State Small Business Expert Spoke April 24 to GABB
Mary Ellen McClanahan of the Georgia Department of Economic Development spoke about state resources for entrepreneurs and small businesses at the April 24 monthly meeting of the GABB, the state’s only association of professionals who work to facilitate the purchase and sale of businesses and franchises. The GABB meets at 10:30 a.m. at the Atlanta Realtors Center at 5784 Lake Forrest Dr. NW, Atlanta, GA 30328. The meeting will be preceded by a free networking breakfast provided by Claudia Wilson, Senior Vice President of SBA lending at First Landmark Bank.
Here’s the presentation she made. GABB SB PPT McClanahan
Hear an audio recording of her presentation here.
Mary Ellen McClanahan is Director, Entrepreneur & Small Business and Metro Project Manager of the Georgia Department of Economic Development. In her position, Ms. McClanahan helps find solutions and effective ways to build an entrepreneurial environment to support small business through mentoring, professional development, strategic planning and resource awareness. She also connects with Georgia’s business and community associations so that thousands of businesses, local leaders and practitioners are aware of resources and opportunities. She also directs any size businesses to the specific resources they need.
As an Existing Industry Project Manager within the Metro Atlanta region, she calls on expanding companies making them aware of state resources and incentives and provides assistance with their growth plans and decision-making process. Mary Ellen also works closely with local economic developers with their existing industry support efforts.
During her 20 years with the department, she has helped develop and grow its regional economic development program, the “Entrepreneur Friendly” Initiative and acted as legislative liaison. Prior to that, Ms. McClanahan was the economic developer and president of two rural South Georgia chambers of commerce in Dodge and Sumter Counties.
Originally from Erie, Penn., she has been in Georgia since 1973 and serves on the boards of GEDA (Georgia Economic Developers Association), GACCE (GA Association of Chambers of Commerce Executives), Georgia Mentor Protégé Connection, the DeKalb Workforce Investment Board and Sandy Springs Economic Development Advisory Council. She is a 1997 graduate of Institute for Organization Management, Leadership Georgia and a 2000 graduate of EDI (Economic Development Institute).
The GABB is the state’s only association of professionals who work to facilitate the purchase and sale of businesses and franchises. The group includes business brokers as well as lenders, attorneys, business appraisers, insurance agents, environmental specialists and other professionals. GABB’s member business brokers work with businesses of all sizes to help them through all steps of selling their company: valuation, marketing, financing, and closing. Aspiring business owners also work with business brokers to purchase existing businesses at a fair price.
Who Exactly Owns Personal Goodwill and Why Does it Matter?
Personal goodwill can have a profound impact on both small and medium-sized businesses. In fact, it can even impact the sales of larger companies. Ultimately, understanding how personal goodwill is cultivated is of great value for any company.
During the process of building a business, a founder builds one or more of the following: a positive personal reputation, a personal relationship with key players such as large customers and suppliers and the founder’s reputation associated with the creation of products, inventions, designs and more.
What Creates Personal Goodwill?
Personal goodwill can be established in many ways, for example, professionals such as doctors, dentists and lawyers can all build personal goodwill with their clients, especially over extended periods of time. One of the most interesting aspects of building personal goodwill is that it is essentially non-transferable, as it is invariably attached to and associated with, a particular key figure, such as the founder of a company. Simply stated, personal goodwill can be a powerful force, but it does have one substantial drawback. This is as the saying goes, “the goodwill goes home at night.”
How Does It Impact Buying or Selling a Business?
Buying a business where personal goodwill has been a cornerstone of a business’s success and growth presents some obvious risks. Likewise, it can be difficult to sell a business where personal goodwill plays a key role in the business, as a buyer must take this important factor into consideration. Certain businesses such as medical, accounting or legal practices, for example, depend heavily on existing clients. If those clients don’t like the new owner, they simply may go elsewhere.
Now, with all of this stated, it is, of course, possible to sell a business built partially or mostly around personal goodwill. Oftentimes, buyers will want some protection in the event that the business faces serious problems if the seller departs.
Solutions that Work for Both Parties
One approach is to require the seller to stay with the business and remain a key public face for a period of time. An effective transition period can be pivotal for businesses built around personal goodwill. A second approach is to have some form of “earn-out.” In this model, at the end of the year lost business is factored in, and a percentage is then subtracted from monies owed to the seller. Another option is that the funds from the down payment are placed in escrow and adjustments are made to those funds. It is important to note that the courts have decided that a business does not own the goodwill, the owner of the business does.
No doubt, businesses in which personal goodwill plays a major role, present their own unique challenge. Working with an experienced professional, such as a business broker, is an exceptional way to proceed in buying or selling this type of business.
Copyright: Business Brokers Press, Inc.
Read MoreGABB CPA’s Discussed Tax Law Impact on Businesses
Wondering how the new tax laws will affect your business? Three certified public accountants discussed how tax law changes will affect businesses, individuals and business valuations during the March 27 meeting of the Georgia Association of Business Brokers.
The three accountants also answered questions from the GABB, the state’s only association of professionals who work to facilitate the purchase and sale of businesses and franchises. The GABB meets at 10:30 a.m. at the Atlanta Realtors Center at 5784 Lake Forrest Dr. NW, Atlanta, GA 30328. The meeting was preceded by a free breakfast and networking session sponsored by corporate attorney Germaine Curtin.
An audio recording of the discussion is linked here.
The panelists were: Gary Massey, CPA, MBA, MST, founder and managing director of Massey and Company; Andrew Moore CPA, tax senior manager of Frazier & Deeter; and Will Geer CPA/ABV/CFF, CVA, MAFF, CFE, ASA, CMAP, a founding partner of Geer & Associates, PC.
Gary Massey, CPA, MBA, MST has worked in public accounting formore than 25 years, including a 10-year period at Ernst & Young, Coopers & Lybrand and KPMG. He specializes in tax compliance, tax planning and representation of taxpayers before the IRS. He earned a BA in History, Summa Cum Laude, at Brandeis University. He also earned an MBA in Accounting and MS in Taxation from Fordham University.
Andrew Moore CPA is an active member of his firm’s pass-through team and participates in the overall delivery of tax compliance, consulting, and planning services offered. Prior to joining Frazier & Deeter, Andrew led major initiatives that include helping clients implement the IRS Tangible Property Regulations and filing related accounting method changes which resulted in his clients saving millions of dollars in taxes. Before joining Frazier & Deeter, Andrew spent just over nine years working with clients in the automotive, manufacturing & distribution, trucking, legal, technology, and service based industries at various other accounting firms in Atlanta.
Will Geer CPA/ABV/CFF, CVA, MAFF, CFE, ASA, CMAP is a founding partner of Geer & Associates, PC, a firm of CertifiedPublic Accountants and advisors in Atlanta, Georgia. Mr. Geer performs construction, governmental, franchisor, and not-for-profit audit and accounting functions, consults on tax matters and controversies, and provides forensic and valuation services for its clients. Mr. Geer is responsible for creating both the tax practice, audit practice and forensic accounting practice his firm. Prior to founding his firm, Mr. Geer worked for a large regional accounting firm and worked for a United States Bankruptcy Trustee in the Southern District of Georgia. He earned a Bachelor of Science in Accounting from Florida State University with and then a Masters of Business Administration from Georgia Southern University.
The GABB is the state’s only association of professionals who work to facilitate the purchase and sale of businesses and franchises. The group includes business brokers as well as lenders, attorneys, business appraisers, insurance agents, environmental specialists and other professionals. GABB’s member business brokers work with businesses of all sizes to help them through all steps of selling their company: valuation, marketing, financing, and closing. Aspiring business owners also work with business brokers to purchase existing businesses at a fair price.
Read MoreWhen Selling Your Business, Play to Win
If you are an independent business owner, you are most likely also an independent business seller–if not now, you will be somewhere down the road. The Small Business Administration reports that three to five years is a long enough stretch for many business owners and that one in every three plans to sell, many of them right from the outset. With fewer cases of a business being passed on to future generations, selling has become a fact of independent business life. No matter at what stage your own business life may be, prepare now to stay ahead in the selling game.
Perhaps one of the most important rules of the selling game is learning how not to “sell.” An apt anecdote from Cary Reich’s The Life of Nelson Rockefeller shows a pro at work doing (or not doing) just that:
When the indomitable J.P. Morgan was seeking the Rockefeller’s Mesabi iron ore properties to complete his assemblage of what was to become U.S. Steel, it was Junior [John D. Rockefeller, Jr.] who went head-to-head with the financier. “Well, what’s your price?” Morgan demanded, to which Junior coolly replied, “I think there must be some mistake. I did not come here to sell. I understand you wished to buy.” Morgan ended up with the properties, but at a steep cost.
As this anecdote shows, the best approach to succeeding at the selling game is to be less of a “seller” and more of a “player.” Take a look at these tips for keeping the score in your favor:
Let Others Do the Heavy Pitching
Selling a business is an intense emotional drain; at best, a distraction. Let professional advisors do the yeoman’s duty when selling a business. A business intermediary represents the seller and is experienced in completing the transaction in a timely manner and at a price and terms acceptable to the seller. Your business broker will also present and assess offers, and help in structuring the transaction itself. If you plan to use an attorney, engage one who is seasoned in the business selling process. A former Harvard Business Review associate editor once said, “Inexperienced lawyers are often reluctant to advise their clients to take any risks, whereas lawyers who have been through such negotiations a few times know what’s reasonable.”
Stay in the Game
With the right advisors on your side, you can do the all-important work of tending to the daily life of the business. There is a tendency for sellers to let things slip once the business is officially for sale. Keeping normal operating hours, maintaining inventory at constant levels, and attention to the appearance and general good repair of the premises are ways to make the right impression on prospective buyers. Most important of all, tending to the daily running of the business will help ward off deterioration of sales and earnings.
Keep Pricing and Evaluation in the Ballpark
Like all sellers, you will want the best possible price for your business. You have probably spent years building it and have dreamed about its worth, based on your “sweat equity.” You’ll need to keep in mind that the marketplace will determine the value of the business. Ignoring that standard by asking too high a price will drive prospective buyers away, or will at the least slow the process, and perhaps to a standstill.
Play Fair with Confidentiality
Your business broker will constantly stress confidentiality to the prospects to whom he or she shows your business. They will use nonspecific descriptions of the business, require signatures on strict confidentiality agreements, screen all prospects, and sometimes phase the release of information to match the growing evidence of buyer sincerity. As the seller you must also maintain confidentiality in your day-to-day business activities, never forgetting that a breach of confidentiality can wreck the deal.
Sell Before Striking Out
Don’t wait until you are forced to sell for any reason, whether financial or personal. Instead of selling impulsively, you should plan ahead carefully by cleaning up the balance sheet, settling any litigation, providing a list of loans against the business with amounts and payment schedule, tackling any environmental problems, and by gathering in one place all pertinent paperwork, such as franchise agreement (if applicable), the lease and any lease-related documents, and an approximation of inventory on-hand. In addition, you could increase the value of your business by up to 20 percent by providing audited financial statements for one or two years in advance of selling.
Think Twice Before Retiring Your “Number”
The trend is for sellers to assume they will retire after selling the business. But consider this: agreeing to stay on in some capacity can actually help you get a better price for your business. Many buyers will pay more to have the seller stay aboard, thus helping to reduce their risk.
Keep the Ball Rolling
You need to keep the negotiation ball rolling once an offer has been presented. Even if you don’t get your asking price, the offer may have other points that will offset that disappointment, such as higher payments or interest, a consulting agreement, more cash than you anticipated, or a buyer who seems “just right.” The right buyer may be better than a higher price, especially if there is seller financing involved, and there usually is. In many cases, the structure of the deal is more important than the price. And when the ball is rolling, allow it to pick up speed. Deals that drag are too often deals that fail to close.
By following these tips, and by working closely with your business broker, you can have confidence in being a seller who, like John D. Rockefeller, Jr., doesn’t “come here to sell.” You will play the selling game–and be a winner.