There are two primary causes of a business stoppage or slow down:
Business Interruption Insurance
- Damage due to wind or flood or both, fire or explosion or supply chain failures.
- Cybersecurity attacks that cause financial loss, damage to the firm’s reputation, and possibly legal and regulatory consequences.
Business interruption insurance deals with lost profits and “excess expenses” incurred during the period of restoration.
After a weather disruption, a common cause of lost profits is a supply chain problem, i.e. a vendor cannot provide critically needed parts or services.
It is estimated that about 35%-40% of businesses have a Business Owner Policy. Conversely, up to 65% do not have this coverage.
About 25% of businesses fail to reopen after a disaster strikes, according to the Federal Emergency Management Agency (FEMA).
I am a Certified Valuation Analyst and an IRS qualified appraiser of businesses. I have been trained and tested on how to determine the financial cost to recover from a business interruption.
A Business Owner’s Insurance policy may include general liability, commercial property/business property coverage and business interruption insurance.
Business interruption insurance covers the loss of net income due to the closure of the business or a slow down during the period of restoration. These policies may cover rent or lease payments, relocation costs, employee wages, taxes, and loan payments. These are “extra expenses” that otherwise would be incurred. The policy may cover the purchase of new equipment if repairs are lengthy and the math indicates that replacement is less expensive than repairs.
Net income is Owner’s Discretionary Earnings. This is not the same as corporate, taxable income.
Business interruption does not typically cover damages or losses from flooding, earthquakes, and mudslides, although business owners can purchase additional coverage for these specific perils. Exclusions from coverage include losses unrelated to property damage, such as lost revenues due to viral outbreaks or pandemics.
Some policies include “civil authority” provisions, which provide coverage if a government entity prohibits access to the business, forcing a temporary closure.
It is common for a policy to include a 72-hour (three day) waiting period before coverage begins.
Parties to a claim resolution may include the business owner, a Certified Valuation Analyst, a public adjustor and the insurance company and its claim processing team.
Some claims are disputed by the insurance company, which may lead to litigation.
If you have Business Owners Insurance and are experiencing a business stoppage or slow-down that will last more than three days, it is a good idea to contact your insurance agent and discuss a possible claim.
Disclaimers: I have no affiliation with any insurance company. I do not sell insurance in any form. I am not an attorney. Nothing in this material is legal advice. I have been an agent member of Business Brokers of Florida since 2003. I do not engage in the business brokerage or mergers and acquisitions businesses. My sole business is business valuation.
Embracing the Challenge: Why You Should Strive to Do Hard Things in Life
Embracing failure as a natural part of the journey allows you to take risks without the fear of making mistakes. Don’t have paralysis by analysis.
In a world that often celebrates ease and comfort, there is immense value in deliberately choosing to tackle hard things. The process of challenging one self, stepping out of comfort zones, and pursuing difficult goals fosters growth, resilience, and a deeper sense of accomplishment. One personal example of this is my experience with writing and staging a reading of a musical I wrote “In Between 48th Street”. It was no doubt one of the most difficult yet rewarding endeavors I had ever undertaken.
From the initial formation of the concept to writing the script, lyrics, songs (with the help of my partner Steve Sloane), recording and editing demos, to the intense rehearsals and the final stage reading, the multiyear journey of bringing “In Between 48th Street” to life was fraught with obstacles. The complexities of coordinating with actors, directors, and musicians was a huge lesson in human resource management. Despite these challenges, the process was transformative. It demanded creativity, perseverance, and a willingness to face and overcome numerous setbacks.
Over the years, I have started and purchased several businesses, each with its own set of challenges. Navigating the entrepreneurial landscape requires not only a strategic mind but also the courage to take risks and the tenacity to bounce back from failures. Additionally, serving on charitable and industry boards has presented its own unique difficulties, requiring diplomacy, leadership, and a deep commitment to making a positive impact. Writing books has been another arena where I have continually pushed myself. Crafting a book demands a significant investment of time, energy, and emotional labor. Yet, the sense of achievement that comes with holding a finished book in one’s hands is unparalleled.
For anyone looking to tackle hard projects, there are several strategies that can make the journey more manageable.
Seeking out experts and mentors can provide invaluable guidance, motivation, and insight. YouTube is also rich with educational videos and how-to guides on just about anything. Finally, enrolling in private lessons, online schools, or attending conferences (of which I did each) can of fer new perspectives and techniques that will enhance your ability to succeed. Additionally, breaking down large projects into smaller, more manageable tasks can prevent you from feeling overwhelmed. Setting realistic milestones and celebrating small victories along the way can keep you motivated and focused. We often use tools like Slack and Trello to keep track of to-do lists and task assignments.
The benefits of pursuing difficult tasks extend far beyond the satisfaction of achieving your goals. Engaging in difficult projects cultivates resilience, enhances problem-solving skills, and builds confidence. Each challenge adds to your experience and strength, which can be drawn upon in future endeavors. Moreover, the process of striving and even failing teaches you valuable lessons about perseverance, adaptability, and the importance of persistent determination. Failure, though often feared, is a crucial component of growth. Each setback provides an opportunity to learn, adjust, and improve. Embracing failure as a natural part of the journey allows you to take risks without the fear of making mistakes. Don’t have paralysis by analysis.
In conclusion, choosing to do hard things in life is a powerful way to foster personal and professional growth. Whether it’s writing a musical, starting a business, or any other challenging endeavor, the process shapes you in profound ways. By seeking expertise, embracing continuous learning, and maintaining a resilient mindset, you can navigate the difficulties and emerge stronger, wiser, and more accomplished. Ultimately, it is the pursuit of these hard things that leads to a more fulfilling and enriched life.
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
Chair’s Letter
Reflecting on a Remarkable 2024 for BBF
As we approach the end of 2024, it’s hard to believe how quickly this year has flown by. It has been an incredible honor to serve as your State Chairman for the Business Brokers of Florida (BBF). This year has been a remarkable one for our organization, and I am proud of what we have accomplished together.
Throughout 2024, BBF members across the state demonstrated resilience, dedication, and innovation, ensuring our industry remained strong in the face of changing market dynamics. We’ve seen a continued demand for business brokerage services, driven by a robust economy and an increasing number of entrepreneurs eager to buy and sell businesses. This year, Florida once again proved to be one of the best states for business transactions, and BBF played a significant role in facilitating those opportunities.
One of our key achievements this year has been improving communication and collaboration among our members. By strengthening our networks and sharing best practices, we’ve fostered a culture of excellence that benefits brokers and clients alike. Our educational initiatives have also expanded, providing members with more tools and resources to excel in their practices.
Additionally, we hosted outstanding events this year, including regional meetings and statewide gatherings that were not only informative but also energized our community. These events reinforced the core values of BBF and reminded us all of the importance of staying connected and informed in this competitive industry.
Looking ahead to 2025, I’m filled with optimism. While 2024 has been a banner year, there is still much work to be done to ensure the continued success of our organization and the industry at large. The new year brings opportunities to expand our reach, enhance our educational programs, and strengthen the bonds between brokers across the state.
As we prepare for the challenges and opportunities of 2025, I encourage all BBF members to stay vigilant and focused on their businesses. The work we do is not only rewarding but also critical to the entrepreneurial spirit that drives Florida’s economy. Let’s remain dedicated to our clients, our craft, and each other as we build another exceptional year together.
Thank you for your commitment to BBF and for making my first year as State Chairman such a memorable and successful one. Here’s to a prosperous and dynamic 2025!
Paul McNally
Chairman, Business Brokers of Florida®
Seven Reasons Why a Buyer May Expect Working Capital to be Included in the Sale Price of a Business
What is working capital? Working capital represents the short-term liquidity and financial health of a business. Positive working capital can indicate the business is well-managed and financially stable. Working capital is the money available to meet current, short-term obligations. It is calculated by subtracting short-term liabilities from short-term assets. Short liabilities include accounts payable, salaries, taxes, and other debts/accrued expenses. Short-term assets include cash, accounts receivable, and inventory that will be converted into cash within twelve months.
Oftentimes, sellers are taken by surprise when a buyer demands a specific amount of working capital to be included in the sale price of a business. In lower-middle-market valuations based off EBITDA multiples, working capital is included in the price. In main street business valuations based off SDE multiples, working capital is not included in the price. However, with a stumbling economy, more sophisticated lower-middle-market buyers are reaching down into main street businesses and applying their expectations to main street acquisitions. So, why would a buyer want to include working capital in the acquisition?
Here are seven reasons why a buyer may expect working capital to be included:
- Ensures Business Continuity
Working capital is essential for the day-to-day operations of a business. By including working capital in the sale price, the buyer ensures the business will have sufficient funds to continue its operations smoothly after the acquisition. - Creates Seamless Transition
Working capital helps create a smooth transitional period during which the buyer takes over the operations. By including working capital in the sale price, the buyer has immediate access to funds to cover initial expenses, pay suppliers and employees, handle any unexpected costs, etc. during the transition. - Avoids Additional Investments
Working capital avoids the need for the buyer to inject additional capital just to maintain the current operations of the business. By including working capital in the sale price, the buyer can avoid having to make an additional investment immediately after the acquisition. - Mitigates Risk
Working capital can indicate the business is well-managed and financially stable. By including working capital in the sale price, the buyer reduces the risk of acquiring a business that may be struggling to meet its short-term obligations. - Simplifies Negotiations
Working capital simplifies the negotiation process. By including working capital in the sale price, instead of negotiating a separate amount for working capital, both parties agree on a total purchase price that includes the estimated working capital needed to operate the business. - Avoids Disputes
Working capital can be a contentious issue in negotiations if not explicitly addressed. By including working capital in the sale price, both parties avoid potential disputes or disagreements over the specific amount of working capital at the time of the sale. - Simplifies Handing of A/R and A/P
Working capital simplifies the handling of accounts receivable (A/R) and accounts payable(A/P) after the sale. By including working capital in the sale price, A/R and A/P do not need to be allocated between the buyer and seller. The buyer can simply receive revenue and pay bills as if the sale never occurred.
It is important to note the inclusion of working capital in the sale price should be clearly defined in the purchase agreement. Both parties should agree on the methodology for calculating the working capital amount, any adjustments, and the target working capital amount at the time of the sale. Proper due diligence is crucial to ensure the working capital included in the sale price accurately reflects the needs of the business and is fair to both parties.
Sources: Bank of America and Chat GPT
Eric J. Gall, MBA, CM&AP, CBI, ABI, M&AMI
Eric is the registered broker and founder of Edison Business Advisors. Over the past 25 years, Eric has participated in many forms of business transactions closing in on $300M. He has earned 34 awards from BBF, IBBA, and M&A Source since 2010. Eric is the President of BBF Southwest Florida Region and serves on M&A Source Deal Market Committee and BBF State Board.
SBA Disaster Assistance for Businesses Affected by Hurricane Helene
In light of the devastation from Hurricane Helene, we want to provide some information that may be helpful in providing assistance to businesses that have been affected by Hurricane Helene.
For 7(a) loans that are not sold on the secondary market, Lenders may:
- Grant payment deferments of up to 6 consecutive months (No SBA notification required)
- Extend loan maturity by up to 10 years to aid in the orderly repayment of the loan (E-Tran input required)
- Change the interest rate (SBA CLSC notification required)
For 7(a) loans that are sold on the secondary market:
Payment Deferment:
- Per SBA Form 1086, “Secondary Participation Guaranty Agreement,” Lenders may grant a one-time unilateral deferment of up to 90 days without requiring prior investor consent
- Lender must notify the investor through the Fiscal Transfer Agent (FTA) (FTA@sba.gov) of the unilateral deferment and report the affected loan on SBA Form 1502
- Lenders may make additional loan deferments only with prior investor consent
Any payment modifications, changes to the loan amount, interest rate changes, extensions of maturity, and deferments over 90 days (cumulative):
- Must have investor approval
- Should be done on a case-by-case basis
- Lenders should send these servicing requests directly to the FTA, with subsequent notification and evidence of investor approval forwarded to the appropriate CLSC
References for the above actions:
- See 13 CFR § 120.530-536, SBA Form 1086, SOP 50 57, and the Servicing and Liquidation Actions 7(a) Lender Matrix
Please help us spread the message about SBA Disaster Assistance:
SBA is in the process of putting together a communication outreach for Hurricane Helene disaster survivors.
Meanwhile, please help us spread the word…
- Hurricane Helene survivors may apply for SBA disaster assistance either on SBA’s webpage for assistance for survivors of Hurricane Helene, or they may apply directly through the My SBA Loan Portal.
- Both physical damage disaster loans and economic injury disaster loans are available.
- Note: the economic injury disaster loans (EIDL) are regular disaster loans, not COVID EIDL loans.
- Affected businesses may receive more than one loan for separate disasters, i.e., a business could potentially receive a physical disaster loan and an EIDL loan for Hurricane Helene and a physical disaster loan for Hurricane Debby.
Please call 800-659-2955 (TTY 711) with questions. Once a business has applied for a loan, the applicant may ask questions through the My SBA Portal.
When considering new 7(a) loan applications:
- Consistent with the regulation at 13 CFR 120.150, the applicant (including an Operating Company) must be creditworthy. Loans must be so sound as to reasonably assure repayment.
- Lenders and CDCs must use appropriate and prudent generally acceptable commercial credit analysis processes and procedures consistent with those used for their similarly-sized, non-SBA guaranteed commercial loans. Lenders, CDCs, and SBA may use a business credit scoring model.
- When approving direct or guaranteed loans, Lenders, CDCs, and SBA may consider (as applicable) the following criteria: credit score or credit history of the applicant (and the Operating Company, if applicable), its Associates and any guarantors; the earnings or cashflow of applicant; or where applicable any equity or collateral of the applicant.
Subordination of SBA Disaster loans:
For SBA Lenders requesting subordination of a lien securing an existing SBA COVID-EIDL or Disaster Loan:
- To request a lien subordination: CovidEIDLServicing@sba.gov
- COVID-19 EIDL Customer Service will provide the Application for SBA Consent form for the subordination request.
Upcoming 7(a) Connect Quarterly Update on Oct. 8th:
Please join us on Tuesday, Oct. 8th at 3:00 Eastern using this link. We will have SBA subject matter experts on all of the above to discuss this and other information and to answer questions.
Ginger Allen
Chief, 7(a) Loan Policy Division
Office of Financial Assistance
U.S. Small Business Administration