Using Your Retirement Account to Acquire a Business

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retirementTalking about using your retirement account to acquire a business…

We’ve previously discussed getting an SBA loan (and many of our acquisitions use the SBA) when starting or buying a business.

If that’s not an option open to you, or if you need even more financing, or if you need more cash for a down payment, you might consider using your retirement account to help you.

Below are general guidelines. Keep in mind that tax rules are complicated and each person needs to check with their tax professional.

Retirement Account Options

The IRA route

You can take a distribution from your account. The consequences of this vary based on whether you have a Roth or Traditional IRA. Your age when you take this distribution is also a factor. The IRS wants its cut, so there may be taxes to pay as well as early distribution penalties.

The 401k route

Slightly more complicated than a simple distribution from your account is a loan from your 401k. In the United States you can borrow up to 50% of your account value or $50,000, whatever is less. There is interest on the loan. It has to be paid back over a five year period. This won’t buy you much and since it’s a debt to be repaid, it may not work when getting that SBA loan.

The ROBS route

The most complicated but most common way to use retirement funds to fund a new business is a government program called “ROBS” (Rollovers as Business Startups). This allows someone to roll over retirement funds in order to purchase a business without the taxes and penalties of a distribution.

Here are the basic steps:

  • Roll over a pre-existing IRA or 401k into a 401k that is sponsored by a C corporation
  • Invest the funds into that C corporation by buying all its shares
  • Operate the new business

Here’s the rub…Despite the fact that the IRS has stated specifically in writing that ROBS is a legal program, there’s been a history of auditing businesses created via ROBS as the IRS fears abuse (at least, that’s what they tell us).

Whether you’re considering ROBS, or taking a loan from your 401k, or taking distributions from your IRA, this isn’t something you should do on your own. This is especially true when it comes to the ROBS program.

There are advisors who are specifically trained to properly use these instruments. They’ve done it over and over with clients. We know these advisors and would be happy to share their names with you. Simply send your Apex advisor an email and we’ll connect you.

What You Need to Know About the SBA

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SBAHere at Apex, the majority of our deals are related to the Small Business Administration (SBA) in one way or another.

Many people know that it’s a government agency, and they know it’s supposed to help small businesses, but from there it usually gets hazy.

What we want to share are some of the things you’ll need to have in order to qualify for an SBA loan so that when you start the process you won’t be too surprised.

Three things at the outset:

  • The SBA does not lend. It simply provides a guarantee to the banks for 75-85% of the amount originated, thereby severely de-risking the loans for the banks.  That does mean, though, that there is a cap on the interest rate that can be charged.
  • You still need to have good credit.
  • The SBA process takes a long time if you don’t use Preferred SBA Lenders – we can steer you to the right lenders.

With that said, here are, broadly, seven criteria the SBA considers when reviewing your application:

  1. The business has to operate for profit.
    It can’t be solely making losses, particularly in the most recent years.
  2. The business must be considered “small” relative to the industry.
    There is a 45-page government index (did you expect anything less?) which reveals the majority of businesses fit in this category.
  3. The business has to be based in the United States.
    You should not be drawing significant income from foreign sources.
  4. There must be reasonable investable equity.
    You should expect to contribute 20% or more to the transaction.
  5. Personal resources and financing must already have been exhausted.
    Would the transaction qualify for a conventional loan?
  6. Criminal Background Check.
    Felonies in your past? Could be trouble.
  7. No delinquency on government debt.
    The US government gets a lot wrong, but at least it’s sensible enough not to loan you money if there’s still a question about other funds you may owe it.  Make sure you’re up to date on all tax debts and student loans.

We understand it looks intimidating, but you don’t have to go through this alone.  Our brokers and bankers have guided thousands of our clients through this process.  We’re here to make this part of the process intelligible and easy.  We can’t promise we’ll have all the answers to every question you might have, but we’ll know where to find them!

Apex is actively looking for Advisors to join our team. If you or someone you know would like to learn more, contact Doug Hubler at or 913-433-2303.

Whether You’re Selling or Buying, Know Your Numbers – EBITDA, Cash Flow and SDE

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If you’re thinking about selling or buying a business, you need to have a good grasp on EBITDA – earnings before interest, taxes, depreciation and amortization. It’s the standard used when valuing many larger businesses.

Buyers looking to acquire larger businesses (valued at $10 million and higher) need to consider normal management or CEO salaries as an ongoing expense, so an owner’s salary will not be included as a discretionary item. A typical salary for the position, taking into consideration the industry, size of company, market conditions and expectations of the CEO will dictate the salary level.

ebitdaFor example, if the current owner is taking a salary that’s higher than what the new owner plans to pay, it will improve the EBITDA figures, increasing the value – and the apparent cash flow potential – of the business. Exceptionally large personal expenses for cars, boats or lake houses also may get added to EBITDA, which would have a positive impact on the business valuation.

However, forget getting credit for smaller expenses like phones, groceries, medical, insurance and personal legal or accounting bills. Fortunately, many owners of the larger businesses keep their  books much cleaner and don’t run as many personal expenses through the business.

When we price a business, EBITDA is one measure we consider. But we prefer to also consider the Seller’s Discretionary Earnings (SDE). That includes the owner salary, plus other (reasonable and documented) seller benefits expensed to the business.

We add those on top of EBITDA for a more reasonable picture on which we can place a multiple and suggest a fair price. After all, the buyer will have the benefit of the cash flow of the business without all the current owner’s benefits.

We worked with a business recently that had $2 million in SDE. But the owner was taking a $400,000 salary and $200,000 in other benefits, which made EBITDA $1.4 million. We argued that $200,000 was a more reasonable owner/manager salary, and we could eliminate most of the “other benefits,” resulting in a more accurate earnings assessment of $1.8 million.

We find using the SDE more reasonably reflects the expected earnings for a buyer, gets the seller a more reasonable price and will also be allowed for bank financing.

Our advice is this: Whether you’re selling or buying, know your numbers – EBITDA, cash flow and SDE. But don’t let them intimidate you. Make sure you know what’s behind those numbers and how it will affect the potential costs and benefits of the business.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

People Management Skills Are Critical for Small Business Owners

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Steve WeaverPost by Steve Weaver, Apex Senior Advisor and Owner of Celebration Party Rentals

As you consider your decision to become a business owner, you might want to think about the people-management aspect of the job. It’s a critical factor in business success. As a small business owner myself, I spend a lot of time working on this.

Seek Input on Attracting Qualified Staff
In today’s job market, you have to be savvy to attract the talent you need. You’ll want to cover this topic thoroughly during your due diligence with the sellers. How are they sourcing talent today? Where have they found good talent in the past? What’s the tenure of current employees, and how committed are they to staying on after the sale?

Talk to other people, too. How do others in this field see the market for talent? How have they been successful?

It’s a good idea to talk with both business and non-business associates. You never know who might have insight or sources for you. Some of our best employees have come from casual referrals via friends and neighbors. It may sound harsh, but you should always be looking for the next new employee. Employees will move on. And like any job or business, you need to keep your pipeline full.

Websites like Indeed.com are an inexpensive way to post jobs. You’ll get plenty of hits, but you still have to do a lot of work to weed out those who won’t fit. This is a struggle for our business sometimes, because we need to fill vacancies fast. We’ve had to get comfortable with some level of risk here. We manage that by establishing a 90-day transition period. This lets us and the employee take some time to see if it’s going to work. If we end the relationship during that time period, we don’t have an obligation to pay unemployment benefits.

TeamWork on Retaining Your Employees
Hiring the right people is only half the equation. Now you need to work on keeping them. Low-wage workers are especially difficult to retain, because they tend to job hop in search of small pay increases.

Encourage their potential: Most of our employees are earning in the range of $28,000 to $38,000 a year. But many of them have ambitions to earn more and get better jobs. To keep them from job-hopping, we offer to work with them to increase their skills and management experience.

You can even sit down with them and help them work out a career and education path for getting where they want to go. You may not have a $100,000 job waiting in the wings for them, but you can potentially keep them happy and productive until they’re ready for the next step.

Train them well: You can’t be too detailed when it comes to training. Don’t just throw your new employees out there to sink or swim. Provide some documentation about the job, if you can. An employee handbook is a must! And consider setting up mentors or partners so employees can help one another.

Recognize their needs: Scheduling part-time employees is always tough. It’s hard for them, too, especially when they’re juggling multiple jobs, childcare or education. Whenever you can, try to show you’re attempting to accommodate their needs. It often pays off in terms of employee loyalty and productivity.

Find meaningful ways to create community and rewards: While money talks, you can find other ways to reward employees. Millennials, especially, are motivated by praise, feedback and a sense of community with their coworkers. Find ways to recognize great effort and results, host company lunches and give out small prizes, like gift cards. We find that the return on these small investments is much greater than the cost. For example, our business is super busy on holidays like the 4th of July. So we provide burgers, dogs and drinks for our staff and their families. It’s a small gesture to show we care and understand how a job like this can affect family time on holidays.

Involve them in the business: As much as we can, we like to be open with company information. We try to keep our employees posted on how the business is doing so they can see how their work contributes to the bottom line. They need to understand that company performance can affect them – in the form of staffing, wages and potential bonuses or gifts.

Recruiting and retaining workers may be the most challenging part of our business. It takes a lot of time and effort. But when it works, it can be one of the most rewarding aspects of ownership.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

The Freedom Workshop: Finding Freedom as a Small Business Owner

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Doug HublerPost by Apex President and Business Broker Doug Hubler, Certified M&A Professional (CM&AP)

The phrase has almost become passé among small- and medium-size business owners: “We’re too busy working IN the business to work ON the business.” Many of us are so integral to the day-to-day work that we can’t find time to focus on growing our businesses – or getting the life balance we need.

A successful owner of a local academic test prep business came to me a few years ago and asked for advice about preparing his business to sell. He was the subject matter expert for his business and was doing most of the work himself. We talked about how he could transition leadership roles to others – appointing a president and a marketing and sales person. He worked on the plan, and in a few short years, he had a very valuable business. When we sold the business, it was running so well that the new owner has been able to hold down a full-time job while serving as CEO.

By contrast, I worked with a landscaping business once, where the owner did all the bidding and design and even cleaned and sharpened the shovels. He was very profitable, and his financial statements looked great. But he wore himself out! He didn’t delegate or share responsibility, and potential buyers couldn’t imagine themselves being able to fill his role.

The Freedom WorkshopIf you’re looking for more freedom – freedom to work ON your business, take some time off or even position your business to sell – you might be interested in a program we’re sponsoring on September 14th. Our pal Shawn Kinkade, of Aspire Business Development, is leading it.

According to Shawn: “As a business owner, you started your business because you were looking for freedom. But if you’re like most business owners over time, you’ve found a lot of days where you feel like your business owns you! That’s why we’re putting on The Freedom Workshop in September.

This half-day, hands-on event is all about helping you identify the key areas in your business that are holding you back (keeping you hostage) and how to fix them. You’re going to get a lot of great ideas, some specific information about your business and a chance to meet and learn from other business owners as well as from Chris and me. This workshop will have a big impact on your business … and will help set you free.” (Visit the event website to learn more and register.)

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!ApexIsHiring

Is It Time To Think About How Your Business Gives Back?

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Post written by Doug Hubler, President at Apex Business Advisors

Our daughter was diagnosed with juvenile diabetes at the age of 6. Talk about a scary time. Over the years, we experienced several frightening ER visits, and we’ve gone through much trial and error with treatment regimes. Chloe’s now studying graphic design at KU, and she’s managing very well. But it seems like she will always have frequent doctor appointments and forever have to stay vigilant about her diet, exercise and medication. It’s a dangerous disease. And there’s no cure – yet.

Doug and PamSo it’s probably not surprising that Apex contributes to the Juvenile Diabetes Research Foundation. We also support the Polycystic Kidney Disease Foundation because our son suffers from that disease.

In fact, my wife, Pam Miller, and I recently attended the local JDRF fundraising event as guests of Jason Moxness at Alterra Bank. The experience that evening led me to think about how small businesses can (and should) give back to their communities.

Whether your business is involved in charitable giving or not, here are some thoughts to consider:

Choose the right cause. We have a clear family tie to the JDRF. It’s a good idea to choose a charity where you have a special interest. You’re more likely to follow through, and your employees will find it natural to rally around a cause they can relate to.

Influence. As an individual, you can only ask your relatives to support a cause so many times. As a business, you may have a much wider network of people to influence. And it may be a little easier to ask.

Work-life balance. Getting involved with a charity is a way to bring some of your personal life into the work setting in an appropriate way.

Relationship building. Networking is a critical sales tool for many businesses. And charitable causes can be a great connector. For example, we introduced the Marian Hope Center for Children’s Therapy to our friends Jason Terry and Mic Johnson at Blue Gurus. Mic and Jason helped them with their website and blogging as part of their commitment to assist a different nonprofit each quarter. It was a valuable connection for all three organizations.

Character building. Clients like to do business with people who are well rounded and motivated by something more than profits. Being involved in charities can increase the level of trust you’re able to establish with a potential business partner or buyer.

Awareness. When you add your logo to a charity’s program or list the charity on your own website, you’re helping build awareness for the cause and for your business at the same time. It can help build your brand and your credibility, too.

Consider charitable giving when you sell your business
The money you contribute to a charitable cause shows on your profit and loss statement as a discretionary expense, so it’s part of the cash flow. It’s important to characterize that expense clearly, however, so a potential buyer can understand how it fits.

Make sure to talk with potential buyers about this aspect of your business, too. Charitable giving can contribute to the buyer’s qualitative evaluation of your trustworthiness and character.

Finally, be sure to help the buyer understand any long-term relationships you may have with a charity. Are you committed to a specific period of giving? Could changing your giving affect the company’s reputation? Such relationships can contribute to the impact of your brand – an important component of the perceived value of your business.

Regardless of why or how your business decides to give, sharing your success with your community is simply the right thing to do.

Doug Hubler, CM&AP, President

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

Is A Career As A Business Broker Right For You?

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Apex silver logo While broker turnover is low at Apex, we do lose one every now and then. Our brokers see so many great businesses that they often have a hard time resisting the opportunity!

Jeff Wilson recently left us to run Blues to Bach, an equipment rental and music lessons business that feeds his passion for families and music. And Brandt Hill bought Kite’s Bar and Grill in Manhattan, KS…a business he got to know so well he couldn’t pass it up.

So that leaves us with a few spots for aspiring brokers to join our team. And business is good in this space right now. Is there any chance you or someone you know might be interested? If so, consider the following:

Run Your Own Show – With Help
We’re structured uniquely here at Apex. We offer personal coaching and mentoring, shared office space and strong team collaboration. Each broker solicits and runs his or her own business, working on a contract basis with us. Compensation is 100% earned commission, with no limitations on earnings!

Some Experience Required
Most people who do well as business brokers have a good deal of experience – often having owned a business themselves at some point. They’re motivated and well connected, so they’re prepared to uncover good business sales opportunities and strong potential buyers.

The most important qualification is a strong ethical foundation. Other important requirements:

  • Background in sales and/or finance: It’s not required, but it can be quite helpful.
  • Willingness to learn as you go: There’s no great way to prep for this job. You’ll need to hit the ground running and learn along the way.
  • College degree: Also helpful but not required. One of our brokers has a PhD in chemistry!
  • Patience: It often takes nine months to a year to make the first sale.

The Payoff Is Great
The result of your patience and hard work can be rewarding in many ways. Most of our brokers have been with us 10 years or more. It feels great to own your own business, with the flexibility that implies. You meet a lot of interesting characters. And you get to help people achieve their dreams of retirement, business ownership or a career change.

Whether you’re working with the buyer or the seller, the outcome of your effort is success for both. It’s something you can all walk away feeling great about. We love repeat customers. There’s nothing more rewarding than selling a business and seeing the owner return a few years later, having built the business up and being ready to sell it again.

Sound enticing? If you’re interested in learning more or know a potential candidate, give us a call at 913.383.2671 or email Doug Hubler at .

If you or someone you know is interested in buying or selling a business, please call us at 913.383.2671 or contact one of our Apex Business Advisors today!

Greed Can Kill A Business Deal In An Instant

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We were recently approaching an agreement between a buyer and a seller when the deal suddenly got shaky. The buyer proposed a price that was just 5% lower than the ask. The seller was so offended, he balked and started questioning his decision to sell in the first place. Make no mistake…

Greed can kill a business deal in an instant.

In some ways, it’s understandable. If you’ve put your heart and soul into a business, you may have a hard time taking a penny less than what you feel it’s worth. In fact, we find that about half of the sellers we work with start by highly overvaluing their business. If you really want to sell, you’ll need to check your emotions at the door and set some realistic expectations.

greedSeller’s rules of thumb

  • 10 to 15% of the asking price. That’s a normal range for negotiation. Very rarely does a business sell for its full asking price or more. Talk with your broker ahead of time about your bottom line. Agree on the lowest price you’ll consider. And don’t forget it when the offers begin to arrive.
  • 2.5 to 3.5 times cash flow. While the expected multiple varies from industry to industry, 2.5 to 3.5 times cash flow is a reasonable price range for most businesses. Brokers, buyers and lenders are likely to be on the same page.And most buyers are smart about what they’re seeking. They’ll analyze your business and consider taxes and debt service, as well as their own need for income. They won’t begin to consider your business if the multiple is outside the expected norm for that sector.Your broker can share industry information to help you see what similar businesses in your market are going for. It’s like looking at comps when you sell or buy real estate. Setting a price is an art, not a science. But this art has some pretty clear boundaries.
  • Six months to a year. That’s the typical timeframe for the selling process. The cycle can be shorter if you’re well prepared and the market for your industry is strong. It will take longer if you have a lot of preparation work to do or your industry is more specialized. This is another case where you’ll want to start talking to your broker right away and begin learning about the steps necessary to prep for a sale.

Communication is key

We were at a closing a few weeks ago when a family member/partner began questioning the details of the financing. She expected a larger check, and her greed threatened the closing! The primary owner had not communicated the financial details clearly to the rest of the partners.

So be sure to inform and get agreement from your partners – and your family – at the start of the process. It’s a good idea to touch base again when you receive your closing statement a few weeks before the closing date.

You have a right to be proud of the business you’ve built and maintained. And it’s natural to expect a yield that meets your needs. These tips can help you keep your expectations reasonable while you’re working out a fair and satisfactory deal.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

2016 Bodes Well for Buyers AND Sellers

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Most experts say the U.S. economy will stay fairly stable in 2016, with performance similar to 2015’s. Dave Seitter, a partner with Spencer Fane LLP, and Doug Hubler, with Apex Business Advisors, teamed up to fill you in on how the year looks for business buyers and sellers.

M&A market will stay strong

Dave: This year’s economy is probably going to be similar to last year’s. So there’s still a lot of money sitting on the sidelines looking for places to play. Venture capital and private equity firms are driving up demand.

Doug: The uncertainty in the stock market and the volatility in oil prices also make business transactions more attractive investments.

Dave: But it also means those business buyers are looking for a pretty healthy return. They’re taking on more risk than they would in the market, and they expect to be rewarded for it. I’d say they’re seeking deals that can return 25% or more.

businessHigh retirement rates support business transactions

Dave: People are working to more advanced ages these days, but we’re still going to see more people retiring each year than ever before. And that means a higher rate of transition among small and medium-size businesses.

But business owners who are planning that transition don’t have to look at it as an “all-or-none” prospect. They may want to start planning for a gradual transition – reducing the hours they work or turning over pieces of the company to someone who may be ready to take over later.

Doug: Selling a partial interest and planning a transition over time is a good strategy and can be a comfortable one, especially for private equity groups. They like keeping a trustworthy, competent leader in place who can help their investment grow.

Selling or buying a minority interest has pros and cons

Dave: I agree that selling a minority interest is a good way for the owner to realize some liquidity while maintaining some control. But it can come with a price!

Doug: I would caution sellers to be careful about picking the right partner for that kind of transition. Interview past acquisition partners about how smoothly it went. And make sure the buyer has the capital necessary to make ongoing investments in the business.

It’s never too early to start talking

Doug: If you are even thinking about selling part or all of your business this year, now’s the time to start talking to your advisor. We can help you consider tax implications, improve the business value, prepare your books and consider how to position your company with potential buyers.

Altogether, the year ahead looks favorable, whether you’re looking for a business investment or wanting to transition out of your ownership role. The opportunities are there for the taking!

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

Your Attorney Is Important, But Shouldn’t Control The Deal

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donedealA wonderful thing happened recently on the way to the closing table. The buyer and seller agreed to terms and told their attorneys to make it happen!

This is significant because many people let their attorneys take control of the deal as if they are the only ones who can make decisions.

This particular deal was one that stretched on for a couple of additional weeks while attorneys argued over a few sentences. Of course, they were rightfully trying to protect their clients.

In the end, the buyer and seller were able to get through their differences face-to-face, and then their Apex Advisor got the attorneys on the phone so both sides could advise their attorneys to document their verbal agreements.

We’re not here to bash attorneys. Hey, some of our best friends are attorneys! They’re critical to these deals getting done successfully. But it’s important for buyers and sellers to know is that attorneys are advisors/vendors/suppliers who should be managed.

Ultimately it’s your responsibility to make sure they understand you want the deal to happen and what your risk tolerance is. That’s the best way to make sure a quality deal gets done…and that you will walk away happy with the outcome.