5 Tips for Buyers of International Businesses
The decision to buy an international business is no doubt quite serious. There are numerous factors that must be taken into consideration when deciding whether or not an international business purchase is the right move. Let’s take a closer look.
Tip #1 – Relocating Vs. Hiring a Manager
Buying an international business can also mean a substantial life change. Before jumping into the process, it is critical that you know whether you will be relocating or hiring a manager to run your newly acquired business.
Obviously, owning a business is a substantial responsibility and you’ll want to ensure that you know exactly what is going on with your new acquisition. Sometimes that means actually being there. The bottom line is that you will either have to relocate or hire a manager.
Tip #2 – Regulations
Understanding regulations, taxes and customs are another must for buyers of international businesses. A failure to factor in these elements can literally undo one’s business or at the very least place you at a competitive disadvantage. The time and money you invest in learning how regulations, taxes and customs work in this new territory is time and money well spent.
Tip #3 – Research Similar Businesses
You will want to invest your time into research. In particular, you will want to research similar businesses that already exist in the place where you are investing. Why are those businesses successful? What could you do to improve on their model or approach? Don’t assume that just because you know how businesses fare in the United States that this knowledge will always translate over to other countries.
Tip #4 – Be Aware of Potential Cultural Differences
It is important to be aware of cultural differences during the negotiation process, but this is really just the beginning. Cultural differences do not end once the negotiation process is over. They have ramifications in areas including everything from dealing with your staff and vendors to getting professional assistance from people such as local accountants and lawyers. You will need to be aware of cultural differences and perhaps even learn to speak the language if you want your business to be a thriving success.
Tip #5 – Hire a Business Broker
Business brokers are experts in buying and selling all kinds of businesses and that includes international businesses. There are many layers to owning an international business and business brokers can help you navigate the waters. The sizable expertise that a business broker brings to the table can help save you considerable amount of frustration and confusion.
These five tips are invaluable for helping you determine whether you should opt for an international business and/or how to proceed once you’ve decided to move forward. There can be big opportunities in owning an international business, but it is critical to proceed with a clear cut strategy.
Copyright: Business Brokerage Press, Inc.
Read MoreLackluster Investment Dragging Down GDP Growth
ATLANTA-A severe lack of investment, especially in technology, explains why gross domestic product (GDP) growth has stalled, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“In the current expansion, investment growth has been a paltry 4.1%, compared to 10.6% in the ’90s,” Dhawan wrote in his quarterly “Forecast of the Nation,” released today (August 24). “No wonder current GDP growth is almost 40% less than the 3.8% seen in the 1990s.”
Real GDP growth over the past three quarters averaged an anemic 1.0%. One year ago, the average for the same three quarters was 2.3%.
“We are in the second pause in growth in the current recovery,” Dhawan said. “The first pause began in mid-2012 after the recovery started in mid-2009. In between these two pauses, GDP growth even touched 5.0% in mid-2014.”
Dhawan points to political uncertainty as the reason this pause will be more prolonged than the last one.
“This pause will be slightly longer because populist rhetoric in this presidential cycle started earlier than usual and has been much, much stronger,” he said. “When we marry this mood with the drop in equipment spending due to collapsing oil prices, clumsy efforts by China to devalue its currency in order to boost growth via exports and frugal consumers worldwide, the result is a growth pause.”
The end of this election cycle should mark the end of this growth pause. “Like after the last presidential election, we have a good chance of bouncing back when this one is over,” Dhawan wrote in his forecast.
The current stock market surge indicates that the exchanges are betting on no change in the political party of the president. However, Dhawan points out that markets reacts poorly when surprised.
“No one knows what the results of the election will be, but we do know how markets react when their herd mentality forecasts the wrong outcome of political events,” Dhawan said. “In June, the Brexit referendum (for the United Kingdom to leave the European Union) didn’t go the way the U.S. stock market anticipated and its reaction was that of a petulant child whose favorite blanket was snatched away.”
“In the short run, the flight to safety (lower interest rates boosting consumption) and the negative wealth impact from the drop in financial markets tend to offset each other.”
The uncertainty of when the U.K. will invoke article 50 to begin its withdrawal from the EU will push most of the economic impact to the medium or long-term. Dhawan predicts that the maximum hit to the U.S. economy will be a negative 0.3% impact on GDP growth.
Highlights from the Economic Forecasting Center’s National Report
- Real GDP will expand 1.5% in 2016, 2.3% in 2017 and 2.1% in 2018.
- Business investment will drop 1.1% in 2016, rebound to 3.3% growth in 2017 and 5.6% in 2018. Jobs will grow by a monthly rate of 183,000 in 2016, 176,000 in 2017 and 151,000 in 2018.
- Housing starts will average 1.152 million units in 2016, rise to 1.242 in 2017 and 1.273 in 2018. Auto sales will drop from 17.1 million units in 2016 to 16.6 in 2017 and 16.0 in 2018.
- The 10-year bond rate will rise to 1.7% in 2016, 2.6% in 2017 and 3.3% by the end of 2018.
Global Woes Set to Impinge on Georgia’s Growth
Despite strong domestic consumption, Georgia’s dependence on the global economy is set to make an impact on the state’s growth, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“Our manufacturers and exporters sent almost $40 billion of goods to the global marketplace last year, and three-quarters of the state’s 18 Fortune 500 companies operate on a global scale,” Dhawan wrote in his “Forecast of Georgia and Atlanta,” released today (August 24). “Not only the Brexit decision (for the United Kingdom to leave the European Union) but also overall global economic health issues, such as China’s stalled economy and oil-driven budgetary constraints in the Middle East, are key factors in our domestic-led growth.”
The U.S. economy expanded at a weak 1.2% in the second quarter of 2016; however domestic consumption grew a strong 4.2%.
“The U.S. economy stood on shaky ground in the second quarter with a good pace of consumption,” Dhawan said. “This came in the context of an anemic investment climate and one primary growth source. The uncertainty of Brexit adds to this weak investment environment.”
This could have some impact as the U.K. is the Peach State’s fourth largest trading partner. But the EU as a whole accounts for 15% of state exports (excluding the U.K.) and their health matters more.
“With the EU already on fragile footing, the U.K.’s eventual exit could push their economic activity lower and affect the importing capabilities of its countries. However, the drop in exports to Canada, China, Singapore, Brazil and Japan (accounting for more than 33% of state exports) will have greater impact.”
Uncertainty caused by Brexit and global struggles hasn’t been all bad, though. One Georgia catalyst sector, corporate, is benefitting from the flight to safety of international investors, creating a net-positive effect of cash flow. As a result, the corporate sector created 16,500 jobs in the first half of the year, just off pace for the last half of 2015.
Another Georgia catalyst sector, manufacturing, did not fare as well despite benefitting from the state’s lack of dependence on shale oil and gas activity. This sector created only 800 new jobs in the first half of the year.
By contrast, the construction sector benefitted from a surge in permits for the first half of 2016.
“An increase in residential permit activity, combined with a sustained level of commercial and industrial construction, saw good job gains in Georgia’s construction industry.” Dhawan said, although it’s a trend he does not expect to continue.
“Going forward, expect a deceleration due to several factors. One is slowing personal income growth, which affects purchasing power,” Dhawan said. “Another is the fact that a large chunk of this activity is being generated in a relatively small area, with land availability becoming an issue.”
Construction isn’t the only sector Dhawan expects to slow, advising that instead of mechanically counting the number of jobs added to focus on their quality and purchasing power instead.
“The quality of jobs being created now is less than before, and the income pinch on catalyst sectors (i.e. corporate and manufacturing) has a trickle-down effect that leads to weak job growth in the tertiary sectors of retail trade and hospitality, as well as an overall lessening of job growth,” Dhawan said. “Growth is unable to get into the next gear, and even maintenance might be tough.”
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
- Georgia employment will gain 98,000 jobs (16,900 premium jobs) in calendar year 2016, 75,100 jobs (13,300 premium) in 2017 and 69,800 (12,100 premium) in 2018.
- Nominal personal income will increase 4.9% in 2016, 5.2% in 2017 and 5.5% in 2018.
- Atlanta will add 65,700 jobs (13,600 premium jobs) in calendar year 2016, 54,600 jobs (11,600 premium) in 2017 and 52,300 jobs (10,600 premium) in 2018.
- Atlanta permitting activity in 2016 will increase 20.8%, fall 3.3% in 2017 and grow 1.0% in 2018.
Georgia Film Tax Credits – not just for big business
By Andrew L. Moore, CPA
Over the past several years Georgia has grown to become one of the top states in the country for film production, largely as a result of the Georgia Film, Television, and Digital Entertainment Tax Credit. Currently extended to January 1, 2019, Georgia allows for a 20 percent tax credit for companies that spend $500,000 or more on production or post production in Georgia, either in a single production or on multiple projects. The state grants an additional 10 percent credit if the finished product includes a promotional logo provided by the state. Companies producing feature films, television series, music videos, commercials, interactive games, and animated films can take advantage of the credit.
Why should all of this matter to the average Georgia taxpayer whose only film activity involves watching his or her favorite TV shows or catching a movie at the theater? The Georgia Legislature, realizing that many production companies would lack sufficient Georgia tax liabilities to fully utilize the credit against state income or withholding tax, provided the credit be transferrable, one time, to other Georgia taxpayers either in whole or in parts. The credit may only be sold or transferred once; however, the sale or transfer may involve multiple Georgia transferees or buyers.
A number of tax credit brokers work with production companies that have unused film credits and assist with brokering all or some of company’s unused credits. Film credit brokers typically make 2 – 3 cents per dollar of credit sold. So, when credits sell to an end user for 92 cents on the dollar, the broker likely negotiated a commission with the production company based on 89 to 90 cents on the dollar, profiting 2 -3 cents per dollar for putting buyer and seller together. Although rare, some credits are exchanged directly from production companies to the end purchaser of credits without a broker, usually providing for a larger discount to the buyer.
Generally, $1 of Georgia film tax credit can be purchased for around 88 to 93 cents, allowing Georgia taxpayers to settle their Georgia tax liability at a discount because the film tax credits are exchanged dollar for dollar to pay Georgia income tax. Taxpayers can purchase film credits for the current tax year, and three proceeding tax years –with the price generally lowering for prior year credits. For the buyer, the credit is treated much like withholding and is included as a tax payment before the calculation of interest and penalties. This helps taxpayers who are filing late, fail to make estimated tax payments, or have been audited with tax assessments for prior years.
According to Garrett Fox, Tax Senior Associate in charge of facilitating Georgia film tax credits at Atlanta based CPA Firm Frazier & Deeter, the price of tax credits has steadily increased over the past 3-4 years due to the increased popularity of purchasing film credits as a tax savings and planning tool. Brokers and studios are placing minimums on order size which effects pricing and availability. For example, in today’s market, a taxpayer purchasing $100,000 or more in film credits may have access to credits not available to buyers who might only need $35,000. Or, sometimes you will see an increase in price for orders below a particular threshold. In addition, Fox explains that some CPA firms, including Frazier & Deeter, have developed relationships with brokers where, depending on the circumstances, arrangements can be made to reduce minimum order requirements given the sheer volume of business done with the brokers.
As described above, this is an easy way to reduce Georgia tax liability for those taxpayers with higher income tax liabilities. For example, a client who is married and files taxes jointly, already with a high annual income, sells his or her business resulting in 2016 Georgia taxable income of $1,671,000 (the amount of Georgia taxable income that results in Georgia income tax of roughly $100,000 when filing jointly). In this example, your client would purchase $100,000 of Georgia film tax credits for around $92,000 (92 cents on the dollar), saving $8,000 simply by settling Georgia taxes with film credits.
In the above scenario, the benefit is magnified when considering your client could wait until the extended due date of his or her 2016 Georgia tax return, October 15, 2017, to actually make the purchase without being penalized for late payment of tax or underpayment of estimated tax (credits may be harder to find later in the year so careful planning should be done to locate credits as early in the year as possible).
Contrast this to settling taxes via direct cash payment to the Georgia Department of Revenue, where your client would be required to remit $100,000 on April 15, 2017, and likely be penalized for failure to make quarterly estimated tax payments if the balance due was not remitted until the April 15, 2017 due date.
As you can see, by paying via film credits you can not only settle Georgia taxes at a discount but keep cash in your client’s pocket longer!
In addition to the above, your client is eligible for an itemized deduction for state income tax in the amount of $100,000 in the year the credit is purchased. The above benefits are slightly reduced due to the taxable capital gain of $8,000 ($100,000 – $92,000) associated with purchasing the credit and using it in satisfaction of Georgia tax.
Credits left unused can be carried forward for up to five years. The expiration of the carry-forward period is based on the end of the tax year in which the production company claimed the tax credit and not the date the credit was transferred to the buyer. For example, if a production company claimed a credit on its December 31, 2010 tax return, that credit will expire five years later on December 31, 2015, even if the credit was transferred on December 31, 2014.
Sounds Great, But What Are The Risks?
Georgia film tax credits are generally considered by tax advisors to be a fairly low risk investment. However, as with all investments, there are risks to consider –including audit risk with film credits. The risks involved can be mitigated by considering the following:
- Securing a guarantee from a reputable production company (like NBC, Universal, Sony, or The Weather Channel, to name a few);
- Purchasing credits from quality brokers and production companies;
- Ensure the Georgia Department of Economic Development has certified the project;
- Purchasing credits which have already been audited by the state; or
- Purchasing credits where a reputable CPA Firm has provided a “comfort letter” for the credits.
How Can Frazier & Help?
Involve Frazier & Deeter early in the purchase. We have contacts throughout the industry, including brokers and production companies, to find the right credits. As CPAs, we are simply facilitators and advisors and are not influenced by any sort of commission.
If you have questions regarding film credits or any other tax planning strategies or tools feel free to give me a call at 404.573.4336 or email me at Andrew.Moore@FrazierDeeter.com.
Read MoreHow to Keep Employees Engaged During an Ownership Transition
Ensuring that your employees stay on course during your ownership transition should be one of your key areas of focus. There are many key steps that you should take during this delicate time. Let’s explore the best tips for keeping your employees engaged throughout the entire ownership transition process.
Step 1 – Establish and Implement a Training Program Early On
If you are selling your business, then be certain that you train replacements early on in the process. Failure to do so can result in significant disruptions. Additionally, if you are buying a business it is of paramount importance that you are 100% confident that there are competent people staying on board after the sale.
Step 2 – Address Employee Concerns
No matter what your employees say or how they act, you must assume that they are worried about the future. After all, if you were them wouldn’t you be concerned at the prospect of a sale? The best way to address these concerns is to meet with employees in small groups and discuss their concerns.
Step 3 – Don’t Make Drastic Changes
Above all else, you want a smooth and fluid transition period. A key way to ensure that this time is as trouble-free as possible is to refrain from making any drastic changes before or after the transition. Remember the sale of the business is, in and of itself, shocking enough.
You don’t want to add yet more disruption into the process by making changes that could be confusing or unsettling. In other words, keep the waters as calm as possible. Drastic changes could lead to employees quitting or worst of all, going to work for a competitor.
Step 4 – Focus on the Benefits
If possible focus on the benefits to your employees. It is your job as the new business owner to outline how the sale will benefit everyone. Don’t let your employees’ imaginations run wild with speculation. Unfortunately, this is exactly what happens when employees and management feel as though they are not receiving any information about the sale. So don’t be mysterious or cryptic. Instead provide your employees with information, and keep the focus on how the changes will benefit them both personally and professionally.
Implementing these four steps will go a very long way towards helping to ensure a smooth transition period. Transition periods can be handled adeptly; it just takes preparation and patience.
Copyright: Business Brokerage Press, Inc.
Read More