MEL POTESHMAN Personal Finance Selling a business takes as much planning as starting one. You should understand that the timing of the sale, how the company is valued, and your own financial goals are key factors in structuring any transaction. Here are answers to a few key questions that can help you in selling your business. The key to a successful sale is that both you and your company are ready to make the change. For starters, you must be willing to pass the reins of ownership and management on to someone else. Don’t automatically assume there will be a place for you even in a part-time or consulting role in the new organization. To get the most for your business, you want to operate from a position of strength. Your company should be performing well and there should be a great likelihood that current customers or clients will remain with the successor company. Be aware, too, if you want to sell your business by a certain point in time, such as when you reach age 60, you must allow plenty of time for the sale. Otherwise, you might feel pressured into accepting a price or terms that are below your expectations. It’s generally wise to avoid selling your business right before a major lease or important contract expires. Prospective buyers will want to have a fairly close idea of their costs for rent, supplies, labor, and other major expenses. Taking over a new business is tough enough and it’s best if the new owner doesn’t have to renegotiate key contracts right away. Even if you are an ardent jack-of-all-trades, at some point in the sale process, you’ll need help. Exactly who and how much depends on your expertise, the size of your company, and the complexity of the deal. Most small businesses face some federal, state and local regulations as well as significant legal and tax issues. Your CPA can advise you on the financial aspects of your sale and evaluate the transaction from a tax perspective. Your attorney can advise you on the legal aspects of the sale, ensure compliance with relevant state and federal requirements and review the sales contract. You may choose to engage the services of a professional investment banker who brings buyers and sellers together, acts as the seller’s representative, and handles negotiations, much as a real estate broker does. He or she can help you compose a sales memorandum, a comprehensive profile that summarizes your business’s history, nature, and operations, and provides a financial overview. In preparing to sell a business, you must, of course, evaluate and demonstrate its worth. This involves gathering appropriate documentation. For example, audited financial statements prepared by your CPA will help a prospective buyer understand your business’s operations and past financial performance. Tax returns also document business performance. Determining the value of a business is one of the most difficult aspects of any transaction and is best done with the help of a qualified business valuation specialist, such as a senior member of the American Society of Appraisers (ASA) and/or a chartered member of the Association for Investment Management and Resesrch (CFA). Valuation methods vary. Whoever you select to value your business, make sure he or she has performed at least 30 valuations recently, five of which were for the same purpose you need a valuation for. The best method depends on your specific situation. Don’t be tempted to set a price based on simplistic formulas or even on comparisons to the amount paid for similar businesses. Unlike home sales, there are too many variables between businesses to make such comparisons valid. Along with determining an acceptable price for your company, you should think about what kind of terms you would accept. This depends in part on your personal financial situation and the financial health of your business. Are you looking for an all-cash deal or would you be willing to finance the sale price? Do you want to sever your ties to the company or are you willing to remain involved? In any case, be willing to compromise. The more flexible you can be, the more likely you are to reach a mutually satisfying agreement. The outcome of selling your business is likely to have a significant financial impact on you and your family. Be sure you have realistic expectations of the amount you will be paid. Adequate planning, preparation, and professional advice will help ensure that you do it right and get the price you deserve. Household help If you have a housekeeper, maid, nanny, or even a babysitter who qualifies as your employee, you have certain tax responsibilities. As an employer, you may be liable for Social Security and Medicare taxes, as well as federal and state unemployment taxes when the wages you pay your employee exceed certain amounts. If you’re confused about how much you owe and to whom, the following information may answer your questions. When you pay a household worker more than $l,000 per calendar year, those wages are subject to Social Security and Medicare (FICA) taxes. It doesn’t matter how many domestic workers you employ. As long as each worker is paid less than $1,000 for the year, you are not required to pay FICA taxes. Social Security and Medicare taxes are withheld from your employee’s pay and matched by you. The combined rate for both you and your employee is 15.3 percent of the employee’s taxable income. You deduct the employee’s half (7.65 percent) from his or her paycheck. You also have the option of paying the employee’s portion yourself, in which case the amount you pay represents taxable wages to the employee and must be included on the employee’s Form W-2. The wages you pay to household workers under the age of 18 are not subject to FICA taxes (unless that work is their principal occupation), nor are amounts paid for household work provided by your spouse or your children under age 21. If you pay cash wages of $1,000 or more in a calendar quarter, you are liable for paying federal unemployment tax (FUTA). This tax is put into a fund used to help pay unemployment benefits for people who lose their jobs. Unlike FICA, this tax is paid entirely by the employer. The rate is 6.2 percent of the first $7,000 of wages paid to each employee. In addition to FUTA, many states that impose unemployment taxes on household employees require quarterly payments. You should contact your state employment office to determine your state tax obligations. Mel Poteshman is a certified public accountant and president of Poteshman Consulting International & Co., a West Los Angeles-based business consulting firm.