Tag Archives: how to sell a business

Using Your 401k to Buy a Business or Grow Your Business

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For many in the workforce their 401k can  represents a large portion of their net worth.  Many don’t realize that  they can use these funds to buy a business even before they reach 59 1/2 without incurring the often heard of  penalties and negative tax consequences.  Many of those that buy a business or want to buy a business are currently employees for others.  Future business buyers are currently working for someone else.  And there are many employed that are earning their hourly wage or salary, have minimal savings, but have accumulated a healthy balance in their 401k.

Using 401k To Buy A Business

This is ones safety net for the retirement years.  Even considering using this “security blanket” to fund your business or to use to buy a business needs to be well thought out and involved the counsel of your accountant or financial advisor.  Using your own savings, borrowing from family or friends, borrowing against equity of your own home are all means to fund your acquisition, and some more desirable than others.

I consider myself a somewhat conservative entrepreneur( which may sound like an oxymoron).  But the more I involve myself with the dilemma or how to finance business acquisitions, and are banks really loaning money to those that want  to buy a business, and more specifically are banks making smaller loans to those that want to buy a small business  (say $200,000 and lower) other means of financing should be considered. Ive always felt that banks do provide loans to those that can prove that they dont need it, and now that point is even stronger than in the past.

An SBA loan should be explored.  They are available and the requirements for documents, security, and your financial well being can be both daunting and take considerable time.  But one should explore this option.

Furthermore, when I initially hear of someone using a 401k to either fund a business or buy a business, I think penalties, fees, and shrinking nest egg.  But like so much in the accounting and tax world the devil is in the detail.

Using Your 401k Money To Buy A Business Can Mean Many Different Things

Using your 401k can mean ….

1. Just taking money out of your 401k .  – Just a Bad idea for so many different reasons

2. Taking a loan from your 401k- Most plans offer this options, there usually is amount restrictions, but you do pay interest back to your self.

3. Setting up a Self directed qualified plan(using a third party that specializes in this process)  that allows you to purchase  a franchise, or  buy a business without distribution, taxes, penalties, or the use of loans.

Setting up a Self Directed Qualified plan involves the following steps:

  • Form a C-Corporation
  • Prepare the adoption documents for your New 401k plan for your new corporation
  • Corporation Valuation
  • Rollover- direct rollover from your 401k plan into your new account
  • You as a Trustee will transfer money into your corporation checking account

Please note the above is a simplified summary, but does represent the spirit of the steps involved with setting up a Self directed plan to buy a business. There  are cost to hiring a third party to administer setting up a self directed Plan to buy a business.   It is their job and responsibility to guide you thru the specific process.

Using 401k To Buy A Business As A Last Resort

There are also some additional annual reporting requirements to be done by your accountant.   But if one wants to avoid a bank, or avoid borrowing from family or friends, or avoid borrowing against your home, then maybe using your 401k to set up a self directed plan to buy a business warrants further investigation.

Starting a Business in a Recession

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Some business owners and Entrepreneurs are good planners.  Some are not.  Some consider themselves “do’ers” that they are very good at doing what they do and really don’t have the time to plan for next year or the year after, or for 5-years from now.  The economic climate has done more than bringing on lower sales, lower profits and lost employment.

It is a sound business practice to have a plan or idea that extends beyond the current year.  Many sound business owners and operators had planned to sell or exit their business, and then were hit by the drop in their stock portfolio, retirement funds, drop in home value and depressed company results.  So those well laid out plans are delayed as a result of the business environment.

Is It Wise To Start A Business In A Recession?

Starting A Business In Recession

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What about the small business owner that had planned to start a business, or buy a business only to feel the need to address the question-   Can I start a new business during a recession?  What does one do?  Delay the decision until the economy turns around, or move ahead regardless of the slumping economy.  When running and or growing a business for an extended period of time ( say 10-20+ years), it is inevitable that you will need to operate that business during both good economic times and bad economic times.  How much do you allow the economic climate to be an excuse/reason/crutch or do you  try to just work harder thru it.  I personally view this economic downturn that we currently operate to be quite different than any “downturn” I have seen in my 25 years of business.

Most of what I read and discuss with others refer to our current economic environment  as  a Recession.   But is it possibly a  Depression?  A common offhanded comment defines A Recession is when your neighbor looses their job, A Depression is when you lose your job.  Respective governments have criteria used to establish Depression and or Recession.  I question the accuracy and application to our newer global economy.

I also question how much our politicians and policy makers really know what the business climate really is at the “street level”.  I actually think our economic climate we have been operating in is neither a Recession or a Depression but rather a hybrid  maybe there is a need for a new or different term to refer to our business environment.  I think the non-existent term   “DEP-RECESSION” may apply.

The Importance Of Proper Timing In Business

So what do you do with your plans to start that business or buy that business?  Do you delay or press ahead?  My thought is that it is somewhat dependent upon the business venture.  Many businesses and consumers  still need to procure certain products or services to allow their household or business to continue.  But some buying decisions can be put on hold or delayed until the economic uncertainty passes.  How much your product/service may be considered a discretionary expenditure may influence your decision to go forward or delay.

For example if you are in the paper business, businesses still need paper to run their operation or make copies.  But a business may not be compelled to buy that new copier and may decide to just “get by” with the one they have.  Most small business owners and entrepreneurs I know are more of the press ahead type and fairly aggressive with their business decisions.

Should one delay the decision to start or buy a business until the economy improves?  I’m not so sure, but what if it takes 2-5 more years to improve.- This almost  sounds like an answer to this question.

 

More than One Reason to Start or Buy a Business

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How many times do you go to a cocktail party or just hang out with friends and hear things such as “I got this great idea for this new business”, or “Ive got this great idea for this new invention”, or  “If I were the boss and owned this business that I am working at, I would ______________.”   Words are said, heads nod, cocktail parties end and friends go home and nothing happens.

But for some the entrepreneur spirit rises to a greater height than just words, and they are able to turn those words into action.   What is the difference between those at the weekend cocktail party talking about it and the person that wakes up Monday morning and actually pursues it?  Very often, the inspiration to turn words into actions lie in the reasons why one want to pursue this path.  What are the reasons some turn those casual interest into action?

Buy A Business

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As a business broker I have many discussions with individuals that want to buy a business.  The process of buying a business or starting a business both are filled with trepidation, concern, excitement and pursuing of yet to realize results.  One of my functions in working with individuals in the process of buying a business starts with a  simple question – WHY?   Why do you want to buy a business? or in some cases   Why do you want to start a business?   There is a big difference between the person that talks about buying a business or starting a business and one that actually follows through on those aspirations.  And the reason why one wants to start or buy a business can be very different as well.

The below list is certainly not complete but explores some of the reasons one takes the next step.

Why Do You want to Buy a Business or Why do you want to Start a Business?

1. Sometimes its not just about the money, someone has a passion for a field or effort and just wants to immerse self into that field.

2. Others, want to turn filthy rich. Some studies will speak to the high percentage of individuals that gained significant personal wealth through buying a business or starting a business.

3. Someone may just want to have a job to count on.  If you are the boss (of yourself), Who is going to walk into your office and fire you.  No one.  You have control of your job security.  Maybe this venture will turn into more, but at this point, “I just need steady work”.

4. There is a want to start or buy a new business because a person wants out of existing business due to “burnout”, or fatigue and wants to enter a new venture to re-invigorate and try to re-discover the energy that comes along with an entrepreneurial new start.

5. There may be a compelling wish to pursue a new venture that is genuinely making peoples lives better, and a person has a need to fulfill this want of self- fulfillment.

Real Reason For Starting Your Own Business

People who want to be entrepreneurs cite reasons such as satisfying a self-determination, wanting to set their own hours, wanting to be their own boss, and wanting to test themselves, as reasons for starting a new business. But when we get down to it, most people want to start a business to gain financial freedom. Starting or buying a business in the pursue of financial gain and to provide a comfortable existence for self, family or others is a realistic and well-proven approach.  Starting or Buying a business so one can spend more time with family is both mis-guided and unrealistic.

The reasons one does start a business, or buys a business can vary greatly, and the list is longer than outlined above. But there are only 2 types of entrepreneurs or small businessman when it comes to buying a business or starting a business – Those that Do – And Those that Don’t.

Florida Business For sale Buying a Florida Business

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Below please find reason to visit www.sellabusinessflorida.com when pursuing the acquisition or Sale of a Florida Business

Top Reasons To Buy Or Sell A Business Via  www.sellabusinessflorida.com

1) If you are looking for a business broker or more specifically if you are seeking a business broker in south florida, or a SWFL business broker, or are seeking a business broker in fort myers florida, seeking a business broker in Sanibel Florida, or seeking a business broker in Florida to assist in your sale or burchase of your business.

2) If you want to sell your Florida business now, you are considering selling your Florida

Sell A Business

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business, want to discuss planning to sell your business, or are seeking to sell your business in Southwest Florida. Just call for a FREE consultation

3) If you seek a business opportunity in the fort myers florida area, are interested in merger and acquisition in the naples florida area or seek a business opportunity in Florida. If you seek to oursue a merger in Florida pls contact sellabusinessflorida.com.  We work with business buyers throught the United States and Internationally to assist in finding the right Florida Business to buy just click on this link to view over 1000 Florida Businesses For Sale https://www.sellabusinessflorida.com/
florida_business_search.html

4) If you seek to buy a business in Florida, or are looking to buy a Florida business that is in South west Florida, or wanted to buy a business in NaplesFl, or buy a business in fort myers Florida, or buy a business in Tampa Florida please contact us for more information. The above link allows you to search for the business that is right for your needs and situation. Again, just contact us to arrange a free consultatation regarding how to buy a Florida business.

Please find below a partial List of types of florida Businesses For Sale that we work with:

  • Florida Electrical contracting business for sale
  • Florida Retail Businesses for Sale
  • Florida Restuarants for sale
  • Florida Print Companies for Sale
  • Florida HVAC businesses for Sale
  • Florida Computer Companies for sale

3 Small Business Owner Concepts that Sound Unusual.

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  1. My business runs better without me
  2. I’m selling my business after 20 years time to take it easy? No, its time to work hard
  3. When Negotiating- Those who want it less – Wins?

My focus is working with business owners and individuals with the process of buying and selling businesses.  These concepts apply both to the process of buying and selling businesses as well  running a small business.

My Business Can Run Without Me

1.  When starting your business, you are the face of your company, you may be the sole or only interface between you and your customers or clients.  Firstly this approach does limit the amount of growth your company can/may experience.  Secondly if the company is so reliant upon you, What happens to your company if you are gone?  Do your customers buy from you or your company? Are they the same thing. Are you building value in your company?  If you sell your company and you leave, what do you have to sell?  In the beginning of building your business- you are the guy/girl.

This business depends upon you, it relies upon you.  Preparing for the eventual exit of your company your efforts should be towards one of reducing that dependence on you.  So what can you say, or what do you want to be able to say- “this company cannot run without me”. Or “this company runs fine without me”.  Is preparing your business for eventual sale similar to your business plan for future long sustaining growth?  When positioning your business for sale, or just growing your business, work on making the company one that is NOT “All about Me”.

Business Owner

Slacking Off When Trying To Sell Your Business

2.  You started a business and have owned it for 20 years and now want to look to sell it in a year-  What should you do? – Run it like you will own it for the next 20 years.   This is done with certain limitations to capital expenditures, and capital improvements, but speaks more to the mindset needed during this period.  Starting a business, growing it and running it for 20 years and then selling it for significant gain is similar to running a marathon.

Like in a marathon sometimes Small business owners “hit the wall”, are done and just want to exit/finish, sell their business and be done.  But why run hard for 22 miles and then walk the last 2 miles? Finishing strong in a race is always good.  And a small business that “finishes strong” can pay big rewards.  Would you rather buy a business that is trending up or trending down.  Also, if you “start walking” and your business doesn’t sell, what is the state of your business at the end of that walk?

Business Negotiation

3.  Could it be when negotiating- He who wants it LESS wins?   If you are looking at a potential new supplier that is hungry for your business and your present supplier is doing a good job, what is the likelihood of negotiating favorable pricing terms from the new supplier?.  A salesman calls you on the phone and wants to offer you SEO services but  you are currently page 1 on Google Search and getting 4000 hits per day but he is willing to do “what it takes” to get your business-can you negotiate a good deal?

You are looking at buying a business.  Currently you are looking at 3 similar businesses to buy.  2 of those businesses offer great seller financing.  You ask for seller financing from the 3rd, and you are willing to “walk away” if you don`t get your terms.  What is the likelihood of you accomplishing those terms.?  When establishing terms you need are you willing to walk away if you don`t get those terms?   Or put another way, my wife wants to buy a new house, she wants this specific house, so I am assigned to negotiate with the buyer.  Being that “we” really want the house, am I prepared to present conditions that are “deal breakers”.

Am I willing to walk away if I don`t get the $3,000 price reduction -No.  And to those that are married- I need not say more.  In these cases negotiating is very difficult as we are not one that “Wants it Less”.    Actually the “wanting it more” is so great that I feel I exit the world of negotiating and enter the world of hoping…