves farther and farther from here. A healthy business must therefore not only innovate more within its walls but leverage innovation elsewhere too.
“So why is innovation so hard for big companies? The main reason is that innovative people tend to prefer working in smaller organizations that have more focus and less bureaucracy. Even in small companies, adopting a large-company style can frustrate the innovators.
“The problem with large companies isn’t that they fail to do large and seemingly ambitious projects; it’s that they fail to do small, quirky, controversial projects – that have the potential to grow. (If everyone thinks an idea is okay, how can it be innovative?) A large organization – its missions threatened by new ideas – is often incredibly hostile to its own innovators; the antibodies to change are strong.”
The median sales of a company going public has gone from an average $15 million in 1999 and 2000 to $164 million in 2004. Smaller companies have decided not to go public as often as in years past, and they reap the quick – and cheap – money as a result of that decision. The question is “why?”
A company with only $15 million in annual revenues would most likely not want to have an IPO and absorb all of the attendant costs and the on-going fees related to going public. They also would not want to have to spend the money necessary to comply with the Sarbanes-Oxley regulations. Smaller companies have to pay a hefty price to go public – and remain public. In fact, a recent Business Week article reported that “Bankers expect a record number of U.S. companies to go private this year, topping last year’s 86.”
Many CEOs, in order to rapidly grow their businesses, merge or acquire other companies. However, many of these do not work out and the acquired entities eventually get sold off. But as long as mergers and acquisitions are in vogue, large companies will acquire smaller ones in an effort to grow as rapidly as possible. Therefore, many smaller companies that won’t go public because of the costs and subsequent compliance issues will be absorbed by larger companies.
The trend today, at least in manufacturing, is to provide complementary services. For example, General Electric manufactures aircraft engines and medical equipment, but they also provide financing and maintenance services for the things that they manufacture. These ancillary, but complementary, services are big profit makers. Small service companies that provide these services may be excellent acquisition targets for manufacturers. If smaller companies want to grow, adding complementary services such as GE does may be the best way.
On the flip side, many large companies are divesting themselves of companies that don’t fit into their core strategy. For example, McDonald’s purchased Boston Market and several other food franchises in an effort to continue their growth. McDonald’s discovered that they were much better off focusing on their core business than they were trying to grow new concepts. It is believed that these other franchises will be sold or they may already have been. Smaller companies may want to divest themselves of products or services that aren’t complementary to their core business.
Some companies have almost reinvented themselves by adding new, more profitable, and “sexier” services or products. This can increase the value of the company. Smaller companies, because of their size and the fact that they usually have one manager, can shift quickly. They can get rid of products or services that don’t generate commensurate profits, or add new products or services that can add to profits, much more quickly and efficiently than their larger counterparts.
Small companies, at least for the short term, will not be likely to go public, will be able to shift gears quickly to improve profits, but may also become acquisition targets by larger companies.