Five Major Mistakes When Buying a Business

The one common denominator that most millionaires have is that they own their own business. Owning your own business can be a very financially rewarding experience. The thrill of being the boss and having complete control over your own destiny are the primary reasons people leave the work force to operate their own company. Owning your own business can easily turn in to a nightmare if you make mistakes. These mistakes are avoidable if you know what to look for in the business. You have a better chance of becoming a millionaire if you avoid these 5 major mistakes when buying a business.

1. Due Diligence, Due Diligence, Due Diligence

Not everything is as it seems and that is especially true when buying a business. The owner can produce financial statements that show a business is thriving. You need to do due diligence to make sure the information presented to you is valid and shows an accurate picture of the condition of the business.

You want to make sure you know what items the business actually owns, what is leased, what is owed to the business and what the business owes to others. You do not want to buy a business only to find out there is a huge pile of bills that are due and the income you were expecting does not materialize. Doing a solid job of due diligence will help you avoid buying the wrong business or paying too much for the business.

2. Not Having Enough Cash Reserves

Running a business requires capital. Successful businesses are able to generate enough revenue to cover the cost of their expenses. In times when the revenue is less than the expenses then you need cash reserves to cover the shortfall. If you spend all your money in the acquisition of the company then you will not be able to cover shortages when they occur. This can be the quickest way to bankrupt your new business. Do not buy a business until you have the necessary funds to both buy the business and the necessary funds to keep it open after the purchase.

3. Assuming Cash Flow will Cover Debt

There will always be a transition period when buying a new business. Some vendors will have a loyalty to the seller and will pull their business when management changes. Likewise you might lose some of your buyers after the transition. These changes are unavoidable. They can have a tremendous impact on the cash flow of your business. If you purchase a business assuming the current cash flow will cover the payment on your debt, then you might be in for a rude awakening.

4. Paying for Potential

Sellers will try to set a price on a business based on the projected value of the business. For example a self-storage business that is 40% occupied at the time of purchase may be worth $1 million dollars. If the occupancy rate was 80% then the value of the business might increase to $2 million dollars. You should not pay $2 million for the business because the seller entices you on the future potential of the business.

It will be your time, effort and energy that create the future potential in the business. You should be awarded for your efforts. Do not make the mistake of over paying for a business and rewarding the seller for your hard work. The value of the business should be based on the condition at the time that you purchase it.

5. Wrong Entity Structure

The worst mistake that you can make is to buy a business using the wrong entity structure. First time business owners will buy a business and sign every contract in their name. This is a major mistake because it makes you personally liable for any loss that the business incurs. If there is loss your creditors will go after your home, your car, and your savings. Buying a business using an entity structure such as a corporation or a LLC can minimize your personal risk. Use an attorney and an accountant to help determine what the best entity structure for you to use is. Do not make the mistake of putting everything you own at risk when you buy a business.

Owning your own business can be the quickest path to becoming a millionaire but you may never reach that goal if you don’t avoid these 5 major mistakes when buying a business.

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Florida Home Construction Equals Growing Economy

The pace of Florida home construction is more than a positive trend for Florida real estate agents, according to a report from Florida TaxWatch. Housing starts, as a leading economic indicator, provide evidence that Florida is rebounding from the Great Recession.

"Floridians are seeing evidence of economic recovery in every corner," says Dominic M. Calabro, President and CEO of Florida TaxWatch. "New construction demand is growing, job creation is up, and for the first time since the recession, the state has a budget surplus and is sharing large tax cuts with hardworking Floridians. These positive indicators are giving taxpayers confidence, allowing them to spend more and generating state revenues."

The TaxWatch report finds that Florida averages more than 4,600 new private single housing starts each month – more than double the monthly averages in early 2009. Furthermore, future housing start projections are expected to double by 2016 for single-family homes, while multi-family new construction should double by 2017.

Positive housing starts also have a ripple effect on the state economy. They provide construction jobs and contribute to the growth of other sectors, such as housing services, home improvement stores and other retailers, along with Realtors and title companies.

"Increased investment by individuals and companies helps increase Florida's growth rate, giving businesses confidence to hire more workers," says Jerry D. Parrish, Ph.D., Florida TaxWatch chief economist. "This is one more positive sign of the growing momentum in Florida's economy."

The full TaxWatch economic commentary can be read online.

© 2014 Florida Realtors®

U.S. Economic Growth Slows in First Quarter

The U.S. economy slowed drastically in the first three months of the year as a harsh winter exacted a toll on business activity. The slowdown, while worse than expected, is likely to be temporary as growth rebounds with warmer weather.

Growth slowed to a barely discernible 0.1 percent annual rate in the January-March quarter, the Commerce Department said Wednesday. That was the weakest pace since the end of 2012 and was down from a 2.6 percent rate in the previous quarter.

Many economists said the government's first estimate of growth in the January-March quarter was skewed by weak figures early in the quarter. They noted that several sectors – from retail sales to manufacturing output – rebounded in March. That strength should provide momentum for the rest of the year.

And on Friday, economists expect the government to report a solid 200,000-plus job gain for April.

"While quarter one was weak, many measures of sentiment and output improved in March and April, suggesting that the quarter ended better than it began," said Dan Greenhaus, chief investment strategist at global financial services firm BTIG.

Still, the anemic growth last quarter is surely a topic for discussion at the Federal Reserve's latest policy meeting, which ends Wednesday afternoon. No major changes are expected in a statement the Fed will release. But it will likely announce a fourth reduction in its monthly bond purchases because of the gains the economy has been making. The Fed's bond purchases have been intended to keep long-term loan rates low.

In its report Wednesday, the government said consumer spending grew at a 3 percent annual rate last quarter. But that gain was dominated by a 4.4 percent rise in spending on services, reflecting higher utility bills. Spending on goods barely rose. Also dampening growth were a drop in business investment, a rise in the trade deficit and a fall in housing construction.

The scant 0.1 percent growth rate in the gross domestic product, the country's total output of goods and services, was well below the 1.1 percent rise economists had predicted. The last time a quarterly growth rate was so slow was in the final three months of 2012, when it was also 0.1 percent.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects the economy's growth to rebound to a 3 percent annual rate in the current April-June quarter. Other economists have made similar forecasts.

A variety of factors held back first-quarter growth. Business investment fell at a 2.1 percent rate, with spending on equipment plunging at a 5.5 percent annual rate. Residential construction fell at a 5.7 percent rate. Housing was hit by winter weather and by other factors such as higher home prices and a shortage of available houses.

A widening of the trade deficit, thanks to a sharp fall in exports, shaved growth by 0.8 percentage point in the first quarter. Businesses also slowed their restocking, with a slowdown in inventory rebuilding reducing growth by nearly 0.6 percentage point.

Also holding back growth: A cutback in spending by state and local governments. That pullback offset a rebound in federal activity after the 16-day partial government shutdown last year.

Economists say most of the factors that held back growth in the first quarter have already begun to reverse. Most expect a strong rebound in growth in the April-June quarter.

Analysts say the stronger growth will endure through the rest of the year as the economy derives help from improved job growth, rising consumer spending and a rebound in business investment.

In fact, many analysts believe 2014 will be the year the recovery from the Great Recession finally achieves the robust growth that's needed to accelerate hiring and reduce still-high unemployment. Many analysts think annual economic growth will remain around 3 percent for the rest of the year.

If that proves accurate, the economy will have produced the fastest annual expansion in the gross domestic product, the broadest gauge of the economy's health, in nine years. The last time growth was so strong was in 2005, when GDP grew 3.4 percent, two years before the nation fell into the worst recession since the 1930s.

A group of economists surveyed this month by The Associated Press said they expected unemployment to fall to 6.2 percent by the end of this year from 6.7 percent in March.

One reason for the optimism is that a drag on growth last year from higher taxes and deep federal spending cuts has been diminishing. A congressional budget truce has also lifted any imminent threat of another government shutdown. As a result, businesses may find it easier to commit to investments to modernize and expand production facilities and boost hiring.

State and local governments, which have benefited from a rebound in tax revenue, are hiring again as well.

Joel Naroff, chief economist at Naroff Economic Advisors, said he expects job growth to average above 200,000 a month for the rest of the year – starting with the April jobs report, which will be released Friday.

"Those are the types of job gains which will generate incomes and consumer confidence going forward," Naroff said.

Copyright © 2014 The Associated Press

Floridians’ Confidence in Economy Remains Flat

Floridians' consumer sentiment remained steady in April, declining one point to 79, according to a new University of Florida (UF) survey.

"The overall consumer sentiment index is remaining relatively flat given the lack of significant economic news," says Chris McCarty, director of UF's Survey Research Center in the Bureau of Economic and Business Research. "Here in Florida, the economy remains on a steady path without any big changes either negative or positive."

Three of the five components making up the index decreased, and two increased.

Respondents' overall opinion that they are financially more secure than a year ago fell three points to 69 from a post-recession high in March. Their expectations of improved personal finances a year from now also fell, dropping six points to 77; and overall confidence in U.S. economic conditions over the next year dropped five points to 77.

However, expectations that the nation's economy will do better over the next five years rose five points to 82.

Finally, the component measuring whether the present is a good time to buy a big-ticket item, such as a car, increased three points to 89.

Florida's unruffled consumer sentiment, however, is five points lower than the national level of 84, and McCarty suggests that concern over employment may help explain why. Last month, Florida's unemployment rate ticked up one-tenth of a percent to 6.3 percent – but that might not be bad news, McCarty says.

"A typical pattern after most recessions is for unemployment to temporarily increase as previously discouraged workers see more job availability and reenter the labor force," he says. "There is no doubt that Florida lost workers from the labor force. The question is whether they permanently left to take early retirement, or whether they temporarily left for job training or are just biding time until the labor market improves."

Florida's labor force also got bigger.

"While it is too early to tell, this increase could signal improvements ahead in Florida's job market, at least for those workers having a job, even if the wages for those jobs are lower than they were prior to the recession," McCarty says.

Housing continued to improve in March with the median price for a single-family home rising to $173,000, a level not achieved since last August.

Floridians can expect consumer confidence to remain in the upper 70s to low 80s, given the dearth of significant economic news, McCarty predicts. However, international developments, such as the conflict between Ukraine and Russia, and a continuing decline in the growth of the Chinese economy could darken consumers' mood.

Conducted April 1-24, the UF study reflects the responses of 402 individuals, representing a demographic cross-section of Florida. It's benchmarked to 1966, which means a value of 100 represents the same level of confidence for that year. The lowest index possible is a 2; the highest is 150.

© 2014 Florida Realtors®

Unemployment Rate Lowest Since 2008 After April Surge

The U.S. economy added 288,000 jobs in April, taking the unemployment rate to 6.3 percent, the lowest it has been since September 2008.

Americans gained the most jobs and at the fastest pace in the last two years, with April being the best month of job creation since January 2012 and the second best since mid-2009, after the economy emerged from the recession.

Economists polled by Bloomberg had estimated a 218,000 increase in non-farm payrolls, with the unemployment falling only 0.1 percent to 6.6 percent. April's numbers were far better than estimates, suggesting the economy was moving out of its winter rut.

The Labor Department also revised the numbers for February and March, and they were higher than previously estimated. The economy added 203,000 jobs in March, up from the 192,000 initially reported and 222,000 in February, up from 197,000.

But the good news was dampened a little by the drop of 806,000 Americans from the labor force, pushing the labor participation rate down sharply. Also, average hourly earning did not rise.

Construction and retail saw strong growth last month, adding 32,000 and 35,000 jobs respectively. Professional and business services added another 75,000 jobs combined, a count closely followed by economists who consider them a barometer for white-collar activity.

The numbers are sure to boost expectations for growth this quarter, with many economists estimating a 3 percent growth in the U.S. economy. Friday's report offers hope for such estimations.

Copyright © 2014 United Press International (UPI), Inc.

Economic Recovery Continues as First Quarter Small Business Transactions Remain Strong

BizBuySell.com's First Quarter 2014 Insight Report shows continued strong business-for-sale activity, well above historical levels, following 2013's record-breaking year.

BizBuySell.com the Internet's largest business-for-sale marketplace, reported today that small business transactions remained at high levels in the first quarter of 2014, continuing the growth trend that began in Q1 of 2013.

Participating business brokers reported 1,726 closed transactions in Q1 2014, marking the fifth straight quarter to exceed 1,600 transactions, a benchmark that had not previously been reached since before the start of the Great Recession in 2008. In fact, immediately after the recession began, reported transaction activity dropped significantly, with transaction totals for 2009 and 2010 dropping to an average of 1,126 reported transactions per quarter. There was only a very small improvement in the next few years as an average of 1,182 businesses changed hands per quarter in 2011 and 2012. At the outset of 2013, the recovery finally truly took hold and in the last 5 quarters, an average of 1,756 small businesses have closed, an average of 52% more per quarter than seen during the 2009 to 2012 period.

Read more at BizBuySell.com

Uncertainty on Tax Breaks Affecting Small Businesses

Small businesses are in limbo as they wait for Congress to make decisions that could save them a lot of money. 

Bills in Congress would extend tax deductions widely used by small businesses making equipment or property purchases. One, known as the Section 179 deduction, has shrunk to a maximum $25,000 this year from $500,000 in 2013. Another, called bonus depreciation, expired at the end of last year.

The deductions are a big deal for small companies, saving them thousands or even millions of dollars on capital investments. But because Congress decides every year how big the deductions will be, owners can't plan their equipment budgets until lawmakers vote. And in recent years, worried about the ballooning federal deficit, Congress has put off those votes, sometimes until late in the year.

The annual uncertainty hurts small businesses looking for a break when their combined federal and state tax rates run as high as 40 percent, says Doug Bekker, a certified public accountant with the firm BDO in Grand Rapids, Mich. They don't know if they should make the purchase in the current year or defer it. And as the economy gets stronger and businesses are more profitable, they're concerned about tax bills.

"If you talk to the typical small business out there, there's a very high level of frustration," Bekker says.

The Section 179 deduction, named for part of the U.S. tax code, allows small businesses to deduct up-front the cost of equipment like vehicles, computers, furniture and manufacturing machines rather than depreciate them over a period of years. The deduction fell to $25,000 for 2014 because Congress hasn't approved a higher amount.

Many small businesses rely on the deduction. In a survey of more than 1,100 owners by the advocacy group National Small Business Association, 34 percent said they take advantage of it.

Before the recession, the deduction was fairly predictable, rising to keep pace with inflation. In 2007, Congress voted to nearly double it to $250,000 to stimulate the economy. It was $500,000 the next three years, but the final vote on a 2012 deduction didn't come until the beginning of 2013 – too late for anyone who had decided against a purchase in 2012 believing there'd be no tax break.

Bonus depreciation is another break small businesses want back. It allows companies of all sizes to take an immediate deduction for 50 percent of the purchase price of equipment or real estate, with the remainder depreciated over a number of years.

It may look like Congress is anti-small business when it makes companies wait, but lawmakers are putting a higher priority on the federal budget and the overall tax code, says David Primo, a professor of political science and business at the University of Rochester. They're avoiding the political fallout that will come their way if they create a large deduction and then reduce it when the government needs money.

"They might as well keep re-upping it year after year rather than risk revoking it," Primo says.

There may be good news for owners who have been frustrated by a lack of clarity. House Ways and Means Committee Chairman Dave Camp, R-Mich., has proposed setting a permanent amount for the Section 179 deduction as part of a bill that would revive bonus depreciation and other business and individual tax breaks.

And last week, the Senate Finance Committee approved a bill that would extend deductions into 2015. The bill goes next to the Senate floor; if it passes, it will have to be reconciled with any version that passes the House.

In the meantime, small business owners are adjusting their plans – and in some cases spending less.

Bill French has stopped buying equipment like bulldozers until he knows how big his tax deductions will be. French, owner of W.L. French Excavating Corp. in North Billerica, Mass., spent $1.2 million already this year, not realizing how low the deduction had fallen. His other planned purchases are on hold. Last year, French spent about $2 million on equipment and estimates he saved more than $1 million in taxes because of the deductions.

"I'm just going to rebuild what I have," French says. "It doesn't make sense to buy new equipment."

Copyright © 2014 The Associated Press