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Part 2

The first article in this series on selling a business during the pandemic reported that sales of small businesses are up again after a significant drop in the spring and discussed the importance of establishing a value for a company to be sold.

This story will review financial information sellers should compile for potential buyers or their lenders to convey their firm’s financial condition. Space does not allow for detailed discussion of these documents so sellers might wish to consult with their CPAs to refine the process.

A potential buyer will want to review a seller’s profit and loss statements for the past few years, which will show sales revenue as well as other income from rentals, interest paid by financial institutions or the sale of property, equipment or assets.

It will also show production, and other operating costs. The first category includes raw materials, equipment purchases, leases or repairs, advertising, marketing, travel and entertainment expenses. The operating cost portion includes salaries, employee benefits, insurance premiums, rent or mortgage payments, utilities, office-related expenses, depreciation of equipment, taxes, professional fees and loan repayments.

“Of particular interest to a buyer will be the net income component of the profit and loss statement,” said Mark Dunsmoor, senior vice president of Legacy Bank. “This is calculated by subtracting a firm’s expenses from its total revenue. If expenses are less than revenues, owners have generated a profit. If not, the statement reflects a loss.”

A potential buyer will also want to see a current balance sheet covering the seller’s assets and liabilities. Assets may vary depending on the business but should include cash-on-hand and assets that can be converted into cash within a year, rent or insurance premiums paid in advance and funds owed the company according to Dunsmoor.

Other assets would include an inventory of completed products, plus raw materials or parts to produce more items. Fixed assets such as land, buildings, machinery, office and technology equipment and other durable items will be documented, as well as, the value for intangible assets such as a company’s good reputation, its solid customer base, perhaps a highly recognized brand, proprietary technology, trademarks and patents or a specialized workforce.

The liabilities section of the balance sheet should include current liabilities that need to be paid within the next 12 months such as accounts payable, short-term loans, payroll, taxes, credit card bills, interest on debt, said Dunsmoor. Long-term liabilities include costs that do not have to be fully paid within the next year such as mortgages or the total balance on loans the company may have.

A third element of the balance sheet reflects owners' equity which represents the owner's or stockholders’ investment in the business. This figure is calculated by subtracting the company’s liabilities from its assets.

A buyer will also want to review the seller’s cash flow statement which reflects a company's short-term earning potential, showing anticipated revenue as well as expected expenses.

Finally, sellers should be able to provide both personal and company tax records from the past few years, which can be used to collaborate data presented in the financial statements.

Mark Dunsmoor is a senior vice president of Legacy Bank with 40 years of banking expertise. Dunsmoor has been recognized as the Greater Pueblo Chamber of Commerce Charles W. Crews Business Leader of the Year and volunteers in many capacities including on the local hospital board.

Article Featured in the Pueblo Cheiftan: Link to Article

Part 1

Were you planning to sell your business in 2020, but the pandemic put that idea on hold? You’re not alone. According to the BizBuySell’s Insight Report, small business transactions dropped almost 40 percent during the second quarter of this year. But take heart, small business sales are bouncing back from April lows.

According to Calhoun Companies, a Minnesota-based brokerage, there are two prevailing types of buyers today. The largest buying group includes those seeking profitable, pandemic resilient businesses. Buyers in the second group are looking for depressed or closed businesses which are selling for much lower prices.

Buyers in both categories still evaluate a for-sale business on commonly accepted financial data and operating information. But today, they also consider any debt a seller has resulting from receipt of pandemic-related government funding programs such as the Paycheck Protection Program, EIDC, SBA Bridge Loans and the SBA Debt Relief program.

“If your business is among those that did not seek out this type of funding, the buy/sell process is pretty much business as usual. If you did receive this assistance, your banker, accountant, attorney and those representing the buyer will be evaluating processes and procedures that relate to pandemic debt,” notes Mark Dunsmoor, senior vice president of Legacy Bank. “In either instance, the seller must still present a clear picture of the business’s operations and financial condition.” In this article series we will focus on the steps to be taken by business sellers or buyers in reviewing and completing a sale.

In most instances, one of the seller’s first steps is to establish the value of the business. The formula for determining value is different for service businesses as compared to manufacturing/distribution companies. Because determining the value of a small business is complicated, sellers might want to consider consulting a professional business broker or accountant that specializes in valuation, rather than going it alone. That said, with a little internet research a seller can identify the commonly accepted formulas that might be used to determine a firm’s value.

However, as noted above, the impact of the pandemic may influence the firm’s attractiveness to the two buyer groups discussed above. For example, according to 3,000 firms surveyed by BizBuySell, 51% closed or suspended operations during the pandemic. Sixteen percent of owners plan to exit their businesses earlier and 20% plan to exit later due to the pandemic. Eighteen percent saw increased sales during the pandemic and among those who experienced reduced demand, 68% expected to return to pre-pandemic levels within a year.

“Conducting a valuation is an excellent opportunity to assess the financial health and potential of your business,” comments Dunsmoor. Along with doing financial legwork, valuing your business also requires you to exercise control over any emotions. “Particularly if this is your first company, or if you run a family-owned and operated business, take care to approach valuation as objectively as possible to come to an accurate number,” adds Dunsmoor.

Mark Dunsmoor is a senior vice president of Legacy Bank with 40 years of banking expertise. Dunsmoor has been recognized as the Greater Pueblo Chamber of Commerce Charles W. Crews Business Leader of the Year and volunteers in many capacities including on the local hospital board.

Article Featured in the Pueblo Cheiftan: Link to Article

Today’s article is a part of the Forward Thinking Education Series presented by Legacy Bank, the Latino Chamber of Commerce and the Pueblo Chieftain. Webinars further discussing this and other financial topics can be found on the Latino Chamber of Commerce Facebook page at: https://m.facebook.com/PuebloLCC/

Are you one of the 19% of U.S. cellphone holdouts who according to Pew Research doesn’t use a smart phone? Maybe you are a part of the 4% who still have no cellphone at all. No matter which category you fall in, you can still bank remotely through what is commonly referred to as online or internet banking. All you need is access to a computer.

In today’s busy society, many people who bank remotely use both services; online and mobile banking. Fifty-three percent of the people who responded to a recent BankChoice Monitor survey reported using their bank’s mobile app weekly and more than 88% of those individuals also reported logging into their bank’s online website during the same time period. Still, online banking doesn’t require a cellphone of any kind to give you remote access.

Today 71 percent of Americans have online bank accounts for good reason. “Online banking provides you an extremely convenient way to check your balances, transfer funds or pay bills at any time of the day,” says Mitch Brown, Pueblo West Branch President for Legacy Bank. “All of your past and current financial transactions are available for review including those pending. If you have more than one account, you can automatically transfer funds between them and when necessary you may be able to transfer funds from your bank to another bank.”

People who use online banking normally use a desktop or laptop computer to securely connect to their account portal on a bank’s website through the Internet. “Banks work hard to make their websites exceedingly secure understanding the sensitivity of personal financial information,” comments Brown. “From the moment you connect through the website, a variety of technology is in place to keep you safe and secure.”

Still, you have some obligation to help protect your information. Once you find your bank’s website online, secure internet based banking starts with a strong user name and password. Keep in mind, if you sign in from a different computer or if you have cleared your browser’s cookies, your bank may require an additional step to access your account.

Sometimes one-time security codes typically sent by the bank to a smart phone are required at time of log-in help authenticate your identity. This step is called two-step verification. If this appeals to you, ask your bank if it can offer two-step verification every time you login. You can also set up your own two-step verification through many of the major browsers. “If you do not own a cellphone, banks can use landlines, security questions, and phrases as supplemental ways to authenticate your identity. Be sure to state those needs when you setup your online account,” states Brown.

Mitch Brown is the Branch President of Legacy Bank Pueblo West and has more than 16-years in banking and finance. Mr. Brown holds a Master’s Degree in Business Administration and is an active part of the Pueblo West community. His involvement includes Rotary Club Pueblo West and Young Life among others.

Rebecca Diaz, Vice President and Leader of Regency Business Development shares with us how Legacy Bank gives back to the community with Fox 21 News.  

View the full article here.

Learn more about Legacy Bank's Community Impact here.