Business Up for Sale face harsh reality

An interesting Article for the Wall Street Journal:

Small-business owners banking on a big payoff when they sell their establishments may have to settle for a lot less than planned.

A combination of tight credit, skittish buyers and business owners unwilling to sell at rock-bottom prices—factors similarly affecting home sellers—has left the small-business marketplace at a standstill.

David Wetzel says he spent two years trying to sell his business, Dorset Hardware, a Ventnor City, N.J., shop he's owned since 1993. He's now liquidating the business and expects to earn only about a third of his asking price. "I had some very close leads who wanted to buy, but they could just not get the financing," says Mr. Wetzel, who is 64 years old.

Just 1,117 small businesses were sold in the U.S. in the third quarter, the same number as in the year-earlier period, reports BizBuySell.com, an online marketplace for small-business acquisitions in San Francisco. By contrast, there were 1,462 small businesses sold in the third quarter of 2008, according to BizBuySell. (BizBuySell.com licenses some of its data to The Wall Street Journal.)

One of the problems, experts say, is that business owners are proposing prices greater than their companies' true value.

"Owners still think their businesses are worth what they used to be," says Thomas Coffey, a partner in Malvern, Pa., with B2BCFO, a provider of outsourced chief financial officers to small businesses. In reality, many "small companies just aren't earning what they used to earn," he says.

Weitz- the converse of this is that there could be great opportunities for buyers of businesses. Remeber, if you're buying - try to do an 'asset sale'.
During the third quarter of 2010, owners listed their businesses for a median price of $245,000, according to BizBuySell. However, the average closing sale price in the period was $140,000, which was 6% less than what owners sold their businesses for during the same period in 2009, according to BizBuySell data.

Some owners say they have identified interested buyers but that many of these people are unable to obtain sufficient funding amid declines in loans guaranteed by the Small Business Administration. The agency backed $16.84 billion in loans in its fiscal 2010, down from about $20.61 billion in 2007.

As an alternative, some sellers are offering to finance part of the asking price for buyers "to close the gap," says Joseph L. Caffrey, president of Worldwide Business Brokers LLC. The arrangement has been typical of transactions that his company has brokered over the past 18 months, he adds.

Another challenge hindering sellers is that even potential buyers with sufficient funding are hesitating to close deals due to the volatile economy, says Mike Handelsman, BizBuySell.com's general manager. "People's risk profiles have taken a dramatic kick in the stomach over the last few years," he says.

Business owners also are shying away from the marketplace. Though the number of enterprises sold in the third quarter was stagnant, there was a 7.1% decline in listings from a year ago, to 31,856, according to BizBuySell.

Mr. Caffrey says some owners whose businesses lost market value during the recession are waiting for the economy to rebound before going to market. "They're reluctant to sell based on current valuations," he says.

For many, selling in the current environment will likely mean having to settle for less, which from the buyers' perspective, can be a good thing.

Franchises may have the benefit of a more recognizable brand name. Stacy Swift, owner of FranNet Colorado, a franchise brokerage business in Denver, says sales of new and existing franchises she's brokered over the past year have increased moderately. She declined to disclose figures.

"They probably started thinking of selling their businesses years ago and times got tough," says Maria Coyne, executive vice president of the business-banking unit at KeyBank, a division of KeyCorp., in Cleveland. "But now they're thinking we're back to a more reasonable environment" and they're not going to go through a recession again.

For more information on Small Business Law, consider contacting a Kirkland Small Business Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033
(425) 889-9300

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Export Licenses: An Overview

Export Licensing Overview:

This post is designed to give people who are new to exporting, and, in particular, new to export controls an overview of the regulations and how to use them. Note: nothing provided here can substitute for consulting the Export Administration Regulations (EAR).

Does My Shipment Require an Export License?

Maybe. A U.S. export license requirement from the Department of Commerce can be triggered by several important factors specific to your transaction:
a. the actual item (commodity, software or technology) being exported,
b. where it is going,
c. who is going to use it, and
d. what they will be using it for.

If any of these factors change in your transaction, the license requirements may change.

What types of items does the Department of Commerce regulate?

The Bureau of Industry and Security (BIS) implements and enforces the Export Administration Regulations (EAR). The EAR regulate the export and reexport of most commercial items.

Does the Department of Commerce regulate all exports?
The DOC does not regulate all goods, services, and technologies. Other U.S. Government agencies have export control responsibilities for regulating more specialized exports. (For example, if you are shipping military goods, your item may be subject to the licensing jurisdiction of the Directorate of Defense Trade Controls at the Department of State.)
The Treasury Department’s Office of Foreign Assets Controls (OFAC) administers and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations, and international narcotics traffickers. The BIS website identifies resource links for various U.S. Government agencies with export control responsibilities. Go to http://www.bis.doc.gov/About/reslinks.htm for a listing.

Is there a list of restricted countries to which I can’t export?

Restrictions vary from country to country and from item to item. The most restricted destinations are the embargoed countries and those countries designated as supporting terrorist activities, including Cuba, Iran, North Korea, Sudan, and Syria.

So how do I know if my shipment needs an export license?

Step 1: Know your item’s Export Control Classification Number (ECCN). ECCN entries are found on the Commerce Control List (CCL) and identify reasons for control which indicate licensing requirements to certain destinations. Other reasons an export license may be required for your shipment relate to concerns about the parties to the transaction and the end-use of the item.

Do all items have an ECCN?

Many commercial goods are not on the Commerce Control List and do not have an ECCN. These goods are designated as EAR99. EAR99 items generally consist of low-level technology, consumer goods, etc. and do not require a license in most situations. However, if your proposed export of an EAR99 item is to an embargoed country, to an end-user of concern, or in support of a prohibited end-use, you may be required to obtain an export license.

Where do I find the Commerce Control List?

The Commerce Control List is part of the Export Administration Regulations (EAR) which can be found on the Government Printing Office’s EAR database at http://www.access.gpo.gov/bis/ear/ear_data.html#ccl Scroll down the page to Part 774. Below are the ten categories of the Commerce Control List which can be viewed as separate files in several different formats, including PDF.

So if my item is EAR99, does that mean I don’t need a license?

EAR99 items will generally ship under the designation “NLR” which stands for “No License Required”. However, if your proposed export of an EAR99 item is to an embargoed country, to an end-user of concern or in support of a prohibited end-use, you may be required to obtain an export license.

What is the difference between EAR99 and NLR?

EAR99 is a classification for an item. It indicates that a particular item is subject to the Export Administration Regulations (EAR), but not specifically described by an Export Control Classification Number (ECCN) on the Commerce Control List (CCL). While the classification describes the item, the authorization for shipment of that item may change, depending on the circumstances of the transaction.
NLR stands for the "No License Required" designation. NLR may be used for either EAR99 items, or items on the CCL that do not require a license for the destination. However, exports of an EAR99 item to an embargoed country, an end-user of concern or in support of a prohibited end-use may require an export license.

If I determine my item is classified EAR99 and I can ship under NLR, what do I need to do?

You indicate “NLR” as your authorization for export on the Shipper’s Export Declaration or Automated Export System record. By signing the SED or submitting via AES (or designating your freight forwarder to do so), you are certifying that your item is eligible for NLR. You should also keep records relating to your NLR determination and the export transaction for five years.

What is a license exception?

A license exception is an authorization that allows you to export or reexport, under stated conditions, items subject to the Export Administration Regulations (EAR) that would otherwise require a license based on the ECCN and destination.

What do you mean by prohibited end-user or end-use?

If you know or have reason to know your item would support a proliferation activity, such as nuclear, chemical/biological, or missile proliferation activities in a country of concern, a license would be required. Part 744 of the Export Administration Regulations spells out the specific regulations related to end-user and end-use controls.

Do the licensing requirements change depending on how I’m sending the item?

No. Export license requirements stay the same regardless of the method of shipment or transmission. This includes technology shipments via the internet or items carried in a briefcase. [Note: although license requirements may not change, license exception availability may (i.e. BAG or TMP.]

I’m not a company, I’m just sending something overseas to a friend. Does this mean I don’t need to worry about whether or not my item needs a license?

Whether or not something is being given away or sold does not affect the license requirements of your shipment. You still need to determine whether or not an export license is required.

Does it matter if what I’m sending is under $2500 dollars?

No. The value of the shipment does not affect the export license requirements. However, the value of the shipment may affect the requirements for filing a SED or AES Record. If an export license is required, a Shipper’s Export Declaration will be required as well, regardless of value.

Can I just have my freight forwarder fill out the license related information on the Shippers Export Declaration or AES record?

Your freight forwarder is generally not in a position to determine your requirements because a technical assessment of your item is required to determine its ECCN and any associated license requirements. You are ultimately responsible for the proper export authorization

What if my customer asks me to send the item to their freight forwarder here in the U.S.? Do I still have obligations?

Yes. Just because your customer is directing the U.S. forwarder to ship the items does not relieve you of obligations in the export transaction. The responsibility for determining the proper export authorization and obtaining an export license, if necessary, would be your obligation unless your customer provides you something in writing indicating that they are assigning the licensing responsibility to another party in the U.S., such as the forwarder. In either case, you will continue to show as the “Exporter” on the Shipper’s Export Declaration. In this case you need to provide specific information to the forwarder in order for them to do what it takes to ensure compliance. You will still be cited on the export declaration as U.S. Principal Party in Interest (USPPI).

I’ve got some paperwork from past exports made before I started here, can I just use the same information again?

Not necessarily. Export license requirements are transaction specific. If the item, country of destination, end-user or end-use have changed, it could affect the type of authorization for which the export is eligible.

My company has been exporting for years and I’ve never heard of an ECCN or license requirement. Is this requirement new?

No, this requirement is not new. Perhaps someone in your company already determined that the items you export are not listed in a specific ECCN on the Commerce Control List and do not require export licenses for the destination to which you ship. Be aware that classifications may change over time. Since the exporter is responsible for determining the proper authorization for shipment, you will want to review the Commerce Control List or submit a classification request.
If you find there have been exports without proper authorization, you should notify your company’s management and consider filing a voluntary disclosure to BIS.

I know the Schedule B number for my item, will that help in determining the ECCN?

No. The ECCN and Schedule B number do not correlate, although you will need to know both when you make a shipment.

What is the Schedule B Number and how do I get it?

Schedule B commodity codes are 10-digit numeric codes used to identify products for trade statistics purposes. The Bureau of Census’s Foreign Trade Division can assist you at 301-763-2238. A Schedule B search engine is available at http://www.census.gov/foreign-trade/schedules/b/.

I’ve been told that I can I get an official ECCN determination over the phone from the Department of Commerce. Is this true?

No. The ECCN is based on the technical characteristics of the item and requires a detailed analysis of the item in order for it to be classified. The Department of Commerce cannot provide you with an ECCN over the telephone. However, we can assist you in understanding how to do a self-classification of the item using on-line resources and your technical understanding of the item. We can also explain the process of submitting an official request for a classification which typically takes 4-6 weeks. The Office of Exporter Services has counselors available from our Washington DC headquarters at (202) 482-4811 and our Western Regional Office in California at (949) 660-0144 or (408) 998-8806.

I don’t have time to wait for a response to my classification request. Are there any alternatives to this?

If you are not the manufacturer of the item you are exporting, the item may have already been classified by the manufacturer if they themselves export. One of the quickest ways to determine the ECCN of your item is to check with the manufacturer. Many companies list ECCNs on their website.

I’ve found an official classification done by the Department of Commerce back in 1996. Can I still use this?

The Commerce Control List and ECCNs change often - sometimes items are added to the CCL and other times item specifications are changed or removed. In addition, your item may have different technical characteristics than what was classified previously. It’s important to stay up-to-date with changes to the Commerce Control List which may affect your item’s classification.

Once I’ve determined my ECCN, what do I do?

Once you have classified the item, the next step is to determine whether you need an export license based on the “reasons for control” of the item and the country of ultimate destination. You begin this process by comparing the ECCN with the Commerce Country Chart (Supplement No. 1 to Part 738). The ECCNs and the Commerce Country Chart, taken together, define the items subject to export controls based solely on the technical parameters of the item and the country of ultimate destination.

How do I screen my customer?
Certain individuals and organizations are prohibited from receiving U.S. exports. Others may only receive goods if the transaction has been licensed, even for items that do not normally require a license based on the ECCN and country or based on an EAR99 designation. There are various lists that may be relevant to your export or reexport transaction such as the Denied Persons List and Entity List. These lists are available on the BIS website at http://www.bis.doc.gov/ComplianceAndEnforcement/ListsToCheck.htm.
In addition, BIS has guidance on its website on knowing your customer and potential red flags in a transaction at http://www.bis.doc.gov/complianceandenforcement/KnowYourCustomerGuidance.htm.

What happens if I don’t get the proper export authorization?

Responsibility for export compliance rests with the exporter. Administrative and criminal penalties exist for violations of U.S. export law. The maximum financial penalty per administrative violation is $50,000.

I’m a small businessperson. Does everyone have to follow these regulations?
Yes. Keep in mind that most low-level or dual-use products will have the designation EAR99 and be eligible for shipment under the NLR designation. Products with this designation will only require a license to certain prohibited destinations, end-users, or end-uses.

If I do have to apply for an export license, can I do it online?

Yes. The fastest way to get an export license is to use the Internet based electronic licensing system, SNAP-R. You must first obtain a PIN prior to submitting an electronic license application or classification request. For further information regarding SNAP-R and PINs, visit the BIS website at http://www.bis.doc.gov/snap/pinsnapr.htm.
The alternative is the paper application, the BIS-748P multipurpose application which is available from BIS. You must use the original form which must be typed. You can order the form by calling (202) 482-3332.
Is there someone I can call if I have additional questions or need specific guidance?
Assistance is available. The Office of Exporter Services has counselors available from our Washington DC headquarters at (202) 482-4811 and our Western Regional Office in California at (949) 660-0144 or (408) 998-8806.

Is there information available on the Internet?
Yes, additional export control information and related resources are available online at www.bis.doc.gov.

For more information on your small business, consider contacting a Seattle Small Business Attorney.

Retirement Planning for Small Business Owners

While this is typically a non-legal issue, I want my to insure that my clients have a full understanding of all the issues surrounding small business owners. Thus, here are some excerpts from a an Article in the Wall Street Journal on retirement plans for small businesses.

By JANE HODGES - WSJ
Talk about control. In addition to managing themselves, self-employed workers have their own options for retirement saving, too.

The Journal Report
See the complete Investing in Funds: A Monthly Analysis report.
Two of the best options: solo 401(k)s and solo Roth 401(k)s.

Both have been around a few years but are more common now as accountants with entrepreneurial clients have become more fluent with them, says Rick Meigs, president of Portland, Ore.-based 401khelpcenter.com, a 401(k) research firm.

Their biggest benefit is they often allow for higher retirement-savings contributions than other plans. They also have less-complicated contribution rules than a Keogh, which offers high contribution potential but may require the expense of an actuary and extra paperwork.


Salt Away

Solo 401(k)s let you put away more than a Simple IRA, which allows a maximum contribution of $11,500 a year for those under 50 and $14,000 for those older, plus up to 3% of income (after adjusting for self-employment tax). More than Roth IRAs, too, which set a ceiling of $5,000 for those 49 and under, and $6,000 for those older. Unlike a Roth IRA, solo 401(k) plans also place no income limits on who can participate.

Regular solo and Roth solo 401(k)s also can allow for higher contributions than a Simplified Employee Pension (SEP) IRA at the same income level. In a SEP IRA for 2009 and 2010, entrepreneurs may contribute as much as 20% of their net business profit (up to a maximum of $49,000) if they are sole proprietors, or 25% of their salary if their company is a corporation. (Net business profit is defined as the income of the business after expenses, and minus half of the self-employment tax.)

But with a solo 401(k) or solo Roth 401(k), for 2009 and 2010 you can put into the plan 100% of your first $16,500 in income from the business (or $22,000, if 50 or older), plus 20% of net profit, until you max out contributions at $49,000 (or $54,500, if you are 50 or older).

How can an entrepreneur sock away more with a solo 401(k) than with a SEP IRA? Clint Gharib, director of managed products and insurance at J.P. Turner & Co. in Atlanta, uses the example of a 51-year-old sole proprietor whose business income was $100,000. If the proprietor used a SEP IRA, he or she could invest only 20% of $92,936 ($100,000 minus $7,064, half the self-employment tax), or about $18,600.

But the same proprietor could put $22,000 in a solo 401(k), plus 20% of $92,936, for a total of about $40,600. Under some accounting rules and business structures (if incorporated, for instance), this same entrepreneur might be able to put as much as 25% of his or her salary in a SEP IRA—but that amount would still be far less than a solo 401(k) allows.

Numerous mutual-fund, brokerage and discount-brokerage firms offer solo 401(k) plans. Among fund families that sell them through financial advisers: Invesco Aim, Pioneer Investments and OppenheimerFunds. Self-directed investors can open such plans at T. Rowe Price Group, Charles Schwab Corp., Fidelity Investments and Vanguard Group. The Roth versions are also available from fund companies and securities firms such as Invesco Aim, Pioneer, T. Rowe Price, Vanguard, ING Direct's ShareBuilder unit and E*Trade Financial Corp.

Fees vary, and can include a setup fee, annual administration fee, and routine mutual-fund fees—in addition to adviser fees. The highest fees are for those solo 401(k)s sold through insurance companies, Mr. Meigs says.

Among adviser-sold plans, Pioneer charges no setup fee but has a $25 annual fee that is waived on accounts over $25,000. Invesco Aim charges no setup fee and offers two administration options: a self-service option with a $10 annual fee or a full-service option, in which advisers choose a third-party administrator that aids with plan compliance. Fees for the latter vary but average less than $100 per year.

OppenheimerFunds charges no setup fee and annual administration fees of $10 for accounts over $50,000, and $15 for accounts under $50,000.

ShareBuilder's solo 401(k) products cost $195 to set up, and are assessed a $15 monthly fee, waived on accounts over $250,000; start-up costs are $125 for Costco members.

Russell Lowry, a certified financial planner with Sagemark Consulting Private Wealth Services in Windsor, Conn., says he has opened plans for clients at Plan Administrators Inc., a third-party administrator in De Pere, Wis., which offers adviser-sold plans featuring funds from companies such as American Funds and OppenheimerFunds. At Plan Administrators, setup costs $50, and annual fees are $150 (for balances below $250,000) or $250 (for balances $250,000 and above). Mr. Lowry also charges a fee on the plans; he says it's about 1.5% of assets annually, or less as balances rise.

Solo 401(k)s do in some cases have higher administration fees than SEP IRAs or other plans. Investors need to weigh whether they save aggressively enough to justify those fees. Another detail: With solo 401(k) plans, once accounts hit $250,000, investors are required to file annual paperwork on them to the Internal Revenue Service.

Richard Reyes, a certified financial planner in Orlando, Fla., says to help his clients decide which plan is right for them, he asks them: "How much money are you going to put away yourself? If he/she tells me less than $10,000 to $15,000, then I will always lean toward the SEP and Simple arena. If the owner says a lot more, then one is almost automatically thrown into the solo 401(k) arena."

Mr. Reyes advises that when an investor can reliably contribute at least $15,000 a year, solo 401(k) plans often make more sense than SEP IRAs.

Other Considerations
Investing benefits aside, the ability to borrow is a plus, too. The decision also involves age considerations and guesswork about future tax rules. Investors or their advisers must figure whether it's wiser to contribute after-tax now—to a Roth IRA or Roth 401(k)—or reduce taxable income now and pay tax on retirement income later—with a SEP IRA or solo 401(k).

Mr. Lowry, the financial planner, says that for entrepreneurs under 40 who want to maximize their retirement investment, he generally recommends a solo Roth 401(k) because of likely future tax increases.

The bottom line? As more workers start businesses, work as contractors or opt for self-employment, higher earners should strongly consider a solo 401(k). Even among adviser-sold plans, it's possible to find reasonably priced options.

For more information on tools to assist Small Business Owners, consider talking to a Seattle Small Business Attorney.

Cash for Coporate Clunkers

Below is a article from CNN-Money regarding a new stimulus that will provide cash for hiring employees. Politics and deficit concerns aside, I'd rather see the money in the hands of my small business clients than in the hands of the government...or bank executives.

When President Obama called last month for a new tax break to spur job creation, critics blasted him for offering no specifics. On Friday, Obama plans to fill in the details: He wants to give businesses a $5,000 tax credit for each net new employee they hire this year.

Job creation "must be our No. 1 focus in 2010," Obama said Wednesday night in his State of the Union address. "We should start where most new jobs do -- in small businesses."

The $5,000 per-worker tax credit would be available to businesses of any size, and would be retroactive to the start of the year. Startups launched in 2010 would be eligible for half of the tax credit.

Obama is also proposing a reimbursement of the Social Security taxes businesses pay on increases in their payrolls this year. Firms could earn the credit by raising wages or increasing the hours of their current workers, as well as by hiring new employees. The tax credit would be adjusted for inflation, and would not apply to wage increases above the current taxable maximum of $106,800.

The proposal will cost $33 billion, according to estimates released by the White House, which expects 1 million businesses to benefit from it.

While any business would be eligible for the tax breaks, the refund would be capped at a total of $500,000 per firm, a move the White House hopes will steer the biggest benefits to the smallest companies. Firms eager for cash could claim the credits on a quarterly basis, sparing them the wait before they file their annual taxes.

Hiring tax credits have been proposed before, and shot down in part because of their vulnerability to abuse. Senior White House officials say Obama's plan includes a slew of safeguards to prevent companies from gaming the system.

For example, companies would have to show net increases in their staffing and payroll to qualify. Businesses that cut 20 workers and hire five wouldn't be eligible, nor would those that lay off a $50,000 worker and hire two $20,000 staffers.

Main Street's cash crunch: Several in Congress are already on board with the idea of tax credits for hiring. Senators Charles Schumer, D-N.Y., and Orrin Hatch, R-Utah, unveiled their plan, which has some similarities to Obama's, in an op-ed on Wednesday.

But some business owners say the idea puts the cart before the horse.

"I need money before I hire people, not after I hire them," said Jimmie Hughes, the owner of Grand America in Richardson, Texas. Hughes' 15-person company sells supplies for a range of businesses.

Jeff Moss, the owner of Pancho's Border Grill in Great Neck on Long Island, N.Y., had a similar reaction.

"In my line of work, the restaurant business, jobs are going to be created or deleted as a direct result of customer traffic," Moss said. "It is not like we are a Fortune 500 company, where we are going to be adding hundreds of jobs and those credits are going to be adding up. We are a small business. If we are adding one employee, the effect on the bottom line is going to be negligible."

My take is that the plan will be generally ineffective. If you don't need an employee, paying someone $20,000 or more to make $5,000 tax credit is simply not sound economics. Further, the enforcement is going to be a nightmare for the IRS...abuses will certainly occur and the program will be pulled within a year or two.

For more information on your Small Business, contact a Seattle Small Business Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033

(425) 889-9300

Hiring New Employees in Washington

For many small businesses, one of the most common hiccups in the legal process is how to effectively bring on new employees. Below is an overview of the steps that should be taken when your business is able to hire new employees. All businesses are different, you should consider meeting with a Seattle Small Business Law Firm.

1) Provide a W-4 form update hiring a new employees for Federal Tax / Withholding purposes. W-4 Form Here.

2) I-9 Form to verify ability to work in the United States: Click here for I-9 Form.

3) Report Hiring to DSHS: Clink here.

4) Labor & Industries Worker’s Compensation Insurance:

This information should have been provided to you after you applied for your Master Business License). If not, click here.

5) Required Posters:

Click here for guidance on Federal Postings needed.

6) Taxes Issues:

See great IRS Publication for Small Business Taxation Issues: Click here.

Finally, you should submit a W-2 to the IRS at the closing of the year. Click here for W-2.


For Independent Contractors:

* Remember, you do not need to withhold taxes for ICs, however, the government will scrutinize the relationship to verify the relationship is not an Employee relationship disguished as a IC.

1) Gather all information regarding their business
2) Complete Independant Contractor Agreement
3) Gather an W-9
4) Treat them like an IC!!
5) Issue 1099 Misc at the conclusion of the taxable year

For more information, see a Kirkland Small Business Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point
Building 5000, 4th Fl
Kirkland, WA 98033

T: (425) 889-9300