1. Have you seen many businesses taking out PPP loans, and what do you think will happen with those loans?
We have been very proactive in helping our clients with applying for PPP loans, and 85% of the clients who applied received funds. Looking forward, I feel confident that PPP Loans will be forgiven. The SBA has already sent out the forgiveness paperwork and it looks straight forward and like what we expected. We will be helping our clients apply for forgiveness and I expect it will go smoothly.
2. What is the tax difference between a stock sale vs. an asset sale, and is one better than the other?
In an asset sale a buyer is setting up a new company and buying the assets of another business. This is typically better for buyers because it allows them to receive tax advantages and write-offs that can help their finances during the critical first years in their new business. Buyers may also prefer asset sales because it protects them from liability for old debts or claims of the business. Stock sales do not provide the same benefits to buyers because you are just buying stock, similar to buying shares in Apple or Microsoft. Sellers usually prefer stock sales, however, because the proceeds of a stock sale are taxed at the lower capital gains rates while proceeds from an asset sale are taxed at the ordinary income rates, which are normally higher.
3. What is the difference between cash-basis vs. accrual-basis accounting?
I usually recommend cash-basis accounting because it is generally simpler and easier to understand. Cash-basis accounting reports revenue or losses when they are actually received or paid. In contrast, accrual-basis accounting reports revenue or losses when they are first incurred. Cash-basis financials are often more reflective of cashflow and can be helpful to potential buyers, but it is not right for every business, such as businesses with inventory or a lot of receivables. For those businesses, and businesses with a lot of unpaid bills, accrual-basis accounting can give you a more accurate picture of the actual finances.
4. When buying a new business, should the new owner start their fiscal year immediately after the closing date, or continue a calendar year end?
Most small businesses are Limited Liability Companies or ‘S’ Corporations, which are required to use the calendar year without special permission from the IRS. ‘C’ corporations can set their own fiscal year, but I can’t think of any real benefit or detriment to doing this. It’s just a matter of preference.
5. Are you aware of any tax credits or incentive programs for women who own or want to own their own business?
Unfortunately, I have not found any tax credits or government incentives aimed at women-owned businesses. In the construction industry, a woman-owned contractor may receive preferential treatment when bidding contracts. Outside of that, though, I am not aware of any incentives for women-owned businesses. There may be grants available, but I’ve never found anything that I, as a business owner, could take advantage of.
6. For anyone buying a business, when should they bring in their accountant?
You should definitely bring in your accountant once you start receiving due diligence information, so they can help review the business financials for issues or anomalies. It is also nice when the Buyer & Seller CPA’s can converse before a closing.
Also in This Issue
- Inspiring Women in Business
- The Gift of Freedom & Time: How one sale opened the doors to greater family ties and fun new projects
- Post-Sale Prosperity: Angela Ye - Now it's her turn!
- Programs for Women in Business
- Mission Accomplished: An offer the MJ VanDamme owners could not refuse
- Grit & Grace
- From Land-Locked Business Owner to Ocean-Based Retiree: The move from Ohio-based owner to Florida-based beach bum
- Real Estate Guru to Health Services Buyer: Adding a new career path while focusing on further growth opportunities
- Silver Linings From COVID-19: Succeeding in a "Corona Economy"