Investors Outlook

I just came back home to California from my business trip to Spain where I was representing several clients with a couple of real estate and business deals. If you feel that that the banks are tight here with their lending’s requirements wait until you go to Europe. Just being a good and experienced negotiator or problem solver would not be enough. With the economy being what it is it today it will take much more than that. Creativity and being resourceful along with having the right team and the needed local contacts is imperative in making it possible to successfully close the deal. The old school way of doing business as usual has gone and the ones who can make it happen are the ones who adjust to this new business environment. It always amazes me the stubbornness from some to not to be willing to recognize and accept that new rules apply. Those who do are a step ahead of the rest and are getting results.
The business scenario in Europe is shaken and divided. The economic crisis in Greece has brought down a government, unleashed increasing social unrest and threatened the European recovery. The people of Greece have elected Antonis Samaras as the new prime minister who supports the Greeks bailout. Although many European leaders have expressed their support and faith in the new government, investors are not sharing their optimism until a plan has been implemented for a better fix to the euro crisis. There is also a concern of neighboring economies, in particularly Spain and Italy, which both have high levels of debt that need to be refinanced by selling government bonds. The new prime minister of Greece is facing needed implementation of far-reaching economic and fiscal reform, and it’s uncertain of what the final outcome will be. A Greek exit from the euro would distress global markets leading to further equity market weakness we may expect and at least a 5%-10% US dollar gain against most G10 currencies.
However it seems to be very unlikely that Spain or Italy would follow since it would destroy the euro and European leaders are determined to keep a controlling government in Brussels which controls the euro and avoid their members to return to their own currencies which they then could manipulate. Ultimately we can expect that the Spanish real estate market will turn around and that values will climb again. It will not happen overnight and it may take a couple of years but undoubtedly the demand for Spanish real estate will grow since Spain represents Europe’s paradise for vacation and retirement.
In the mean time back home, due to the Greek uncertainty, low prices, and attractive exchange rates, foreign investments continue to climb in the US market. International buyers continue to identify the U.S. as a desirable place to own real estate, business and make a profitable investment. These are not all corporate investors and some of them are also seeking residence if they invest at least $1 million in a new or recently created business, or $500,000 for businesses in rural or high-unemployment areas. Expectations are that we will continue to see an increase of foreign investors in the US real estate and business market which is welcome in helping lower the unemployment rate as long as banks are willing to start doing what they are supposed to do; lend money.

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Survey Says…

I hear it every day and am actually guilty of saying it too:  “… in this economy.”  The truth is that it is up to us, the small business owner, to get this economy going again.  No one said it would be easy, no one said it would be fast… but here are the latest results on how small businesses in the US are actually doing:
Employers Holdings, a provider of workers compensation insurance, recently did a survey that showed that small businesses are optimistic about their revenue projections.  What the firm found was that 45% were expecting revenues to grow in 2012.  Only 17% were expecting revenue declines.
Even though more are projecting higher revenues this year, 58% of small business owners still have sleepless nights due to business-related concerns.  What’s actually good about this is that the Employers Small Business Opinion Poll found the 2012 number to be significantly better compared to results from a similar survey from a year ago.  What they also found was that the sleep-depriving worries were more about issues related to growing their business rather than the state of the economy.
What’s also getting better is the percentage of businesses that are back at pre-recession revenue levels, now at 23%, as well as those that are now hiring again, up to 21% from 15%.
There are four major industries that are the most optimistic in their 2012 revenue growth; financial services, communications, manufacturing and restaurants.  All report that they expect their businesses to grow over the 2011 levels.
Having seen these numbers and having looked at where we have been in the last few years, I’d have to say that yes, we are generally doing better than before.  Are we where we’d like to be?  In most cases, no; but the fact that there is movement in the right direction (that would be up in case you’re wondering) makes a lot of small business owners see the light at the end of the tunnel. 

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First, Some Eggnog… Then Some Apple Pie!

Yum…. Eggnog!  It’s the holidays… and the last thing you are thinking about are bookkeeping and taxes.  If you are a business owner, like it or not, now is a very good time to be thinking about them!
Don’t wait until the last minute to gather your documents and come to your tax appointment stressed and nervous because you tallied everything up the night before.  This coming year why don’t you give yourself a special gift… Hire a bookkeeper!
Let’s be honest!  Time flies during the holidays is like no other time of year; shortened by the “millions” of things that need to be done like shopping, decorating, cramming in the last few meetings of the year, finishing up client projects, and the list goes on and on.  The last thing you want to do is take that box of receipts and bank statements and try to figure out what your income and expenses have been for the year and how to classify them correctly so that your tax return and your bookkeeping actually matches!  That’s what your bookkeeper could be doing for you!  Not just now, but all year long!  Wouldn’t it be nice to not have to worry about yet another thing?  Call or email our office if you want more information.
And… I’ll take that apple pie now please!  The IRS is finally requiring that tax preparers get registered, take tests and get continuing education!  This is a multi-year process and phase one seems to be well on its way to being completed!  California tax preparers are actually already a step ahead.  We already have to register, take tests and get continuing education as a state requirement so for most of us, this will not be a big change… but for those practicing in other states, it could be.  As legitimate tax preparers, we are relieved that the IRS is taking these steps.  We believe that the taxpayer has a right to good service and that they should be protected from those that commit intentional malpractice in this industry.  The steps the IRS is taking are to do just that.  If your tax preparer is balking at the idea of the new regulations, then maybe it’s time to switch tax preparers.
Our team is here to discuss your tax needs all year round.  We are up to date on the rules and regulations set by the IRS and are ready to aid you in your tax preparation.
We wish you a wonderful Holiday Season!

Filed in A to Z for Business, Accounting, Federal Tax Information, Tax | Comment Now

The Importance Of Inventory, Suppliers And Existing Clientele

When buying a business careful consideration has to be given to the three critical aspects of a business; inventory, suppliers and existing clientele.

Inventory
An inventory must be properly analyzed during the due diligence phase and there needs to be an optimal level in order to sustain the revenues. The following questions should be addressed; (1) Is the inventory salable or is part or all of it obsolete? (2) Turnover: how fast will you be able to sell the inventory? (3) Its size: is the inventory sufficient to support a continued flow of sales or is it overly stocked?
Keep in mind that any new inventory that is purchased has to be converted into revenue within a reasonable period of time. You can check the company’s sales by item information to determine which items are frequently used for production in the case of manufacturing or frequently being sold in the case of wholesale or retail sales. Review of the business’ financial data from the past year will provide you with an indication of what you can realistically expect to convert into sales under normal conditions after you take over.
Depending on the size of the inventory and how valuable it is, separate terms can be negotiated such as paying for it as it sells, having the seller finance part or all of it, or getting an overall discount on the complete package.
Furniture, fixtures and equipment which are included in the sale are considered as the necessary tools to generate revenue, and the inventory is also a part of that. If the inventory is not adequate then the buyer must factor in additional working capital requirements in order to bring it up to the appropriate level to sustain sales.

Suppliers and Clientele
A common challenge for many people when buying a business is dealing with customer and/or supplier concentration issues which are quite common in many businesses. These instances occur when either a disproportionate amount of revenue may be generated by a limited number of clients, or, when a company relies on just a few sources of supply for the products and services that it sells to its clients.
Assume that you are buying a distribution business with five major clients, or that you have to buy all your products from one or two suppliers.  In this case you definitely want to determine whether or not they are solid. The consequences would be devastating if you lost any one of those five clients, and what would you do if you are not able to replace your supplier?
Remarkably many business owners do not seem to be as worried about these types of situations as prospective business buyers are, and they will often downplay any concerns a buyer might have about it. The reason for their relaxed view on this is because the owner has operated the business for many years with these concentration issues in place. In the case of the major clients, the level of generated business is constant and over the years they have built strong personal relationships with each client thus alleviating any concerns that so much business is coming from so few. The owner has become complacent and shall remain so as long as nothing changes. The same goes for the limited number of suppliers. The owner has had the same relationship with that particular supplier for so many years that the thought of losing them hasn’t really crossed their mind.
Although these two scenarios may not always be an apparent threat to a business owner they could be a concern to a prospective buyer, and losing either of these parties could be disastrous for the business. The buyer should analyze the impact if a key customer stops buying or the main supplier goes out of business, and demonstrate this to the seller. Depending on the results the buyer should consider structuring a performance-based deal that ties the purchase price to the continuation of these clients and/or suppliers. Keep in mind that you cannot force these parties to continue doing business with you and the seller most likely will not want to prematurely inform them of his intentions by introducing you as the buyer in case it would negatively affect the business if the sale fell through.
You will need to decide if you will be comfortable owning a business with these potential vulnerabilities, and knowing that these relationships will not last forever can you potentially increase the customer and supplier base to minimize the business’ current dependency.
The above as well as many other important aspects of a business are part of the buyer’s due diligence responsibilities and should not be overlooked.

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Signs Of Recovery In California

The business and hotel sales & acquisitions activity in California is showing signs of recovering.
There has been a strong increase of foreigners, both visiting and investing, in California. The Los Angeles hotel market is noticing that more international visitors are bringing their strong currencies and staying at the luxury hotels in West L.A. and they are looking for investments. Los Angeles, second to New York, is the largest tourism market in the country. This resurge of international tourism and interest for business opportunities will benefit the local economy and if this continues it will raise the demand for more luxury rooms and we will see more investment activity.
Los Angeles has been known for its most well-known attractions such as Hollywood, Santa Monica, and Beverly Hills. However, lately downtown Los Angeles is undergoing a complete transformation and it has caught the eye of tourists and foreign investors. Hotel brands and developers are seeking to acquire buildings or sites to build new hotel projects. One major development project is that Korean Air plans to demolish the 896-room Wilshire Grand Hotel north of the Staples Center and replace it with a $1-billion complex consisting of a luxury hotel property with 560 rooms together with office, retail and residential areas.
Predictions are that the number of foreign visitors and revenue produced by L.A. County hotel rooms is expected to continue to increase. This is also impacting the business market and the demand for business opportunities is growing. Foreign investors are seeking to acquire businesses in California and we are receiving more inquiries from our contacts in Asia and the Middle East. Our office in Europe also is noticing more interest from investors interested in investing in California since the Euro zone debt crisis has entered into a critical phase and markets are increasingly questioning the Euro’s survival. The possibility of a country voluntarily withdrawing from the Euro zone seems to be possible. However, an expulsion of a country seems to be legally impossible. An exit of a small European nation could be considered only a moderate step back on what has been an expansion of the Euro zone in recent years. If other countries would follow it would impact the world economy. While a full break-up of the Euro remains very unlikely, more and more investors are looking for opportunities elsewhere.

Filed in A to Z for Business, Business Brokerage, Buy A Business, Entrepreneurship | 1 Comment