The internet is full of advice from professionals hoping to land a bigger client. Surely a small business like yours can’t run into any issues that someone hasn’t already explained on their website or on YouTube? Guess again. Let’s look at some examples from just the last month or so …
Sure, “big” businesses have accountants, attorneys, human resources staff, and so on. You’re just a small three or four-person and you can’t afford that much overhead. How much paperwork can it take to run something like that?
The real question is: how much does it take to get your business shut down and yourself into some serious liabilities? Is it worth saving a few hundred dollars and putting your business and your personal self at risk?
In just the past few weeks, here are some of the situations in which business owners tried to cut corners by skipping (or ignoring) professional advice and support. Their efforts to shave a few dollars only made matters worse:
Registered agents: A seller recently tried to list their business for sale only to discover that they could not. In most states, you can do everything the RA would do for $200-300 per year yourself for little or nothing, and it takes no special skill. Strike that: it takes one skill. You need some minimal organization skills to ensure that you file the required papers, make the required payments, and respond to the notifications. If you don’t, penalties pile up and eventually the state puts your corporation out of existence. All of a sudden, your business license is invalid and you can’t sell the business because the company that owns it (your hastily-filed and soon-forgotten LLC or S Corp) is also out of business. Worse, someone else in the state may have taken your expired business name and now technically they own your business. Now what? Thousands in legal fees to fix it, plus any back taxes, fees, and mountains of interest.
Accountants: Within the past few days several potential sellers have been unable to provide anything beyond “I guess about that much” numbers for several days or weeks. That’s not an auspicious omen. The first thing any buyer wants to know about your business is the financial situation. They can put up with not knowing exactly where it is for quite a while, but if you can’t produce reasonably current reports (at least a Profit and Loss [P&L] report) within a day or two, they’re going to assume either you don’t know or you can’t be trusted. They’re not going to waste any more time on your business. They move on. Yes, your accountant may charge you to pull your slips of paper into the books, but they were going to charge that anyway when tax time comes. So the extra cost of the P&L reports is perhaps $100 per quarter. This is information you need to run your business with anyway. And yes, you could keep the accounts for a smallish business on a spreadsheet or in QuickBooks and not pay someone to do it or you – but then you need to do it or yourself! Not having it to hand will cost you any reasonable buyer who might come along; those who will put up with your challenges are bottom-fishing and will offer next to nothing for your business. The lack of a $100 report will costs you tens or hundreds of thousands.
Tax accountants: Speaking of tax time, yes, you can save $2000 or so by doing your own taxes. Again, you certainly can do this, and it makes a great annual review of every income and expense in your business. and gain, you have to do it – and do it right. Unlike an error in your P&L, correcting a mistake on your taxes is a very expensive proposition. The IRS charges interest on the entire amount of the tax bill, not just the part you made a mistake on, and they can add on penalties on what might appear to be a random basis. What are you going to do, argue with them? That would require another attorney, and will probably get you on a red flag list for special attention for the rest of your business or personal life. That’s not to say you can’t do your own taxes; you just have to do them right and deliver them on time, or the cost will be far higher than the savings.
Human resources: Every business owner who takes on an actual employee knows that this is a huge step into the big time, because that employee comes with a ton of legal rights and reporting requirements. The only way out is to content yourself with trading dollars for hours for the rest of your career, and having a business that depends on you so much that it can’t be sold when you want to leave. Otherwise, to create a valuable business, you have to grow, and keep growing. In almost every business that means adding more people. Trying to get around that problem by hiring only “independent contractors” opens up a whole new avenue of opportunities for legal issues, especially in the states that are union-friendly. All it takes is one complaint and a ball of ugliness starts unraveling. You need support from someone who knows all about the relevant sections of employment law (and the associated taxes). You don’t necessarily need a full-time HR professional on staff, in fact given the enormous range of regulations you trigger when you start having employees, you may want access to a full-service organization rather than depending on one individual.
Most of the things you can do to boost your business value don’t have to cost much and they will fatten up boost your bottom line now. Those noted here are among those that don’t cost much and, while not making the business more cost-efficient in the short-term, but they will definitely make a difference at exit time. In the meantime, they may help to ensure that your business is still around when that time comes.
The bottom line is that you can afford the services of the right people; what you simply can’t afford is the cash cost or the reputational impact of putting your entire business at risk.
Want to chat about where your business is and how to make it look its best when you decide to sell it? Pick a time of your convenience at:
https://calendly.com/dbrownpm/30-minute-business-buy-sell