Inside the SBA’s New Working Capital Program (WCP)

Inside the SBA's New Working Capital Program (WCP)We’ve written about the importance of working capital before. You might not know that Uncle Sam is about to open up another source of funding to small business owners.

The SBA has been piloting the Working Capital Program (WCP) and it officially launches to the public on August 1, 2024. It lives within the SBA’s existing 7(a) Loan program and can provide guaranteed lines of credit up to $5M to support domestic and international transactions. The program runs until July 31, 2027.

Let’s Look at the Numbers

Some of the important stats include:

  • SBA guarantees 85% of the loan up to $150,000, 75% for amounts greater than $150k
  • The maturity of the loan can run up to 60 months
  • Rates for loans of $50,000 or less cannot exceed the base rate (prime) + 6.5%
    • For $50-250k, this drops to 6.0%
    • For $250-350k, 4.5%
    • For $350k+, 3.0%

Lenders who already have Export Working Capital Program (EWCP) authority can immediately begin lending under this program. Other lenders can apply for the same delegated authority.

In fact, the fees for this program are modeled on what has already been working under the EWCP, namely that borrowers can customize the loan to their exact needs, paying only for the time they require.

Who Could Use This?

There are many applications for this type of funding. For example, for those looking to finance transactions, they can access working capital in this program earlier than they could using a traditional line of credit. For those looking to use assets as a basis for lending, they can efficiently borrow against their accounts receivable and inventory. Anyone who wants to go after a contract or expand its orders can now look to this program to help.

You might be wondering “what’s the catch?” Well, the requirements from the SBA are actually not too onerous:

  • The borrower must have had a history of 12 full months of operations before applying
  • If the application is in support of a new business, the acquirer must still have had a history of 12 months of operating the business, effectively putting a one-year waiting period on this program for buyers.
  • The business must be able to provide timely financial statements
  • The borrower must be prepared to offer annual financial statements and be creditworthy at the outset

Why Now?

The SBA has said that it wants to broaden its facilities available to businesses, and programs like their SBA Express loan have been less appealing to lenders, in part because it only offers a 50% guarantee.

Whatever the reason the program is rolling out now, it’s something that small business owners should look into for themselves.

Do you have a relationship with your banker? Would you like a referral to a friendly one? We’ve got a whole rolodex to share with you. Give us a call.

Case Study #85: Acquired for $15M with 15 Employees

Case Study #85: Acquired for $15M with 15 EmployeesAny entrepreneur who takes the leap into healthcare or health technology, especially with no prior experience in the industry, usually does so in response to a tragedy. That was the case for Aaron Leibtag and Steven Aviv when they created Pentavere Research Group, a digital healthcare company.

When Steve’s mother passed away unexpectedly due to a data error, the pair built AI-powered software that can identify patients who may not be receiving the care that they need due to the information being buried in a patient’s electronic health record.

Despite only having 15 employees at the time, the company received an acquisition offer for a whopping $15 million.

The Idea

Aaron has a background in finance and spent some time on the private equity side, evaluating consumer-facing companies to drive better results. As such, he has an appreciation for what happens when you combine great data with great people and great processes.

His co-founder, Steven Aviv also spent some time in finance but on the technical side, building large financial systems that ingest data. One day, his mother went into what should have been a routine procedure. Based on her comorbidities (coinciding diseases), she needed to be put on a certain medication. This information was missed by her care team because it was buried in a clinical note and she passed away as a result.

Both Aaron and Steve were at the point in their corporate careers where Steve in particular was helping companies make millions of dollars every day by analyzing data. When such a catastrophic event — that could have been prevented through analyzing data — happened to Steve’s mother, they started to do some research. They found that the majority of patients fall through the cracks in some way, shape, or form within healthcare.

While not every patient experiences such a catastrophic event, many don’t receive the proper treatments, medications, and interventions. So, Aaron and Steve decided to fill in that gap and build something to help.

They built an AI engine that can ingest and read clinical notes within an electronic health record that a doctor dictates to identify patients who are falling through the cracks in healthcare systems. In layman’s terms, they’re able to take all of that clinical text and turn it into a structured Excel spreadsheet-like data set that can be used to improve healthcare.

Once they had the product, they validated the technology by getting the outcomes published in high-impact peer-reviewed journals that matter in healthcare. Now, they were ready to bring it to the market.

The Business Model

Aaron and Steve didn’t know what the business model for their product would be. They simply knew that the industry was large, and the problem was great.

Unlike other digital health companies — when they were growing it was the heyday of venture capital raising — they went to one of Toronto’s largest hospitals to really understand the problem.

They say that they got lucky and were approached by people on the medical side of pharmaceutical companies who themselves are trying to find real-world evidence to understand how their medications were working. The companies were willing to fund the project so they would have access to the findings.

Six months later Aaron and Steve presented their results at the most prestigious lung cancer conference in the world in Barcelona. Soon, more pharmaceutical companies started to call asking them to do similar studies.

The money from those studies helped to fund their R&D and validate their AI engine, but say that at that point there still wasn’t a product or a business model. That said, it was a step in the right direction and both Aaron and Steve knew they had come up with something valuable — and needed in the industry.

The Acquisition

Aaron and Steve began to consider an acquisition when they had over 19 high-impact peer-reviewed publications validating their engine — a claim that not even companies like Google have.

It hit home for them when they got a call that they were nominated for a Prix Galien, the equivalent of the Nobel Prize in the life science industry. They were also told that there was only a very short list of other AI companies with the same criteria as theirs. So, Aaron and Steve decided that this was the time to commercialize and scale.

To do so, they didn’t just need capital, they also needed access to data. The right partners with the right mindset were the missing pieces to the puzzle. It wasn’t so much about an exit, it was trying to find a like-minded partner.

When they tried the venture capitalist route, all it brought them was capital but no data. What’s more, they didn’t really like the idea of giving up control of the company, no matter how much money someone was willing to put down. They wanted — and needed — to partner with someone with the same goals, mission, and values (to improve healthcare) and they just didn’t find that with VCs.

That’s when they began talking to Healwell AI, a healthcare technology company also based in Canada. They were willing to open up their data ecosystem and give them the funding they needed. Healwell is also a publicly traded company and has a strategic alliance with WELL Health, the largest private provider of healthcare in Canada.

It was an easy yes.

Key Lessons

  • Uninspired? Identify market gaps. Aaron and Steve recognized a significant gap in healthcare where patients were not receiving proper treatment. This realization led them to develop a solution that could identify and address these gaps. If you want to build a business but aren’t sure where to start, pick an industry and figure out what it’s missing.
  • Create, tweak, validate. Before bringing their product to market, Aaron and Steve validated their technology by getting outcomes published in high-impact peer-reviewed journals. Yes, they were required to due to the nature of their product and the industry, but there’s something to be learned here. Come up with your own system of validation to determine whether your idea is viable, and then be willing to tweak it if needed.
  • Seek strategic partnerships. Aaron and Steve first went to VCs but quickly discovered they wouldn’t likely find their ideal partner there. Rather than giving up, they sought out companies that had the same mission, values, and goals as they did. Their patience and due diligence paid off.

Although it operates under the Healwell umbrella, 48% of the company still belongs to Aaron, Steve, and the other original shareholders. The final Letter of Intent was signed on September 22, they announced the definitive documents signed to the public markets on November 15, and closed the transaction on December 1, all for a cool $15 million.

Aaron and Steve are still very much involved in the day-to-day operations post-acquisition, and Healwell’s stock went up 30%. It’s safe to say everyone made it out a winner.

If you’re ready to take your business to the next level and aren’t sure whether an exit or an acquisition is your best bet, we can help. Give us a call today to talk about your options.

Tax-Loss Harvesting

Tax-Loss Harvesting“The most important thing to do if you find yourself in a hole is to stop digging.” – Warren Buffett

The Oracle of Omaha, Warren Buffett, is one of the most revered investors in the world. His oversight, with the addition of Charlie Munger’s advice, has led Berkshire Hathaway to be a company worth almost one trillion dollars in net value.

While his quote from above suggests that he believes in calling it quits when you know you have a loser investment, he also regularly cautions any investor to invest for the long term and be vigilant through the down times.

So what is the right approach for someone who has an investment that is currently underperforming?

Well, if it is December, tax-loss harvesting may be the best way for you to accommodate both approaches while staying ahead of the government’s taxation requirements and winning in April through actions made in December.

What is Tax-Loss Harvesting?

Tax-loss harvesting essentially means selling off a bad investment to offset the tax liability of positive investments you have made during the current tax year. The spoils of good investment benefit you, the investor, but the government also sees the capital gains as an opportunity to add to their coffers.

So when you have a win in investing, you need to look for ways to keep those gains to yourself for further investment or strategic use. Taking a stock that is currently operating at a loss, and selling it to offset your gains from other stocks, is the basic reason behind tax-loss harvesting. Besides reducing your taxes, tax loss harvesting also frees up cash so you can buy new assets that may be more likely to generate positive performance. Just make sure you don’t invest in something that only you love.

Some basic rules around tax-loss harvesting stipulate the timeline within which you can redeploy the money from the losing stock sale, or prohibit you from re-buying the same sold stock. You also have to be careful about buying almost identical stocks as those which you have sold.

Who Benefits?

Anyone who invests and sees losses, as well as gains, can benefit from tax-loss harvesting. While those in higher tax brackets stand to benefit more from this practice, everyone should take advantage of this legal opportunity to reduce the amount of taxes they may owe the government, assuming their situation meets the appropriate requirements.

This unique act shouldn’t be used simply as a means to save taxes owed, however. There is no point in selling off a stock that is expected to rebound or outgrow your initial investment, just to offset gains from another stock. A prudent investment strategy should be adhered to, and harvesting should only be set in motion when the benefits outweigh any potential negatives of your strategy.

When Should You Act?

To take full advantage of the tax-loss harvesting opportunity, you need to make sure that any sales of investments that have resulted in a loss are complete before the end of the current tax season. This is the only way to offset gains made in the current tax season, with your losses.

Additionally, you will need to know when the stocks of both your gains and losses were purchased. This is so you can confirm that your capital gains are accurately calculated, and then offset your gains accordingly with your losses. It should be noted that a business owner, who takes advantage of tax-loss harvesting, can potentially use a minimal amount of those losses toward their personal tax liabilities, once all potential uses for the business liability have been exhausted.

Again, you should make sure that your approach doesn’t run afoul of your current investment strategy, but down markets can provide the best times to take advantage of tax-loss harvesting. You can maximize the capital you have to reinvest in other stocks or assets by purchasing the ones with the most upside, while at bargain prices.

We prefer to help you buy or sell businesses at Apex, instead of stocks. But we know great people who can help guide you in harvesting your tax losses.  If you need a referral, give us a call and we’ll connect you.

4 Virtues Your Business Broker Should Possess

VirtueVirtue is a key part of living a useful and rewarding life. Not only are there many virtues any of us can work to obtain, there are levels of those virtues that allow us to always keep pushing and improving over the whole of our lives. Just as some virtues, for example, patience, are particularly important for parents, so too are others for business brokers. In this article we are going to highlight four in particular (though brokers need more than these four to close most deals!).

Fortitude

A broker has to have the ability to keep going. On the podcast we recently noted that a transaction could have as many as 500 points of contact for a broker, whether that point of contact is a 90 second response to an email or a 90 minute phone call to calm nerves. The broker isn’t just responsible for keeping himself going all the way through a transaction, he needs to keep his client and the counterparty in the game too. 

This fortitude is often expressed in a calm resolve that doesn’t lead to panic at obstacles, but rather focuses on solutions.

Justice

A broker isn’t interested in everyone feeling completely happy walking away from a transaction, because it’s often impossible to get everyone everything he/she wanted. But a broker should be interested in having everyone walk away from a transaction feeling that they were treated fairly and equitably throughout the process.

A broker doesn’t want to hide anything from a counterparty or aid his client in hiding anything. A just broker takes pride in leaving a legacy of integrity through every transaction.

Prudence

Prudence keeps a broker and his clients on an even keel. It means not overreacting to adverse news, not panicking when a large obstacle suddenly appears, not allowing ultimatums to be sent in emotional moments.

Prudence also discourages unnecessary intermediaries or “experts” who can just as often destroy and blow up a transaction while they are claiming to be the one necessary part of it. Brokers try to be the neutral party in the room, offering context and advice, but not urging decisions one way or the other.

Hope

It may sound a bit cheesy, but all the best brokers have a solid supply of hope in their lockers. This isn’t about fake cheerleading or fake smiles, but about keeping a positive mindset and attitude, with a “let’s move forward” tendency. 

Interestingly, hope is contagious, so a hopeful broker often shares that with his client and even the counterparty: “we are going to get to the finish line together.”

While we are proud of the experience in our office, we’re also proud of the mosaic of virtues we hold as a team that make us better brokers and better servants for our clients. If you’re looking for brokers with these virtues, give us a call.

Use Loom to Help You Save Time

Use Loom to Help You Save TimeThere are times when we read an email and think, “I could explain this in just a few minutes instead of replying back with a long email.” Or you know that vocal tone and body language will help a message land properly, but can’t do that in an email. There are video messaging apps that can help. One of them is Loom.

What’s Loom?

Loom is a video messaging tool that helps you get messages out through instantly shareable videos. 

You can record your camera, microphone, and desktop simultaneously. Your recordings are then stored in the cloud with trackable views.

You can use web or app-based versions of the software to do the recordings and basic video editing tools are available to you if you want to trim a video for its best look and feel.

Why Use Video Messaging?

There are lots of use cases for video messaging, and the more you use it, the more possible uses you’ll discover in your own organization. Here are some ways you can use Loom and other similar apps:

  • Video SOP — one of the reasons that SOPs don’t get written is because people are intimidated/discouraged by writing down a lot of text. But for whatever reason, people are less intimidated by having a video conversation. You can use Loom to create explanatory SOP videos what can help onboard new employees and provide a respository of knowledge in any position.
  • Email reply — as noted above, it’s acceptable to reply to an email with a video message. In fact, customers will often be impressed that you recorded something for them, even though it may have taken you less time to do so than to write an email. Somehow recorded video conveys more “work.”
  • Troubleshooting — when particular problems occur frequently enough that everyone in your office knows how to answer them for clients, it might be worthwhile to record a one-time video explaining how to solve the problem. Now your team will gain back future time by sending them this video (and others like it).

Interaction

One of the ways text messaging has evolved over time is allowing for reactions to individual messages. We can “thumbs up” a particular message without replying, allowing the party on the other end to see our thoughts without our having to write them. 

Loom also features this feedback feature on its videos. Users can react with emojis at any time during the video, and/or send direct email feedback on specific timestamps.

Those who like to speed up their videos can take comfort in the fact that Loom allows you to speed up (or slow down) the video to a speed of your choosing (within reason…10X isn’t available!).

Videos can also be password protected and Loom offers integrations with other tools like Slack to make access even easier.

Prefer phone calls to emailing? We’re here for you! Give us a call today to talk about how we can help you with a business transaction.

Choose a Business Advisor, Not Just a Broker

Choose a Business Advisor, Not Just a BrokerOf course here at Apex Business Advisors we are business brokers. We go to the business broker conferences, we have the business broker credentials, and we probably have some business broker t-shirts or mugs lying around here somewhere. But if you’re looking to buy or sell a business, a broker is the minimum you need. What you really want is a business advisor. Let’s talk about what that means.

What a Business Broker Does

At a basic level a broker is defined as someone who collects information from you so that he/she can list your business. But as we’ve spoken about in so many articles, that’s only one part of the beginning of the process.

What a Business Advisor Does

As we mentioned in our “day in the life” article, business advisors very rarely have a typical day. We are often working on different batches of activities for our clients. They can fall into a few different categories. Let’s discuss a few.

Information Analysis

It’s one thing to collect information from a buyer or seller, it’s another thing to understand what that information means, especially if a client is in an unusual business category. An advisor is going to look at all that information, make notes, and come back with questions. Some of those might be:

  • Why there are certain trends in the books (good and bad)
  • Where are tax documents (if any are missing/never filed)
  • What the legal status is of the company and how is the ownership distributed
  • What’s the status of payables and receivables
  • If there is paperwork substantiating any important decisions in recent years

Sale Prep

A business advisor has to get a business ready to go to market, and very rarely do business owners come into our office and plunk a business down that’s immediately ready to sell (though we would LOVE that). An advisor is going to look closely at:

  • Does the valuation make sense for the business and the marketplace?
  • What is the situation with key employees and employee turnover in general?

He/she will also look at current SDE and how to improve profitability and curb appeal of the business by ensuring there are manuals and systems in place.

Another part of sale prep that a business advisor is always doing is cultivating an engaged and serious pool of buyers and sellers so that when the right opportunities come along, making the connection happens quickly. Here in the office we’ve often seen advisors with great lists get genuine offers within hours of learning about a new opportunity via an email blast.

Confidentiality and Negotiation

Most business owners do not come into the process with multiple transaction experiences nor do they necessarily go on to have more after working with us. Very often a business sale is the largest business transaction of their lives, and despite those high stakes, clients can fail to trust the professionals who deal with it every day, multiple times a day. Two big client failures (when they happen) are in confidentiality and negotiation.

Business owners don’t realize that confidentiality is key in transactions, not just customer-facing confidentiality, but internal, employee-focused confidentiality. Deals have disintegrated in front of everyone’s eyes because this wasn’t respected.

Negotiation is particularly important because a business advisor has no emotional attachment to a business that will lead to him/her acting irrationally in a negotiating situation. Not only does this objectivity help in the actual negotiations, it helps before that even starts, as advisors help craft a negotiation strategy based on valuation, the client’s needs and wants, the realities of the marketplace, and the thinking and attitudes of the counterparty.

Business advisors also have experience, not just their own, but also those of their peers that they can consult who have been in similar situations and can then crowdsource that wisdom to the client’s benefits. No matter how well connected or networked a client is, he/she won’t have that specific and targeted (often even industry-specific) experience at his beck and call.

The bottom line? A broker might help you sell a business, but an advisor is going to help you do it for the best price and help manage expectation and the experience along the way.

We’re Apex Business Advisors for a reason. We’d love to offer that advice to you. Give us a shout!

What are NFTs?

What are NFTsYou may have heard about NFTs in the news at some point in the past year.  These digital assets are in their first era of growth and exposure and big brands like Nike, Gucci, and Sotheby’s are jumping in on the fray.  We thought it would be worthwhile to give our readers a simple explanation of what NFTs are and how brands and businesses are taking advantage of them.

The Blockchain

NFT stands for non-fungible token.  Money, being interchangeable and indistinguishable, is an example of a fungible asset.  Your house or the Mona Lisa, for example, are unique and irreplaceable, making them non-fungible.  

NFTs are created on a blockchain.  The most popular blockchain that most people know at least something about is Bitcoin (BTC), which is primarily used as a store of value.  But many other blockchains have other use cases.  Ethereum (ETH), for example, rose to prominence for its use of smart contracts, which disintermediates buyers and sellers in various markets.  ETH is also the most popular blockchain for NFTs.

What Can Be an NFT?

Pretty much anything can be an NFT.  Let’s start in the physical world with the Mona Lisa, which we mentioned already.  While it’s true that you can go to see the Mona Lisa in Paris at the Louvre, you can also see it on your phone.  You can print it out, frame it, and put it on your wall.  You can make it the desktop wallpaper of your computer.  But you’ll never own it.

The Mona Lisa has value because we as a society have assigned it value and because most of us in the world live in economic systems in which the owners of private property can sell items of value that they own.  But since the Mona Lisa might be too extreme of an example, think of baseball cards.

Baseball cards are made of cardboard.  They were printed by computers, not designed by a famous Renaissance artist.  They are not inherently useful.  Yet our society still assigns them value, and they change hands to the tune of millions of dollars per year (if not more).

NFTs take these physical-world principles and put them into the digital space.  Think of them as digital certificates of authenticity which show the chain of custody all the way from the original creation of it on the blockchain (known as “minting”) all the way through every buyer until it’s ended up in your hands.  

Examples of Recent NFT Transactions

Yeah, okay, but who would do this, and what would it be for, you might ask.  Great question.  Some recent examples include:

Examples of NFT Use Cases

But NFTs aren’t just for global megastars and sports leagues, they can be created, bought, traded, and sold by anyone.  Foundation and OpenSea are examples of large marketplaces where NFTs are minted and sold everyday.  A fancy digital iteration that doesn’t exist in traditional art?  You can create a setting when minting an NFT that triggers secondary revenues to the original minter of the NFT everytime the NFT changes hands.  

Band Kings of Leon included software in an album they released as an NFT which allows the current holder four front row seats to every tour for life.

Nike recently filed a patent to allow for blockchain authentication of ownership of physical sneakers.

Perhaps the most fun and interesting use case of NFTs currently is in the Zed.run virtual horse racing marketplace.  You can buy virtual horses as NFTs and then run them (and win crypto) in various races which are running 24/7.  Seriously.

Bubble?

While some might throw up their hands and say they simply don’t understand, there are lessons to be learned (and money to be made) even during bubbles.  It’s too early to tell whether NFTs are a long-term trend or just a modern day version of Dutch tulips.  

The IRS has not yet offered guidance on them, but if you buy an NFT (which is a crypto asset) using crypto, the IRS has offered guidance on that, and as such it falls under capital gains (if your NFT appreciates).  Some speculate that the IRS may choose to classify it under the collectibles bracket, which is at an even higher rate than the current capital gains tax.

What’s clear is at the moment NFTs can be created, made scarce, bought, sold, and even serve as a source of residual income.  That makes them just like many other collectible objects which you may not care about or even understand the market for.  But hopefully after reading this you understand NFTs better, even if you have no desire to ever own one.

We don’t have any NFTs for sale here at Apex, but we have plenty of businesses that will be great assets for years to come.  Give us a call if you’d like to check a few out.

Questions Buyers Ponder About Price

Questions Buyers Ponder About PriceWe’ve done a series of articles on general business questions that buyers will ask about the health of the business.  In Part 1, we asked, among other things, Why Sell?  In Part 2 we asked more granular questions, like the demographics of core customers.  In Part 3 we lead with a look back, asking what the seller would do differently with the knowledge he/she has now.

In this article we will look at questions that a buyer will consider when looking at the price you are listing the business for.  The answers to those questions will determine if he/she is willing to pay what you’re asking.

Capital Investment

What rate of return do I want?  Businesses, ultimately, are investments.  They probably don’t feel like investments the way that a stock portfolio or a 401k can, but they are.  In fact, they are often the most important investments of your life, in part because they offer a chance for outsized returns.  

A Main Street business buyer doesn’t normally have hedge fund expectations.  But that same buyer expects much more than one can get in traditional investments, in part because running a small business is significantly more risky than holding an index fund ETF.  Some might want a rate of return as low as 10%, some might not be willing to take the plunge for less than 20%.

Action item for seller’s diligence: Can I show a consistent rate of return on my own invested capital, or can I provide an estimate based on someone meeting my selling price?

How quickly do I want to repay my acquisition costs?  Buyers may have liquidated financial vehicles, borrowed from family and friends, or simply used their own savings if they don’t take out an SBA loan.  The buyer will need to calculate how long it will take them to pay back that outlay in relation to your asking price.

Action item for seller’s diligence: Have standard, accelerated, and best-case scenarios for repayment of acquisition costs based on your current cash flows, less any liabilities that the incoming buyer will not have.

Growth

How steady are sales and margins?  Here projections for new products and services will not be as useful as they are, at best, good estimates.  A buyer is going to look at your history over years.  Just as our buyers in the early teens used to look at how a business weathered 2008 and 2009, you better believe they will be paying attention to your 2020 and early 2021 numbers to see how your business weathered an unexpected global event.

Action item for seller’s diligence: Have your sales and margins charted year by year.  This is also a great internal auditing tool to share with your team to see if those numbers can’t be made better.

What are the biggest risks?  We’ve actually asked this question in other ways in our Questions for Buyers series, but this is more focused on financial risks.  For example, a buyer might consider the risk that a key employee will leave, but that may be less of an immediate financial risk than a key vendor going out of business.

Action item for seller’s diligence: Have some of the financial risks plotted out with your estimate of the likelihood it would happen, with the necessary consequences.

Sellers can sometimes get hung up on multiples and what they think they should get for their business and when you offer action items like we have above, they might resist doing them.  But what the most successful sellers know is that these are action items that not only telegraph the confidence a seller has in his/her or business, but pass that confidence on to the buyer as well.  This is why my number is my number is what the answers to these questions communicate.  The better your answer, the likelier a buyer will agree with your number.

Are you pondering what size business you can afford?  Or how much you want to sell your business for?  Our team can help you answer either of those questions.  Give us a call today!

The $15/Hour Minimum Wage Debate

A provision to gradually increase the federal minimum wage to $15/hour was recently removed from a budget reconciliation bill in Congress.  While that pay increase doesn’t look like it will be coming at the federal level this year, the debate around the topic isn’t going away and has already led companies like Amazon and Target to announce their own moves to at least $15/hour for all new employees.  In the same vein, the State of California has announced a state minimum wage of $15/hour effective January 2022.  Whatever the starting pay is for your employees, you should know and understand the talking points of this debate.

Stats and Guesses

As part of the legislative process, the Congressional Budget Office (CBO) put out some projections on the effect of the move toward $15/hour:

  • The cost to the government would be $54 billion dollars over a ten-year period
  • 30 million Americans would get a pay raise
  • Of those 30 million, 900,000 would be lifted out of poverty
  • Possible job cuts as a result of this could be close to 1.4 million workers (.9%)
  • Labor costs/Purchasing power (depending on your perspective) would increase by $333 billion over the same ten-year period

While the CBO is a nonpartisan body, that doesn’t shield them from criticism, and these numbers received their fair share of disagreement from both sides of the aisle.  What is clear already is that more than 29 states have minimum wages that are higher than the federal minimum wage, which was last adjusted in 2009 to $7.25/hour.

Your Business

We’ve talked before about different ways to financially reward employees and why hiring for cultural fit is an important part of making sure that your team isn’t only money motivated.  While not every business has the resources to simply double starting pay, and while the vast majority of our clients don’t have a single team member on minimum wage, it’s important to realize that such a dramatic change will affect everyone and every business.  Questions you should be asking include:

  • Do any of my key vendors employ minimum wage workers?  Have they forecast how our prices would change if that minimum wage would change dramatically?  Do I have contingency plans in place in case they decide to cease operations?
  • Using answers from the first set of questions, how would you deal with increased costs?  Would you pass that on to the customer?  If so, what percentage?  How does your business change as a result?
  • How closely are the lowest-paid members of your team compensated in relation to the minimum wage?  What adjustments would you need to make to their salaries as a result?

Sometimes we can forget that changes we don’t think will affect us or our businesses will indeed affect us and our businesses, and in profound ways.  Rather than passively wait for changes to occur, the best business owners proactively attack challenges before they become problems.

Are you and your team happy with the compensation plan you have in place?  Have you thought about that plan in relation to a possible future sale?  Give us a call to talk about it.

What to Look For (and Avoid) in a Business Broker Listing Agreement

Business Broker Listing AgreementBehind all our business broker listings, there is a business broker listing agreement. This spells out mutual responsibilities between us and our clients. As with any contract, this is something that deserves your undivided attention, as we’ve said many times before that a business transaction may be one of the most important events of your life. In this article we’ll discuss the various provisions of any given business broker listing agreement and what you should consider before signing one.

Why Have a Business Broker Listing Agreement?

The short answer? To protect you, your business, and your broker. Remember that ultimately, contracts are not there in case everything goes right, but in case even one thing goes wrong.

Key Elements of a Business Broker Listing Agreement

While every agreement may vary, these are the elements you must have for any serious agreement to list your business.

  • Duration. This is the amount of time your business is listed for. As we’ve said in a previous article, selling a business can take between two months and two years.
    • Under twelve months: this is often pitched as offering more flexibility for the seller, but really, it puts undue pressure on a broker and as we’ll point out below, it may not really offer you the flexibility that it promises.
    • At least twelve months: this is pretty standard, as this recognizes that (and mentally prepares you for the fact that) this is a marathon, not a sprint.
    • Keep in mind that just because your engagement has passed doesn’t mean you won’t owe a commission to your broker. We keep records of everyone we introduce to a potential seller and if they conclude a transaction within a certain time period of the end of the engagement, a commission may still be owed. That’s why you need to be very clear on the details here, not just for your sake, but for your broker’s.
  • Right to Sell. In this section you are going to give us the exclusive right to represent you in a business transaction. We’ve talked before about the sorts of things we do to market your business.
  • Representation. Are you who you say you are? Do you actually own the assets you are purporting to sell?
  • Protection/Indemnification Clause. Should anything go wrong during the transaction, this section addresses the legal and financial rights and obligations of all parties.
  • Dispute Resolution Terms. Should significant problems arise during the transaction, how will these problems be cured? Will you use arbitration or litigation?  In which jurisdiction will the dispute be dealt with?
  • Commission. This varies per broker and agency but here at Apex we settle this at closing.

We’re Here to Help

In a world in which we so often click past “terms and conditions” because we don’t want to bother to read them, it can be hard to sit down and work through a document like a business broker listing agreement. But you don’t have to do it alone! We’re here to help and are want you to be comfortable as you pursue a transaction. Give us a call today!