Rules of Thumb and Business Valuation

December 3, 2018

By Shawn Hyde, International Society of Business Appraisers (ISBA) –

Take a look at your thumb. Now compare your thumb to another person’s thumb. There are differences in size, shape, manicure, strength, and flexibility between these two thumbs. Remember this comparison, as we will come back to it at the end of this article.

A Rule of Thumb is a brief measurement, typically based on a specific part of the operations of a business, such as revenues or some other easily calculated income stream, including Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). The application of a rule of thumb includes some basic math, usually multiplying the selected source of income by a range of numbers.

Each industry, or type of business, usually has three or more different valuation rules of thumb that could potentially be applied to it. This means there are literally thousands of different rules of thumb that are available to provide indications of value for different types of businesses.  (more…)

Filing IRS Form 1099-MISC For Independent Contractors

November 13, 2018

By ComplyRight –

Tax PrepIf you work with independent contractors, you have to file a Form 1099-MISC with the IRS at tax time. Essentially, the 1099-MISC is to contractors what the W-2 is to employees. It covers income amounts, while also indicating you haven’t deducted any federal, state or other taxes.

Here are answers to common questions about filing requirements:

Q: What is the purpose of the Form 1099-MISC?
A: The form is used to report payments of at least $600 to any service provider (i.e., contractor, freelancer, consultant) who isn’t an employee. If the service provided was less than $600, you don’t need to file a 1099-MISC. One monthly payment of $300 wouldn’t require you to file the form, for example. But two separate $300 monthly payments within the same calendar year would.

Q: Do I need to withhold taxes from my contractor’s pay?
A: No. Independent contractors are responsible for calculating their own payroll taxes and submitting the amount to the government quarterly.

Q: What’s the filing process?
A: Filing annual 1099-MISC forms for independent contractors is a two-step process. First you distribute forms to your contractors and then you file with the government.  (more…)

Guide to Setting Prices

November 5, 2018

By Jennifer Lobb –

Price TagPricing can and often does make or break your business, and hastily setting prices without addressing important concerns can result in a whole host of problems, including plummeting margins, decreasing market share, or brand alienation.

Every business is different, and in many cases, the pricing strategy you choose is entirely reliant on the industry in which your business exists. However, though differences are plenty, there are some steps that, when incorporated into pricing efforts, will help you set prices that will support your financial goals while growing your business.

Identify your goals

I’m going to go out on a limb here and say that your goal is likely to sell things and make money. But a good pricing strategy is one that recognizes the finer nuances required to reach the ultimate goal. Are you simply trying to keep up with competition and meet last year’s benchmarks, or are you trying to increase market share? Do you want to maintain the status quo or do you need to make up enough revenue to cover a rough patch? Additionally, it’s helpful if you put a numerical value on your goals by determining your revenue target and factoring that in to your decisions.  (more…)

How to Hire Your First Employee (& When)

October 29, 2018

By Linsey Knerl –

EmployeeCongrats! Your small business is growing, and you’re starting to consider if it’s the right time to add on to your talent pool with your first, real hire. Up until now, you may have been relying on your own hard work, independent contractors, or even family members to get all the necessary tasks in your company accomplished. So, how do you know when you’re ready to take the plunge and raise your status to legal employer? These guidelines may help.

Know if You Need an Employee Now

Many tasks related to your business could be done by working with another independent contractor instead of an employee. While the determination should be made by following the laws stated for your state or local area, it’s generally OK to hire a contractor for tasks not specific to your business. Having someone come in and clean your t-shirt printing facility, for example, could be a freelance opportunity. Requiring someone to run your shop, print t-shirts, and deal with customers, however, is more likely an employee situation. Before you look at hiring an employee, be certain that it is indeed an employee you need to hire.  (more…)

What’s a Fair Price for a Privately Held Company?

October 22, 2018

By Shawn Hyde, International Society of Business Appraisers (ISBA) –

Publicly traded companies are valued every day on the stock market. But how do private business owners determine what a fair price is to buy out their partners? At what price they should sell their company? What’s the value of a 10% ownership interest in their company for gifting purposes?

The International Society of Business Appraisers (ISBA), www.intlBCA.com, exists to teach people how to answer these and other questions relating to the values of small businesses. Appraising privately held businesses involves logical thinking, financial analysis, and a healthy dose of practicality.

Some folks look at an enterprise’s balance sheet, find the equity section, and state that this is the value of the company. Not necessarily. If the company is going to be sold, are all the assets listed on the balance sheet going to transfer to the new owner? Also, the assets tracked on the financials are listed at cost less accumulated depreciation. If the equipment is fully depreciated, does that mean it has zero value? What about intangible assets like goodwill? This asset is typically not even listed on the balance sheet, and if it is, it only accounts for that portion that was purchased and not any goodwill that exists as part of the operation of the subject business.  (more…)