Business Start Up
 Buying / Selling a Business

Buying & Selling a Business

Also,  call every supplier or customer of the company and ask if they really do business with the company.

Obtain the  last three to five years of  the financial statements these are easier to interpret than the tax returns.  In addition, get the last  three years of the tax returns. The tax returns show the income reported to banks and the government and can be confirmed by obtaining a copy from the IRS, while the financials could be trumped up by using a different method of accounting or erroneous information.  It makes sense, before closing, to request confirmation of the tax returns from the IRS using form 4506 (takes 60 days and $23) or you can request a  computer transcript (for form 1040 series only) of the information that was listed on the tax return (takes 10 days - use form 4506).  Keep in mind that the tax returns are generally optimized to keep the  income as low as possible and may use accelerated methods of writing off assets which still have significant value to the business.  Be alerted to a large increases in revenues or reduced expenses on the most recent tax returns and the current year financials  This change may be short term or  inflated. Often the seller has planned to sell and will pay the tax  in the last few years of business because the revenue from the sale will recover the tax paid plus much more .  So spend a day or two at the business and count the revenue and extrapolate into an annual figure. It is not always possible, but negotiate a payoff that will reduce the sales price if specific sales and expense goals are not met.  And be wary of hiring the prior owner as an employee, they are used to dipping their fingers into the cash till.
 

Business Start Up

c.  Learn about Pros & Cons of Each entity type- LLC, S Corporation,  C corporation,  Sole Proprietorship,  Partnership

d.  What are the taxation considerations  

e.  Incorporate out of state?

f.  Establishing the entity without an attorney? Here are 2 sites  site A or site B  that list the websites for setting up a Corporation or LLC in all 50 states and here are the  phone numbers   to contact  Secretary of  States should you have a question     . Top

Common Mistakes new businesses make

• Inadequate start-up capital. The uncertainty of how a new business will grow makes any forecast fraught with error. Therefore, in the beginning hang onto your cash, rent, lease, don't buy. Watch each penny and weigh every purchase decision. Stick with the basics and save the frill purchases for later. For example, outfit the office with second hand telephone equipment and furniture.
• Wrong choice of business. Failure to do the necessary market research could
  set you up with a business that has too much competition, or new technology emerges that will make your product or service obsolete. Or starting a business in an industry for which the owner has no experience.
• No partnership agreement. Expectations, goals, remunerations should be exhaustively discussed and put to paper before beginning business. Purchase The Partnership Book by Attorneys Ralph Warner & Denis Clifford which comes with the tools and discussion topics needed to keep the 'emotional' side of the discussions at bay.
• Lack of planning. Without a mission, goals and strategies, business tend to stagnate.  Part of planning includes evaluating how the business is doing and determining where it is headed and  what resources are needed to there. 
• Extending credit to customers who are high credit risks. Invest in a credit service who will provide reports on the credit worthiness of customers; request updated financial statements from credit customers annually; begin follow-up on unpaid accounts receivable on the day the invoice is due; stop shipment of new product until past due balance is paid.
• Failure to implement a bookkeeping system that will provide detailed information on costs of goods sold, where customers are coming from, results of marketing strategies, comparative sales data, profitability by customer. Without these management tools business owners cannot decipher between a good and bad business decision.
• Keeping customers who do not contribute to the bottom line.  Time is money, sort your customer list and drop the bottom 10% of customers who are not reaching profitability goals. Spend the extra time and resources on finding customers who fit your ideal customer model.
• Failure to gain the marketing and salesmanship knowledge needed and put forth the effort needed to attract customers. Without customers there is no business.
• Advertising - Make sure every ad clearly states what you are selling, why someone should buy it, .. NOW.. , why they should buy it from you. 
• Living beyond your means. Before distributing profits in the form of salary and dividends,  put aside working capital for tough times. Take 10% of earnings and put aside for when there is a downturn in the business cycle.  Don't take more salary than the business can afford to pay.  Most businesses take 4-5 years to establish themselves and become successful. Be sure you adjust your spending habits for the duration of this start-up period.
• Using payroll taxes and credit cards to finance your business.  The financing costs of these procedures will put you out of business. The taxman gets paid first, before creditors and establish a line of credit with a bank during good times which can be utilized during the downside of the business cycle.