September 2009 Archives

September 30, 2009

SBA Changes Course on Goodwill Financings

Prior to last March, SBA loans could be used to guarantee any amount of goodwill included in the purchase price of a small business. With certain business purchases, the value of goodwill (name recognition and customer loyalty) can be as high as 55% to 95% of the overall purchase price. Starting in March of 2009, however, the SBA placed a cap on the amount of financing for goodwill that it would guarantee--$250,000 or 50% of the loan amount, whichever was lower. The new rules were meant to prevent sellers from overvaluing their company's goodwill or intangible assets.

The changes resulted in a tightening of capital and a 33% drop in business acquisitions from the prior year. As reported in a Wall Street Journal article, "It was the antistimulus." After a study finding that $400,000 was the average for goodwill financings, the SBA decided to raise the cap to $500,000 starting in October. Under its new guidelines, the SBA also recommends 25% in equity from the purchaser in goodwill financings over $500,000. Hopefully, the new rules offer a reasonable compromise between unlimited financing for goodwill (which can cause problems for purchasers) and overly restrictive terms that inhibit business acquisitions.



For more detailed information on the important aspects of selling a business, see The Complete Guide to Selling a Business, by Fred Steingold (Nolo).

September 24, 2009

Bookkeeping Basics--When Less is More

Do you need a basic bookkeeping program for your small business--something more sophisticated than a pencil and paper system but less complicated than a full-blown accounting program? There's a relatively new online bookkeeping service called Outright that may be just the thing you are looking for. An article in Small Business Trends describes how easy the program is to use. You are asked to track only two things--earnings and expenses. You provide this information and the program helps you figure out your quarterly estimated taxes and business deductions. For many small businesses, it may be the perfect bookkeeping solution, providing essential bookkeeping services while avoiding the headaches and hassles of a program that offers more than you need. It's designed for sole proprietors and single-member LLCs, and it's free (at least for now).            

To learn more about business bookkeeping, see Nolo's Business Accounting, Bookeeping & Finance area.

September 21, 2009

Swine Flu and the Workplace

After first appearing on the scene last spring, the H1N1 virus--also know as swine flu--is back. Small businesses are scrambling to figure out how to cope with what promises to be a challenging fall and winter. Aside from employee absences and staffing issues, concerns about a flu epidemic raise a host of other issues for small businesses, like maintaining employees' health privacy and creating effective sick policy rules. A recent Wall Street Journal article provides advice and resources for businesses trying to figure out how to best prepare for this year's flu season.

The article discusses some preventive measures businesses can take, such as offering flu shots or time off so employees can get flu shots. Another is to keep the workplace more sanitary by frequently cleaning surfaces and having hand sanitizers available. Businesses may need to review their sick policies or create new ones, possibly adding more sick time so employees don't come to work sick. And businesses may want to cross-train employees or offer telecommuting as on option for employees who are home with a sick family member.
For more information, see Planning for 2009 H1N1 Influenza: A Preparedness Guide for Small Business. The Centers for Disease Control and Prevention also has information for businesses on its website at

To learn more about creating a healthy and productive workplace, see Healthy Employees, Healthy Business, by Ilona Bray (Nolo).

September 15, 2009

Work With Your Competitors

Here's the tenth and final big-picture strategy from my save your business list:

10. Work with, not against, your competitors.

One of the best ways to lower overhead expenses is to combine operations with another business. For instance, sharing office space and a receptionist with a similar business can save a lot of overhead costs. The Sharing Solution, by Janelle Orsi and Emily Doskow (Nolo), offers some great ideas for businesses interested in sharing space and equipment with other businesses.

September 9, 2009

Don't Overwork Long Hours and Drag Your Business Down With You

Here's the ninth big-picture strategy from my save your business list:

9. Don't overwork long hours and drag your business down with you.

Growing a successful business is like running a marathon, not a hundred-yard dash. If you can outlast the recession, you will outlast your weaker competitors, and after the recession your business will have the opportunity to grow larger and more profitable than before. But working 80 hours a week for months on end probably isn't help you survive the recession--and it may take away the down time you need to focus on new ideas and innovations. The best ideas often come to you when your brain has had a breather. If you run yourself ragged with hours and hours of busy work for a year or two, you won't be poised to innovate and take advantage of market conditions as they improve. So while sales are down, cut your overhead and labor costs where you can, batten down the hatches, and even consider taking some R & R while things are slow--who knows what new ideas you may come up with? 

September 4, 2009

Reduce Payroll by Reducing Hours and Making Select Layoffs

Here's the eighth big-picture strategy from my save your business list:

8. Reduce payroll by reducing hours and making select layoffs.

As we discussed in a previous blog post on cutting costs but avoiding layoffs, before laying off good workers you should try cutting employee benefits, salaries, and the number of hours employees work per week or month. If you've instituted thee measures and are still operating in the red, consider laying off nonessential workers, perhaps those who aren't as productive as others or who aren't willing to learn new skills. For a good article on how to choose who to layoff, as well as how to stay out of legal trouble when you terminate employees, see the article Making Layoff Decisions in Nolo's free Legal Encyclopedia.
September 1, 2009

Shutting Down a Floundering LLC

We recently received this question from a reader:

My LLC owes a lot of debts and the business is floundering. If it doesn't improve, can I just close the doors and move on since I'm not personally liable for any debts?

There are really two parts to this question. The first part is: "Can I let my LLC lapse by not paying annual renewal fees to the state LLC office?" Here's the answer: If you don't file LLC dissolution documents with your state, your LLC will keep incurring annual fees and minimum taxes and will get suspended, so you need to file dissolution papers.

The second part of the question seems to be: "Can I close the doors and ignore creditors' phone calls even though the LLC owes debts?" First, if your LLC owes debts, you can't take any LLC cash or assets and give them to yourself or other owners. Only after you have paid all creditors' claims and repaid all loans can you distribute the remaining cash and assets, if any, to the owners. Plus, LLC owners have a statutory duty to pay off the LLC's debts to the extent possible, if it has any assets.

In addition, some states won't allow the LLC to formally dissolve until it has repaid its debts; the state LLC registration lists are full of suspended businesses because so many have debts that can't be paid and yet the LLC can't be dissolved because of the debts.

So, to comply with your state's law, you should try to liquidate the LLC's assets and pay off its debts to the extent possible, either:

  • by doing it yourself
  • going through a business bankruptcy, where the bankruptcy court liquidates the business and pays off its debts to the extent possible, or
  • by assigning the LLC's assets to a company or law firm that specializes in liquidating assets and paying off creditors.

If you decide to liquidate the LLC's assets yourself, you could simply sell the LLC's assets and pay your creditors on a pro rata basis until the business's cash is exhausted. But a better idea is to get a signed release from all of your creditors, releasing the business and its owners from the debt. This prevents you from being hounded by collection agencies and possibly even being sued down the road. If you are sued, you'll at least have to file a response in court, pointing out that you aren't personally liable for the corporation or LLC debt, and you may have to hire a lawyer or appear in court.

Worse, a creditor might even argue that it was really just you running the LLC and that your LLC was just a sham to help you defraud creditors -- this is called "piercing the veil" of the LLC. If the creditor were to succeed in piercing your LLC's veil, you could actually be held personally liable for paying the LLC's debt. Getting settlement releases on all of your debts can avoid this, as can going through bankruptcy or an assignment of assets for the benefit of your creditors.