According to Slee’s research, the United States economy experiences a recession (or other economic downturn) during the first three or so years of every decade.  The capital supply to the private markets becomes restricted, primarily because lending is restricted, which reduces the leverage a buyer can achieve and lowers valuations as well as limiting access to working and investment capital.

This begins to transition around the fourth year as companies improve profitability which leads into a period of free-flowing capital into the private market.  Humans are creatures of habit, so we quickly forget the recession we recently survived and continue to spend and invest until we are over leveraged and over invested.  At this point, parts of the economy begin to feel the strain and the economy as a whole is affected by the end of the ten year period.

Why will such a cycle be expected to continue?  Because the nature of people, namely, the private business owners, bankers, investors, and politicians in America, is to be overly optimistic in the good times and overly pessimistic in the bad times.  We also take a predictable amount of time to adjust to changing conditions and we can be counted on to react in certain ways.

Today, the catalyst for our recession was sub-prime mortgages followed by complete financial system meltdown, bankruptcies, and major fiscal policy changes.  Impending commercial mortgage uncertainty will help us to remain in a deal recession for the next several years.  Business values will remain flat or fall further as we struggle to adjust.  But adjust we will (or go bankrupt) and the survivors will profit again.

In my last post on business value, I mentioned that you can expect to achieve the highest return when selling your business at the right market timing.  If the transfer cycle holds, the best time to buy a business will be any time from now through 2013 or so.  The best time to sell a business will be toward the end of the prime selling time, or roughly 2016 – 2018.  Obviously, businesses will continue to be bought and sold every day, but a savvy business owner will look to exploit this cycle to his or her advantage.

There are three factors that affect the value of your business the most: Timing, Timing, and Timing.  Assuming you’ve got a profitable enterprise with value outside of your own day-to-day involvement in the operations, your decision to sell the business will be most highly rewarded when three timings all line up perfectly.

1. Personal Timing.

   What’s your Plan B?  What is it that you want to do next?  If you realize you won’t have anything to do after you sell your business, then you’ll be reluctant to give it up until you have to.  When you do have something to do, say, another investment or business or even taking a trip around the world, then you will be much more inclined to do what is necessary to sell your business.

2. Business Timing.

   Ok, so you’re ready to sell, but is your business ready to be sold?  If you sit down with an advisor because you’d like to cash out in the next six months and they find that major changes need to be made to your operations or your financials then you either have to wait or understand that the buyer will discount their offer as a result.  Always be ready to sell!  Look at your business today and make the changes now because someday, you will transition your business.  You never know when someday will come, because of…

3. Market Timing.

   This is the one that is completely out of your control.  It is also the reason why your business should always be ready for transition and you should always have a Plan B.  When the market is ready, you must be ready.  It’s not always clear when the market will be primed to provide you with the highest return although there is a general cycle in the United States economy, which we’ll talk about more in the next post.

• A couple of guys are writing a “Google killing” search engine.  Glad they hooked up with Shaun McNerney!
• A young man just graduated from CU with a degree in marketing was looking for opportunities.  His dad was in tow as a potential investor and owner of several businesses himself.
• A client needed some tax advice (to which I was fortunate enough to know the answer – given that I’m not the tax expert at our firm!)
• A couple of high powered managers were bored at their current positions and looking for new challenges.
• Davin owes me a lunch (not sure why, but I’ll never turn down a free lunch!)

All that was in just 30 minutes and as I peeled myself away, I’m sure there were more interesting discussions and connections that I missed.  Next social is probably in the Fall sometime, so stay tuned and I’ll keep you posted!

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Etienne Hardre is a CPA with BiggsKofford Capital specializing in helping entrepreneurs answer these questions: How do I sell my business, buy a business, or grow my business?

Best Accounting Firm (Runner Up)

Best Business Consulting Firm (Runner Up)

Best Business Leader: Chris Blees (Runner Up)

Best Place to Work: Mid-sized 16-50 Employees (Runner Up)

Best New or Re-Launched Website: www.biggskofford.com (Runner Up)

Special thanks to everyone who voted and if you are not yet a client, we would be happy to prove to you why we earned these distinctions by assisting you with your accounting needs.

The presentation began with the usual role call by Shockley and a rather impressive group was in attendance: Mike Kazmierski and others from the Economic Development Corporation, Dave Csintyan and his team from the Colorado Springs Chamber of Commerce, Jan Martin and others from the Colorado Springs City Council, representatives from several chambers of commerce from the surrounding areas, the full Operation 6035 Implementation Team, heads of various Colleges at UCCS, Michael Semmens and others from El Pomar, and many respected business leaders I at least recognized by name if not by face. Whether the goal was to find the people with the money or to find the people interested and able to make a difference, the right folks were definitely in the room.

Lane, the volunteer executive director of Operation 6035, spoke about why he is convinced that events are lining up to prepare Colorado Springs for a “renaissance”. His energy and “let’s just do it” attitude are infectious and I’m personally looking forward to his leadership. He mentioned the dialogue the city has been having over the strong mayor proposal and the proposed restructuring of city revenue sources as being the kind of conversations that make things happen one way or another. He vowed not to research issues to death but that he and the Implementation Team will select 5 or 6 issues to be dealt with first and then to either do them or not. He also discussed point 1 of the Angelou Report that criticized the region for a failure to collaborate effectively. After doing his own due diligence, Lane says he sees plenty of collaboration and that it’s only ineffective because people either aren’t collaborating in the right way or on the right things.

Pike Powers, the man credited with the vision that helped Austin, TX become the city it is today and now the consultant hired to impart some of that same structure to the revitalization efforts of Colorado Springs, shared the highpoints of a good vision. In his opinion, a community must connect globally, statewide, and locally to be successful and he offered some inspiring video clips to drive his point home. He also called out some of the present leaders to discuss a couple of good projects in the works such as the joint summit of the areas chambers of commerce and the conference on energy. His presentation was commanding and yet humble and self-deprecating.

Shockley closed with the fundraising call, asking that donations be limited to $1,000 per person or company to allow more people to become tangibly invested. The fundraising goal is $100,000 to match the original funds pledged by El Pomar and will pay expenses for another year. Shockley is convinced that one or two of the issues currently being discussed by the team could be solved within the next 12 months.

I am inspired by the healthy turnout and that the focus of the Implementation Team is not on “fixing” the existing groups but instead on fostering collaboration between them and on filling the gaps that exist in our community’s connections globally, at the state level, and even locally. By checking their agendas at the door, I hope they will succeed in surmounting these challenges.

I am personally involved in several groups offering solutions to some of the issues raised in the Angelou Report. The Peak Venture Group’s Blue Spruce Project and Middle Market Entrepreneurs are both helping businesses grow and communicate with one another. Additionally, I’ve been reaching out to my peers in the “young professional” category to help them connect and find that transcendent cause in which to invest their intellectual and social capital. Small as these efforts are, I hope they will contribute to building a great community in Colorado Springs.

If you want to get involved, even in a small way, please don’t hesitate to call me at 719.579.9090.

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Etienne Hardre is a CPA with BiggsKofford, P.C. specializing in helping entrepreneurs answer these questions: How do I sell my business, buy a business, or grow my business?

MIT ENTERPRISE FORUM

The Clean Energy Revolution
Monday, May 3rd
2:15 p.m. to 5 p.m.

Part of the MIT Global Broadcast Series held at the Colorado Springs Technology Incubator. Registration includes the broadcast and a light dinner.

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PVG BREAKFAST

Alumni Session
Friday, May 14th – networking begins at 6:30 a.m.

What happens to companies after their 5-Minute presentation? Where are they now? Where are they going? Imagine what you could learn from those who have been there, done that. Reserve your seat.

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M-ME BREAKFAST PANEL

Product Pricing in a Challenging Economy
Friday, May 21st
7:00 a.m. to 9:00 a.m.

Economic value is a key component in the entire marketing mix of price, product, promotion and place. Take an in depth look at the process for modeling economic value. Advance registration required.

You must enter at least 25 options for the vote to be counted, so here is a list to get you started.  Feel free to choose your favorite if you have one!

Best Business Leader: Chris Blees
Best Women Owned Business: Sales Department
Best Place to Work – Small Business under 15: The Doodler
Best Place to Work – Mid- Sized Company under 16-50: BiggsKofford
Best Place to Work – Large Company over 50: Reach Local
Best Photography Service: Megan Hardre Photography
Best Business Consulting Firm: BiggsKofford
Best Staffing Service: AccountAbilities
Best Executive Search Firm: AccountAbilities
Best Document Copying, Scanning Company: DocuCents
Best Accounting Firm: BiggsKofford
Best Electrical Contractor: Foster Electric
Best Telephone Equipment/Systems Provider: West-Tech
Best Nonprofit Organization: Peak Venture Group
Best Property Management Company: London Group
Best Employee Benefits Provider: Moody-Smallwood
Best Insurance Brokerage: Six & Geving
Best New or Re-launched Local Web Site: BiggsKofford
Best Blog: Springs Real Estate Network
Best Twitter: TweeterBargains
Best Facebook: Springs Bargains
Best Internet Service Provider: TW Telecom
Best Business Bank: Chase
Best Corporate Financial Services: Strategic Financial Partners
Best Networking Group/Event: Strictly Business

CREATING VALUE THROUGH SUSTAINABILITY

MIT ENTERPRISE FORUM
Tuesday, April 20, 2010
4:45 p.m. to 7 p.m.

Broadcast begins at 5 p.m., held at:
Colorado Springs Technology Incubator
3595 East Fountain Blvd., Colorado Springs, CO 80910

Reservations:
$15 includes the program and a light dinner. Reserve online now….

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PVG VOLUNTEER RECRUITMENT BREAKFAST

Wednesday, April 21st
7:30 a.m. to 9:00 a.m.

PVG is run by volunteers and we want you to join our ranks. Join us for breakfast at Marigold Cafe & Bakery to learn about volunteer opportunities and PVG committees. Register now for this free event.

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PVG SOCIAL
April Fool’s Party at Hondo’s

Thursday, April 29th
5 p.m. to 7 p.m.

Kick back and relax with Colorado Springs’ top entrepreneurs and business leaders. RSVP for this free event.

Most business owners outsource many functions of their business including tax preparation, legal counsel, and hiring personnel.  It’s fairly obvious that it’s cheaper to hire a tax expert once a year than to retain a tax accountant on staff or to stumble through the process yourself.  Let’s look at a slightly less obvious function that can be outsourced: payroll processing.

Scenario 1: You’ve finally hired enough employees that there’s just no way to justify them as “contractors” and your tax preparation fees have tripled as you try to sort things out at the end of the year.  Your business is growing and you need to get some basic structure in place.

Scenario 2: You’re a healthy mid-sized company with a couple of million in annual revenue and a single staff accountant whose time seems to be completely monopolized with processing bi-weekly payroll for your 20+ employees.  It’s a miracle when bills are paid on time and don’t even talk about collections on those old invoices.  You’d like to refocus that accountant on activities that actually bring cash in the door.

Scenario 3: You’ve grown still further into the lower middle market and you now have a dedicated AP clerk, AR accountant, and a controller.  Unfortunately, your controller’s time is still wrapped up in that pesky payroll though you’d really rather have their help analyzing your financials to prepare management reports and budgets.

Scenario 4: You’re in negotiations to sell your company and the buyer’s due diligence reveals you owe $75,000 in payroll withholdings from Scenario 1…

Each of these scenarios highlights a decision point in the typical small business where outsourcing payroll should be considered.  Before that last scenario becomes your reality, take a look at whether you should be outsourcing payroll.

What is Outsourced Payroll?

Outsourcing payroll simply means utilizing a payroll service provider to handle the calculation of payroll checks; perform tax calculations, deposits, and filings; and to assist with payroll tax law compliance.  This third party serves to insulate the company from liability and risk associated with doing any of these things incorrectly.

What are my options?

Your CPA is the first place to look since they may offer the service or they may have a preferred method that fits with their year-end process to save you money on tax preparation.  They might recommend a software-based service such as QuickBooks or Peachtree, or they might have a relationship with a company that specializes in payroll processing such as Paychex.  You bank might also offer a software package or a service, or they may also have a relationship with a third-party provider.

What kind of business should consider Outsourcing Payroll?

Unfortunately, a company that has one employee will have the same compliance requirements and penalty percentages for late payments to the State and the IRS as a company with a hundred employees.  This means that your company is never too small to worry about payroll.  In fact, businesses of all sizes should periodically analyze the cost-benefit of maintaining a full internal payroll department versus utilizing an outsourced option.

What kinds of benefits can I expect from Outsourcing Payroll?

First of all, the knowledge that all payroll related tax deposits and returns are filed timely and properly and that the IRS will not be knocking on your door tomorrow should help you to sleep soundly at night.  Other immediate benefits include more time back in your day, reduced compliance/audit risk, and happier employees.

Companies that use a payroll service provider should maximize their relationship to take advantage of even more benefits including worker’s compensation reporting, 401k administration, human resources compliance, time & labor tracking, and more.  Outsource more than just payroll and reduce administrative burden even further by using the third-party provider for all the ancillary services that rely on payroll data.  For example, ask them to help with the annual Worker’s Compensation Audit.  This annual audit ensures that the insurance company was paid all the premium money owed for the previous year.  Since the outsourced payroll provider knows what each employee was paid, they can help with the premium calculations to generate the annual report for the audit.  More importantly, they can generate a monthly report to alert you if you are tracking higher or lower than your estimate for the year.  This means, no more Worker’s Compensation Audit surprises and a great budgeting tool.

But I’ve heard there are problems with outsourcing…

Some of the perceived concerns with outsourcing payroll include losing control and access to information, fears that your payroll is too unique or complex, or the assumption that it is less expensive to do everything yourself.   However, today’s technology continues to enhance payroll processing capabilities and make it even more cost effective.  It is worth exploring whether these concerns are real or whether your situation would be simplified and streamlined with an outsourced solution.

If I decide to go down this road, what will the transition process be like?

A good payroll provider will strive to make the transition as seamless and easy as possible. Generally, your representative should be able to get everything they need to configure your new system from your existing records and will take care of all the data entry as part of their service.  During the initial setup process, errors may be identified and appropriate steps presented to you for fixing them.  The first outsourced payroll should be ready for processing within 3-4 days of data collection.

Ok, sounds like something I should look into.  What will this cost me?

Your cost will depend on your specific situation including your payroll frequency, number of employees, and types of services requested.  As an example, a one person S-Corporation, with the owner as the only employee paid monthly, is $39.00 per month at Paychex and includes direct deposit, payroll processing and tax payment/filings.  By way of comparison, the IRS estimates it should take nearly 3 hours just to complete one of the quarterly forms!  Of course, it costs nothing to call an expert and ask them to analyze your business and give you a quote.
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This article was prepared with input from:
Meike Alberts
Paychex, Inc.
Meike@EasiestPayrollService.com

I love Colorado Springs because for a region of just over 600,000 people, we have a surprising amount of innovation and new business support.  For example, head over to the Colorado Springs Business Journal and read about the mentoring program Peak Venture Group has been offering for years.  Business advisors, successful entrepreneurs, educators, and seasoned investors all come together to support new business ventures and guide them toward growth, funding, and on to the next stage of their life cycle…nearly for free.

Check out the Middle Market Entrepreneurs, an exclusive program for executives of companies with either revenues of $5 million or more; or more than 50 employees.  These semi-monthly breakfasts are generally packed, which should give you an idea of the number of businesses based in the Pikes Peak Region that meet those criteria.

Shaun McNerny, a successful entrepreneur in several ventures including BitWeld, is running CXO Connect where executives of high tech companies can come together for a high caliber presentation and networking, again, typically for free.

I don’t even need to get into the Technology Incubator, Leadership Pikes Peak, Center for Creative Leadership, Tri-Lakes Business Incubator, High Altitude Investors, Manufacturing Task Force, the Bachelor of Innovation program at UCCS, Small Business Development Center, or a host of other groups, organizations, and programs all directed at fostering innovation, supporting small and mid-sized businesses, and developing the next market leaders in just about every industry.

If you’re an entrepreneur looking for the support of your community, come to Colorado Springs and we’ve got more support than you can handle.  If you’re already here, please get plugged in!  We have access to more knowledge, business acumen, and entrepreneurial power than most places in the world.  At the very least, give me a call and I’ll try to point you in the right direction.

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Etienne Hardre is a Senior Associate with BiggsKofford, P.C. specializing in helping entrepreneurs buy, grow, and sell businesses.