Middle Georgia Businesses Expect Strong Year
Businesses in Middle Georgia experienced a very positive 2018 and expect an even better 2019, according to the results of Mercer University’s 2018 Middle Georgia Economic Outlook Survey.
During 2018, businesses in Middle Georgia added more employees than they expected to add at the beginning of the year. Businesses were also very optimistic about adding employees during 2019.
Interestingly, businesses show strong optimism about adding employees despite believing that average employee compensation was higher during 2018 than expected at the beginning of the year, and that this average will further increase in 2019.
The BB&T Center for Undergraduate Research in Public Policy and Capitalism and partner chambers received responses to their electronic survey from 125 individuals. Dr. Antonio Saravia, associate professor of economics and director of the BB&T Center, compiled the results, which can be viewed online.
“In general terms, businesses in Middle Georgia seemed to have experienced a very strong 2018 and expect an even stronger 2019,” said Dr. Saravia. “The indices for net earnings, sales and hiring were all up for 2018 and are predicted to continue to increase in 2019, which is very good news. The report shows absolutely no recessionary concerns. While companies in Middle Georgia still struggle finding the right talent in the area, the economic sentiment continues to be positive as the economy continues to expand.”
The most significant obstacles to business identified by the respondents for both 2018 and 2019, as evidenced by intensity indices, were the quality of labor, the cost of labor, government regulations and/or red tape and taxes.
Respondents represented considerable variety in terms of company size, geography and industry. Most were small businesses under 10 employees, which accounted for 48 percent of the total number of respondents. The majority had principal offices located in Bibb (49 percent), Houston (29 percent) and Monroe (11 percent) counties. Respondents represented a wide range of industries, led by retail trade (14 percent) and professional and technical service (14 percent).
The survey, released in March 2019, was conducted by the BB&T Center for Undergraduate Research in Public Policy and Capitalism in Mercer’s Eugene W. Stetson School of Business and Economics, in partnership with the Greater Macon Chamber of Commerce, the Robins Regional Chamber of Commerce, the Forsyth-Monroe County Chamber of Commerce, the Milledgeville-Baldwin Chamber of Commerce, the Jones County/Gray Chamber of Commerce, the Roberta-Crawford County Chamber of Commerce and the Wilkinson County Chamber of Commerce.
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Marketing Strategist to Speak Aug. 21
Find out how you can harness a marketing strategy to grow your business when internationally known author, marketing and business strategist Diane Conklin speaks on Wednesday, Aug. 21, to the Georgia Association of Business Brokers. The GABB is the state’s largest association of professionals dedicated to buying and selling businesses and franchises.
The GABB meets at the Georgia Association of Realtors at 6065 Barfield Road, Sandy Springs, GA, 30328, and the meeting will last from 10:30 a.m. to noon preceded by a free light breakfast networking session at 9:45 a.m. Rob Tamburri, CPA PFS, managing partner of Balog + Tamburri, CPAs, is the sponsor of the meeting.
Diane is a direct response marketing expert who specializes in showing business owners how to turn their businesses into money making machines using rapid profit acceleration, leveraged business growth and strategic implementation by integrating their online and offline marketing strategies, media and methods, to get maximum results from their marketing dollars with Complete Marketing Systems.
For more than 25 years Diane has been leading small businesses to bigger profits through her coaching, consulting, marketing funnels, systems, live events and by providing done-for-you services to clients all over the world. As the founder of Complete Marketing Systems, Diane has been involved in many campaigns grossing over $1,000,000.00 several times in her career, and she routinely helps people grow businesses to six figures, and beyond. Diane was voted Glazer-Kennedy Marketer of the Year for her innovative marketing strategies and campaigns and was nominated for Atlanta Business Woman of the Year.
The monthly meeting begins at 10:30 a.m. and is preceded at 9:45 a.m. by a free light breakfast and networking session. There is networking with coffee and pastries from about 9:45 to 10:30 and the meeting will last from about 10:30 to somewhere between 11:30 and noon.
The GABB is the state’s largest and oldest association of professionals who specialize in brokering the purchase and sale of businesses and franchises. Broker members help owners determine the asking price of their business, create marketing plans and strategies for selling their business, identify and qualify buyers, and have the knowledge, experience and skills needed to help maintain the confidential nature of the process. The professionals of GABB relentlessly pursue professional development so they can provide superior, ethical services for all customers and clients. Affiliate members include bankers, lawyers, appraisers, insurers and other professionals who work closely with brokers to help owners and buyers get to the closing table.
For more information about GABB, please contact GABB President Dean Burnette at 912-247-3209 or dean@b3brokers.com, or GABB Executive Director Diane Loupe at diane@gabb.org or 404-374-3990.
Business Valuation Theory and Practice – Part One: Valuation Approaches
By Dan Browning, founder and President of DB Consulting, Inc.
This article is for educational purposes only. Nothing contained herein can be used against me in a litigation or other adversarial setting. Examples have been changed to protect the innocent (and not so innocent).
How do appraisers determine the value of a business? There are three value approaches that can be used, and each approach has various methods within it. The three approaches are:
- The Cost or Asset Approach
- The Market Approach
- The Income Approach
For most small, privately owned businesses, business appraisers typically do not use the Cost Approach. This approach is more applicable when a business is a very asset-intensive operation, such as a manufacturing company. Occasionally an Asset Approach could be called for, but the other two approaches are usually more indicative of value.
The Market Approach develops a value based on the amount at which other similar companies have been sold. The theoretical underpinning for the Market Approach is the principle of substitution, in that a hypothetical, disinterested, financially motivated willing buyer can evaluate many possible targets for acquisition and will not pay more for one particular business than for another comparable, similarly situated business.
For larger companies, appraisers sometimes use a Guideline Public Company Method, wherein the subject business is compared to publicly traded companies in the same or similar industries. Given the vast size differentials, most appraisers typically do not use this Method for smaller, privately owned businesses.
More suitable for smaller private companies is the Direct Market Data Method, wherein the appraiser will research private databases containing reported transactions of other smaller, privately owned companies. These transactions are often reported by business brokers. Some of the most common transaction databases include DealStats (formerly Pratt’s Stats), BizComps, and ValuSource Market Comps (formerly Institute of Business Appraisers database).
After researching and finding comparable transactions, the appraiser analyzes the data by looking at various ratios derived from the transactions (among other things). Some of the most common are the Price to Gross Revenues and Price to Earnings ratios. However, one must BE CAREFUL when using these transaction databases, because different databases have different measures and definitions of “earnings.” Sometimes the earnings include add-backs such as owners’ compensation, interest, and income tax expenses (as is the case with the ValuSource database), while others may add back depreciation, amortization, and interest expenses. The short answer is that you can’t simply use the “Price to Earnings” ratios from all databases combined into one calculation.
One approach to selecting which ratio(s) to utilize is to analyze the data sets to find which set of value indications is the most internally consistent (statistically speaking). This could be done by calculating the data set’s Coefficient of Variation (which is the standard deviation divided by the mean), or by using a regression analysis.
The Income Approach develops a value that includes all tangible and intangible assets of the company. In theory, whatever operating assets are required to generate the earnings are included in the value developed from applying the appropriate capitalization or discount rate. One of the keys to developing a reliable, reasonable value for the business lies in choosing the correct earnings base.
There are two essential steps to address when selecting a reasonable estimate of earnings – selecting the level of earnings, and forecasting the most reasonable estimate of stable earnings into the future. The earnings base is capitalized to develop a value for the ongoing business.
Two common methods under the Income Approach are the Single Period Capitalization method and the Discounted Cash Flow/Discounted Future Earnings method. If the earnings of the business are relatively stable, one can utilize the Single Period Capitalization method by building up a capitalization (“cap”) rate and applying it to a representative level of earnings. If, however, the earnings are not stable, the Discounted Future Earnings method is more appropriate, because this method allows one to forecast several years of revenues and discount the various revenue streams (including a reversionary value) back to present value.
That’s a basic overview of valuation approaches in business appraisal. Our next article will focus on common adjustments to reported revenues and earnings figures.
Dan Browning, a GABB Affiliate, has 20 years of experience as a business appraisal professional and holds the Master Analyst in Financial Forensics (MAFF) and Accredited in Business Appraisal Review (ABAR) designations from the National Association of Certified Valuators and Analysts (NACVA).
Read MoreLearn How to Prepare Your Business to Sell-Feb. 26 GABB Meeting
Just before retirement is not the best time to prepare your business to sell for an attractive price. Savvy business owners spend years thoughtfully preparing to transition out of business ownership.
UGA Small Business Development Center consultant Daniel McCoy discussed ways that small businesses can prepare for the day when they want to sell their business.
Here’s a link to an audio recording of Mr. McCoy’s remarks.
His PowerPoint Presentation is here. How to Prepare a Business to Sell
The Tuesday, Feb. 26 meeting was preceded by a free networking breakfast sponsored by GABB Board member Kim Eells, Vice President of SBA Lending at Renasant Bank and Susan Kite, Vice President of SBA Lending at Renasant Bank.
Mr. McCoy was an SBA Lender from 2014 to 2017. He joined the University of Georgia Small Business Development Center (SBDC) in September of 2017, after starting his own business of tax preparation and loan packaging. His business experience consists of several years in retail upper management, 19 years in commercial lending, three years in insurance, and four yuears as a small business owner. He holds an MBA in Accounting from Benedictine University, a B.S. in Organizational Management from Covenant College and an Associates degree in Arts from Reinhardt University. His specialties include human resources, financial management, customer service, and business planning and forecasting.
The GABB is the state’s largest and oldest association of professionals who specialize in brokering the purchase and sale of businesses and franchises. Broker members help owners determine the asking price of their business, create marketing plans and strategies for selling their business, identify and qualify buyers, and have the knowledge, experience and skills needed to help maintain the confidential nature of the process. The professionals of GABB relentlessly pursue professional development so they can provide superior, ethical services for all customers and clients. Affiliate members include bankers, lawyers, appraisers, insurers and other professionals who work closely with brokers to help owners and buyers get to the closing table.
For more information about GABB, please contact GABB President Dean Burnette at 912-247-3209 or dean@b3brokers.com, or GABB Executive Director Diane Loupe at diane@gabb.org or 404-374-3990.
Read MoreTen Things to Do To Prepare To Sell Your Business
If you want to sell your business, be sure to check the items on this list prepared by Loren Schmerler, CPC, APC the founder and president of Bottom Line Management. Loren is a founding member of the Georgia Association of Business Brokers as well as an experienced business broker.
1. Do you really WANT to sell?. Make sure you really “want” to sell. Ask yourself if you are bored, burned out, ill, have a new child, have aging parents that need your assistance, etc. Or are you simply unhappy with how much money you are making? If this is the case, you do not “need” to sell. All you need is some guidance getting back on the right track.
An experienced business broker can help you refocus and see the forest for the trees. You might find out that once you start making enough money, you do not want to sell after all. But if you conclude that selling is what you want to do regardless of how much money you are making, then you need to proceed to the next step.
2. Fix all exterior problems. After you are 100% sure that you want to sell your business, I suggest that you drive up to your business and determine the following if they apply to you. Are there any holes in your parking lot? If so, fix them before a buyer shows up. Is any of the shrubbery dead or out of control? If so, replace the dead with live shrubbery and make sure that all of them are properly trimmed.
Are the windows clean? If not, get them washed. Is the building exterior clean? If not, get it pressure washed. Does the roof look old or damaged? If so, either get a new roof or replace the bad shingles. Does the building need to be painted? If so, do it. In brief, make sure the “curb appeal” of your business has no obvious and easily correctable issues.
3. Fix interior problems. After you have fixed the exterior issues, it is now time to examine the interior of your business from top to bottom. Start with the ceilings. Are there any water stains from roof leaks? If so, fix the leaks and replace the tiles. Are there any light bulbs that need to be replaced? If so, get on a ladder and put in new and shiny bulbs. Does any of the furniture look ratty? If so, either repair it or replace it.
Are there scrape marks on the walls? If so, have them repainted. How about your employees’ desks? Do they look organized or out of control? Insist that your employees maintain neat and orderly working areas. Are the rest rooms an embarrassment? If so, clean them up and keep them clean. Are they handicap accessible? If not, make arrangements to bring them up to code. Look at your office with a keen eye. Remember that when the buyer tours your business, you want them to visualize becoming the owner and being proud to do so.
4. Update job descriptions. After you have fixed the interior “physical” issues, it is now time to look at job descriptions, policies and procedures. First and foremost, you need to draft your own job description that covers what you do daily, weekly, monthly, quarterly, semi-annually and annually. It should be very detailed, and I recommend having an assistant help you prepare this. Make certain you have someone proof read the job description and correct any grammar or spelling errors.
After you are satisfied with your job description, ask all your employees to do the same. This process has several benefits. First, your employees will see how much they actually do. Second, it will give you a chance to see if they are doing what you think they are doing. Third, it will tell you whether they are doing what they should be doing. When all the job descriptions are complete and typed, you will place them in a 3-hole binder labeled “Job Descriptions.” Then you will move on to policies and procedures.
5. Update policies, procedures and controls. Now that you know what you do and what all your employees do, it’s time for policies, procedures and controls. With regard to employees, you need to cover hiring, evaluations, probations, vacation, sick days, holidays, etc. If your company has positions where employees must have background checks, drug tests, reference checks, etc., you need to speak with a labor attorney to dot all your i’s and cross all your t’s.
When asking a prospective employee to complete an application, it is best to stay away from questions that deal with pregnancy, military status, race, national origin, etc. If you decide to hire an employee, make sure they complete a W-4 form, an I-9 form and the appropriate state form. Should your labor pool have a large number of workers who are not citizens, you will need to consult with a labor attorney to insure you do not hire undocumented immigrants. Severe penalties can result. With regard to vacations and sick pay, it is best to let them accrue a day or less for each month worked.
6. Update Employee Evaluations It is very important to stay current with all employee evaluations. Employee morale can be devastated if reviews are delayed or not given at all. Plus, it is grossly unfair to ask a new owner to review employees with whom he or she has never interacted. A prospective owner will most certainly ask about employee turnover and employee tenure. But one question that is rarely or ever asked is whether you have any “problem” employees.
That brings up the issue of probation. Probation can be a way to successfully rehabilitate a wayward employee, or it can be the final process to document a termination in such a manner that a legal challenge to the termination will not prevail. When an employee is put on probation, the leash should be very short. The employee must know exactly what behavior will be tolerated and what behavior will lead to immediate termination. Interestingly enough, putting a person on probation sometimes leads to an outstanding employee.
7. Update Financial Statements. Nothing frustrates a prospective purchaser more than asking for current financial statements and tax returns and being told that they are not available. Worse yet is being told that a date cannot given for when they will become available. Talk about red flags. How can you run a successful business without current and accurate financial statements? The short answer is that you can’t. As a business owner, you must anticipate the purchaser’s questions regarding all financial matters and have current statements to defend your answers.
When I say financial statements, most people think of a profit and loss statement (also called the income statement.) But the balance sheet is equally important. The combination of these statements tells you whether a business is losing money and gives you a picture of the company’s financial health. There are certain subtleties to keep in mind. For instance, a high level of inventory can indicate several different things. Maybe much of it is obsolete or slow moving. It can be a purchasing mistake that will hurt a business or a brilliant purchase at a great cost. Only with thorough investigation will you determine the true answer.
8. Put Tax Documents in Order. Have you filed all your tax returns? Specifically, I mean monthly sales tax, monthly state withholding, quarterly payroll taxes, quarterly state unemployment insurance, annual unemployment insurance, annual ad valorem, annual corporate tax, annual state tax and any local, county, city or other special taxes. It is absolutely critical that you are current with all these returns to instill confidence in the prospective purchaser. But when it comes to sales tax, if you have not filed and paid all returns, there are very negative consequences. The penalties and interest are exorbitant, but in addition, unpaid sales taxes become the responsibility of the new owner. I was once at the closing table waiting for the checks to be written when the Georgia Department of Revenue called and told the closing attorney that the seller had not paid sales tax for the last 3 years. Upon hearing this, the buyer stood up and left the closing. Needless to say, the company was not sold and eventually shut its doors.
While we are on the subject of taxes, you need to have a heart to heart talk with your CPA regarding taxes when you sell your business. Should the sale be an asset sale? Should the sale be a stock sale? There are bona fide reasons for each type sale. An asset sale limits your exposure for past liabilities, errors and omissions. An example would be a product liability claim for a structure or machine that becomes faulty. A stock sale allows for ease of transferring contracts presently in force. A stock sale is also critical in the medical industry when a Medicare number might be involved. But there is another angle. The stock sale allows for the company to be sold for less money while still letting the owner realize the same or greater after tax position.
9. Prepare for Due Diligence. What is due diligence and how do you prepare for it? Due diligence is the process where the buyer tries to validate everything you have represented both verbally and in writing. The buyer will scrutinize your financial records, your legal records, your employment records, etc. With financial records the process starts with the tax returns, goes backwards to the financial statements, goes backwards to the general ledger, goes backwards to all source documents that include bank statements, deposit slips, check stubs, cancelled checks, vendor invoices, client/customer statements, etc.
To prepare for the financial side of due diligence you should assemble tax returns, financial statements, general ledgers, bank statements, deposit slips, check stubs, cancelled checks, vendor invoices, client/customer statements, etc. for the last 3 years. Tax returns, financial statements and related items should be in date order from the most current to the oldest. Vendor invoices and client/customer statements should be in alphabetical order first and then in date order for each vendor or client/customer. Employment records should be filed alphabetically, but you better make sure you have a W-4 form, an I-9 form and a state form (G-4 for Georgia) for every employee.
10. Update all Legal Documents. There is a legal side to the due diligence process as well. Are you a valid legal entity such as a partnership, corporation or LLC? Is your annual filing of officers and registered agent current? Have you maintained your Corporate Minutes and held annual Board of Directors and Shareholders meetings? Do you have outstanding liens for debts that have been paid off? If so, you need to contact the creditor and ask them to remove them. If this is not done, the closing attorney will have to withhold funds in escrow until the actual status can be determined.
Have you paid all payroll taxes? If not, you may have undermined a possible sale. Have you paid all sales tax that is due? If not, I can tell you from personal experience that this can demolish a probable sale. Is there any outstanding litigation that affects you as either a plaintiff or a defendant? Are all your employees legal, and do you have proof? Are there any patents, trademarks or service marks that need to be protected? If real estate is involved, do you have a deed to prove ownership? Do you have a plat that clearly shows boundaries of the property? Do you have any contracts with vendors or clients/customers? Is your company minority owned, and if so, how would a change in ownership affect your business?
We have covered quite a lot of ground in these ten tips. I wish you well when you pursue an exit strategy.
This post was by Loren Marc Schmerler, CPC, APC the founder and president of Bottom Line Management.