By leveraging professional advice, maintaining transparency, and being patient and thorough, you can enhance your chances
of a successful transaction.
Post-Closing Steps for a Successful Transition
Once the deal is sealed and the closing is complete, many business owners might think their job is done. However, ensuring that the transition to the new owner goes smoothly is crucial not only for the business’ continued success, but also for protecting your own ongoing interests.
First and foremost, even after the sale, most sellers have some sort of vested interest in the new entity’s success. This can come in many forms. For instance, if you are due additional payments associated with the sale, it’s essential to ensure that the release of funds happens as expected. The buyer may also have issued you a note, representing a portion of the sale price that will be paid out over time. It’s in your best interest to ensure these financial arrangements are properly managed during the transition.
Another common scenario that impacts sellers after the closing occurs when they are also the landlord of the property that the buyer is now leasing. The lease agreement must be clear and mutually beneficial, as it will influence the buyer’s ongoing ability to operate successfully.
Taking the time to make sure your buyer is set up for success can help prevent any misunderstandings later on. It goes without saying that if there are troubles down the line, that can translate into headaches for sellers.
Additionally, if you recently sold a business, you may still have your name on the company letterhead or remain involved in the company in some other way. In this type of situation, your personal reputation could still be linked to the business, meaning that you have an obligation to ensure the buyer is capable of maintaining the same level of quality and integrity that you worked hard to build. This is not just about protecting your brand, but it is also about ensuring that the company’s legacy continues smoothly.
Lastly, your former employees are often dependent on the success of the sale. Many sellers have built close relationships with their staff over the years and care about their welfare. The decision to sell can have a significant impact on job security for these individuals so it’s vital to ensure the new buyer is the right fit for maintaining a stable work environment. It’s in everyone’s best interest to support a positive transition to ensure job security for former employees.
While the closing of a business sale is a major milestone, it’s far from the end of the process. By taking the time to manage the post-closing transition thoughtfully, you can help ensure the business continues to thrive, protect your financial interests, and leave a positive legacy.
Copyright: Business Brokerage Press, Inc.
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The Importance of a Professional First Impression
In today’s business world, effective communication is paramount, and the telephone remains one of the most essential tools for engaging with clients, prospects, and partners. Automated answering services, voicemail systems, or hold music can significantly impact your company’s image and customer satisfaction. Therefore, it’s important to ensure that the telephone is a productive sales tool rather than a hindrance.
The first interaction a caller has with your company is often through a phone call. This brief exchange, often lasting less than a minute, plays a pivotal role in shaping the caller’s perception of your business. That’s one reason why it’s crucial to use that first impression as an opportunity to create a positive and lasting impact. Below are some strategies to help you refine the way your business greets its callers.
Evaluate Your Office’s Phone Etiquette
To understand the true experience of a customer or client calling your office, consider making a test call. Just don’t reveal your identity. Have someone whose voice your staff does not recognize place the call while you listen in. This method allows you to assess the quality of your telephone service in an objective manner. During the call, listen for the following:
- A friendly and professional greeting, such as, “Good morning, [Company Name],” followed by the name of the employee and an offer to assist.
- A calm and helpful response to inquiries, or the offer to direct the caller to someone who can provide more information.
- Reasonable hold times, with an apology if the wait exceeds typical expectations.
This process is well worth your time, as it will give insights into how your staff handles calls and whether improvements are needed.
Assess Your Answering Service
If your business relies on an answering service, it’s vital to evaluate its quality. Conduct a similar test to the one mentioned above, but focus on how well the answering service represents your company. When evaluating this service, ensure that:
- The operator answers with your company’s name, rather than using a generic, impersonal greeting like, “May I help you?”
- The operator is well-versed in your business’s key details, such as hours of operation, employee names, and company policies.
- The message conveyed by the operator aligns with the information your business wants to relay to customers.
If the answering service fails to meet these standards, take the time to educate the provider on your expectations. There are many answering services out there. If yours is not meeting your standards, it might be time to make a switch.
Review Your Voicemail System
Your voicemail greeting is another key touchpoint for customers and clients. How it sounds can significantly impact their perception of your professionalism. Periodically listen to your voicemail message and ask yourself the following questions:
- Is the voice recording representative of your brand? Choose a voice that is clear, engaging, and professional, so that it strikes the right tone for your business.
- If your voicemail or call system includes background music or on-hold music, ensure that it is calming and unobtrusive. Many businesses make the mistake of choosing music that is grating and leads to someone hanging up before speaking to a member of your team.
A well-crafted voicemail message ensures that callers feel valued, even if they are unable to speak directly with someone.
Humanize Your Technology
There is no doubt that automated voicemail systems, speakerphones, and conference call capabilities are indispensable tools. However, it’s essential to remember that while these systems offer convenience, they can lack the personal touch that a human voice provides. The truth of the matter is that most people still prefer speaking with a real person.
Even if the employee who answers the phone is not the highest-paid member of your team, the human voice remains an essential element of your company’s identity. An empathetic, attentive response can leave a positive impression, contributing to a stronger relationship with your clients.
Today’s businesses must embrace the benefits of technology while remembering the importance of personal interaction. By regularly reviewing and improving your phone etiquette, you ensure that your business presents itself in the best possible way from the moment the phone rings.
Copyright: Business Brokerage Press, Inc.
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Debunking Myths in the Business Buying and Selling Process
With 30 years of experience and having overseen thousands of business transactions, I’ve encountered numerous myths about the business buying and selling process. Here are some of the most common misconceptions and the realities behind them.
Absentee Businesses Absentee businesses are extremely rare. While possible, it requires a robust management team you can trust implicitly. The risk of financial loss is high if attempted on a business that was owner operated in the past.
No Money Down Most sellers expect a down payment, and financial institutions typically require it to secure a loan. Creative financing strategies, such as seller financing or earn-outs, can reduce the upfront cost, but some initial investment is almost always necessary.
The Gifted Business The notion that a retiring owner will simply give you their business is a myth. While some owners might offer favorable terms to a trusted successor, they still expect compensation for the value they’ve built.
Playing Hardball Gets the Best Deals Aggressive tactics often alienate sellers or buyers, leading to a breakdown in negotiations. A collaborative approach, where both parties feel they are getting a fair deal, results in better outcomes.
DIY Legal and Financial Transacting without an attorney or CPA is dangerous. Professionals help ensure that the transaction is legally sound and financially viable. They can identify potential pitfalls and protect your interests.
Unrealistic Price Expectations Expecting to sell or buy your small business for an unrealistic price always leads to a dead end. Valuation ranges are well published and anything outside the norm is often easily identified.
Direct Transactions Save Money Buying directly might save on broker fees, but it also comes with risks. Brokers add value by providing market insights, negotiation expertise, and due diligence support. Without their guidance, you might miss critical details or overpay.
Confidentiality is Not Important Informing employees, vendors, and landlords about your plans to sell or buy a business can have significant, negative implications. It can create uncertainty and anxiety, potentially leading to staff turnover, strained vendor relationships, and landlord concerns. Wait until the deal is finalized.
Every Business Can Have Recurring Revenues Turning a business into a recurring revenue model is challenging, and forcing a change can alienate customers and disrupt operations. A thorough analysis is needed to determine if this model suits your business.
Finding the Perfect Business It’s unlikely you’ll find a business that meets all your (or your advisor’s) criteria. Be prepared to encounter some issues with any business you buy; no business is perfect.
Replacing a Partner Finding or replacing a partner to buy shares of your business is virtually impossible. There is hope that this may change in the future with the passage of 2023’s Brokerage Simplification Act.
Finding a Deal is Easy Simply announcing your intention to buy a business won’t necessarily attract opportunities. Building relationships, constant searching, and demonstrating your seriousness is essential to success.
Sourcing Funds from Others Getting promised money from family, friends, or private equity is often met with an eventual decline by well-intentioned parties.
Valuation Accuracy Valuation is an art. A comprehensive approach, including multiple opinions and market analysis, provides a more accurate picture. But remember that every business and situation is different.
In summary, navigating the business buying and selling process requires dispelling common myths and embracing a realistic, informed approach. By leveraging professional advice, maintaining transparency, and being patient and thorough, you can enhance your chances of a successful transaction.
Andy Cagnetta
Andy Cagnetta owns and operates Transworld Business Advisors. He joined the company as a sales associate and later purchased it. Transworld is an international franchise business and franchise brokerage, with thousands of businesses for sale and over 200 franchisees in the United States and Internationally.
TRANSWORLD BUSINESS ADVISORS
Tax Planning for Business Brokers: Key Considerations
Business brokers play a pivotal role in the buying and selling of businesses, acting as intermediaries between buyers and sellers. Given the complexities of business transactions, tax planning becomes a critical aspect of their work, ensuring that both the broker and their clients can minimize tax liabilities and maximize after-tax gains. Here’s a comprehensive guide on tax planning for business brokers.
1. Understanding the Broker’s Income
Business brokers typically earn their income through commissions, which are a percentage of the sale price of the businesses they facilitate. This income is considered ordinary income and is subject to federal and state income tax, as well as self-employment taxes.
Key Tax Considerations for Broker’s Income:
- Ordinary Income Tax: Business brokers must pay federal income tax on their earnings, and the applicable tax rate depends on their overall income and tax bracket.
- Self-Employment Tax: Brokers working as independent contractors must pay self-employment tax (Social Security and Medicare), which is approximately 15.3%.
- State Taxes: Depending on the state, additional income tax obligations may apply, ranging from 0% in states like Florida to over 10% in states like California.
Tax Planning Tip:
Brokers should work with tax professionals to estimate quarterly tax payments to avoid underpayment penalties. Using a retirement plan like a SEP IRA or Solo 401(k) can help brokers lower taxable income and save for the future.
2. Structuring Broker Commissions
Business brokers often have flexibility in structuring their compensation, and tax planning can help them decide whether to operate as a sole proprietor, LLC, S-Corporation, or C-Corporation. Each structure has unique tax implications.
- Sole Proprietorship/LLC: Earnings are subject to ordinary income tax and self-employment taxes.
- S-Corporation: Business brokers may opt to pay themselves a reasonable salary (subject to payroll taxes) and receive the remainder as dividends, which may not be subject to self-employment tax.
- C-Corporation: A more complex structure, where profits are taxed at the corporate level and again at the individual level when distributed as dividends (double taxation).
Tax Planning Tip:
By electing to be taxed as an S-Corp, a broker can save on self-employment taxes. However, this requires maintaining reasonable salary standards, and paying payroll taxes on that salary.
3. Handling Capital Gains for Clients
For business brokers, the tax implications for their clients are often a central focus of the transaction. The primary concern here is whether the proceeds from the sale of a business are taxed as ordinary income or capital gains.
- Short-Term Capital Gains: For assets held for less than a year, gains are taxed at ordinary income rates.
- Long-Term Capital Gains: For assets held over a year, gains are taxed at favorable long-term capital gains rates, ranging from 0% to 20%, depending on the seller’s income.
Tax Planning Tip:
To minimize tax exposure for clients, brokers should encourage them to hold assets for at least one year before the sale. Additionally, advising clients to allocate a larger portion of the sale to long-term capital assets like goodwill or intellectual property can result in tax savings.
4. Installment Sales for Tax Deferral
In some cases, business brokers may recommend that their clients structure the sale as an installment sale. This allows sellers to receive payments over time, spreading out their tax liability over several years, rather than paying a large amount in taxes in the year of the sale.
Tax Planning Tip:
Installment sales can defer capital gains taxes, but brokers need to carefully structure these sales to avoid issues like recapture of depreciation, which can result in higher tax liabilities for the seller.
5. Deductions and Expenses for Brokers
Business brokers often incur significant expenses in the process of facilitating sales. Understanding which expenses are deductible can reduce taxable income and lower overall tax liability.
Deductible Expenses:
- Marketing Costs: Advertising, promotional materials, and online marketing.
- Travel and Meals: Travel costs for meeting with clients and meals during business discussions.
- Office Expenses: Rent, utilities, and supplies for running a brokerage firm.
- Professional Services: Fees for legal, accounting, and consulting services.
Tax Planning Tip:
Brokers should maintain detailed records of all business expenses to maximize deductions. It’s also wise to consult with a tax professional to ensure all allowable deductions are claimed.
6. Retirement Planning and Tax Deferral
Business brokers can take advantage of various retirement accounts to reduce taxable income while saving for retirement. Contributions to these accounts are typically tax-deferred, meaning that the income is not taxed until it is withdrawn in retirement.
Options for Brokers:
- SEP IRA: Simple and flexible, allowing contributions up to 25% of income or $66,000 (for 2024).
- Solo 401(k): Similar to a SEP IRA but allows both employer and employee contributions, which can result in higher contribution limits.
- Defined Benefit Plans: More complex but allow for higher contributions, especially for high-income earners.
Tax Planning Tip:
By contributing to retirement accounts, business brokers can significantly reduce their taxable income, potentially lowering them into a lower tax bracket while saving for their future.
7. State-Specific Tax Considerations
Tax laws vary significantly from state to state, and business brokers working in multiple states or facilitating transactions across state lines need to be aware of these differences. Some states have no income tax, while others impose high taxes on both income and capital gains.
Tax Planning Tip:
Brokers should familiarize themselves with the tax laws in each state where they operate or consult with a tax advisor who specializes in multistate operations.
8. Working with a Tax Advisor
Given the complexity of tax planning for business brokers, it’s highly advisable to work with a tax advisor or CPA who specializes in small business and self-employed tax strategies. A tax advisor can help brokers navigate tax deductions, retirement planning, and tax-efficient structuring of commissions and transactions.
Final Tip:
By implementing proactive tax strategies throughout the year, brokers can reduce their tax liabilities and keep more of their hard-earned commissions.
Conclusion
Tax planning is an essential aspect of the business brokerage industry, impacting both the broker and their clients. By understanding tax obligations and leveraging strategies like S-Corporation structures, retirement accounts, and installment sales, business brokers can minimize taxes and enhance their overall profitability. Collaborating with tax professionals ensures compliance with tax laws and helps maximize after-tax income for brokers and their clients alike.
Mark Habib
Chair’s Letter
Happy New Year! 2025 here, and with it comes change – change in how we do business, in the technology we use, and in the strategies that drive success. As Business Brokers, we must stay ahead of these shifts, adapt, and continue to grow.
One of the best ways to prepare is through education. BBF offers a wealth of learning opportunities, from webinars to in-person educational luncheons. Take advantage of these resources and engage with your fellow brokers, there’s no way to sharpen your skills and navigate the evolving business landscape.
Mark your calendars for the IBBA Conference on May 16-18 in Orlando. This event is a fantastic opportunity to expand your knowledge, network with industry leaders, and gain insights that will help you thrive in the coming year. Room reservations are now open and Conference passes will be available later in February.
Let’s embrace 2025 with an open mind and a commitment to learning. Together, we’ll navigate change and make this our most successful year yet.
Here’s to a great year ahead!
Paul McNally
Chairman, Business Brokers of Florida®