Author Archives: Jacob Weil

A Guide to Buying a Small Business

Determining How Much You Can Afford to Invest!

Before acquiring any business you must to determine how much of an investment your looking to make. When making this consideration it is important to consider not

only the the monetary value, but the amount of time and effort your willing to commit to your new business as well. Typically, the minimum down payment needed by a buyer is between 20% and 30% of the purchase price of the business. For example, if the business purchase price is $200,000 then in order to finance the business the buyer’s down payment needs to be $40,000 to $60,000. Obviously, you are always able to put down more, or purchase the business without obtaining lender financing.

In addition to that initial purchase price, possible expenses a purchaser needs to consider are the costs of inventory, supplies, escrow fees, license and permit fees, franchise transfer fee (if applicable), and other associated costs of acquiring the business.

And then you have to set criteria of desired business. Which includes location of business, type of business, price range of business, desired income of business.

Finding a Business to Invest In!

After you decide how much you are looking to invest and the type of business your looking to become involved with, You will need to begin to look for a business you can acquire that meet those criteria.

There are a number of ways to find businesses for sale. You can search business through one of the multitude of online business listing services, search local newspapers and trade publications, or go through local business brokers and sales agents. One often overlooked avenue is professional connections. Lawyers, Accountants, and other professionals often learn of business’s looking to sell even before anyone else does, so building a good report with these types of professionals can help you find the deals that not everyone knows about.

Understanding the Business and Making an Offer!

You have found a business that you want to purchase, now what? You will need to evaluate the business. While their are many methods of evaluating a business’s value most of them rely on determining the potential income stream and equity that business has the ability to offer. To learn more about how businesses are valued, click here.

You should sit down with the current owners and look at how the business is currently operating. Try to identify what the business is doing right and potential areas which could me improved, streamlined, or eliminated. Learn the businesses core values and philosophy and see if that is the right fit not just for your budget, but your personal business philosophy. While you can change the way systems operate when you take over, it is very difficult to change a businesses culture, so you want to make sure it is something you can grow with.

Only after you have done those steps can you make decision whether to pursue purchasing business or not. If the business seems like the right fit for your business philosophy and budget it is time to create Purchase and Sale Agreement. This document will have all of the details about when, how, and how much the business will sell for. It may also include things like agreements of former owners to stay on for a transition period, or other things you come up with.

When you are crafting an offer, make sure the document includes the following items: Your offering price, Initial deposit amount, financing terms, closing date. In addition to these fundamentals it may be advantageous to add things to the offer such as loan approval contingencies, lease information and lease transfer approval from landlord, requirements that the buyer be able to obtain all necessary licenses and permits, required franchise information (If your dealing with the a franchise), the buyer’s Satisfaction of books and records, how closing costs are to be allocated, a buyer training session with seller (Or stay on provision), guarantees on the business equipment and fixtures, information on inventories and supplies amount, non-compete agreements, and any other important details that pertain to your deal. This offer is now your starting point.

Negotiating with the Seller!

Now that you have crafted your offer it is time to present your offer to the seller. When you present the offer know you will likely be countered. Know your sticking points and where your willing to make concessions. No is the time to negotiate the price, terms, and conditions. It may take several rounds of going back and fourth to get the right deal but eventually, with any luck, you will settle on a final price and terms of the deal.

Once you have arrived at your finalized terms you will need to dot the I’s and Cross your T’s. Obtain needed licences, secure any financing if needed, make sure leases or other steps are taken. You want to make sure everything is in order for the most important step in squiring a business.

Closing the Deal!

All of the terms have been worked out, financing has been secured, and everything is ready. Now is the time when you sign over the business, pay the seller, and handle any needed legal steps. Congratulations, your now the owner of your new small business.

Thieves Make Off With $64 Million in Bitcoin from NiceHash Hack! Miners and Investors May be Able to Claim these Losses as Theft and Casualty Losses.

As the world watched Bitcoins price soar to new heights last week, thousands of Bitcoins went missing from the popular mining application NiceHash. The company, which makes it easy for people to mine the most profitable “alt” coins and pays you out in Bitcoin, was robbed of over 4,700 coins at some time in early Wednesday morning, December 6, 2017. This not only left many in the crypto-currency community with their mining rigs running cold (the process of mining produces an immense amount of heat, so a cold miner is a broke miner), but it also left those same miners missing possibly thousands of dollars or more of mining profits. In addition, it left those who had money stored through the company’s wallet system high and dry. http://www.bbc.com/news/technology-42275523
The IRS has made it clear this year that it expects miners to report all income they receive from cryptocurrency, and based on this news, the IRS will be coming down hard on those who fail to report income. But reporting this income also means Miners will be able to deduct these kinds of losses on their tax forms as well. In the case of the stolen coin using the casualty and theft loss deduction.

Depending on your individual tax situation you may be able to claim the losses as either a personal return under Schedule A, or a business loss under Schedule C of the 1040 Form. https://www.irs.gov/taxtopics/tc515.

Personal Losses

If your tax situation requires you to claim any lost coins as a personal loss, you will be subject to the same deduction rules that apply to all itemized deductions for theft. To calculate the amount a person is eligible to deduct you must subtract $100 from the value of the loss then subtract 10% of your adjusted gross income (subject to a maximum of your adjusted basis in the coins). This number will give your allowable loss deduction. It is also important to note if this loss exceeds your total net income for the year, you’re eligible to carry over a net operating loss (NOL) on your return to future years even if it is not business income. (This is an exception to the general rule which exists for casualty and theft income.)

To record and report all this information to the IRS you will need to file a Form 4684 (Section A).

Another important thing to note is that as this deduction is an itemized deduction you can only take the greater of the combination of your itemized deductions or the standard deduction. Thus, this strategy may not make sense if your losses are small, or you can not combine the amount with other itemized deductions.

Business Losses

Losses which are considered business assets from the theft can also be deducted. Following a similar procedure of filing a Form 4684 (Section B), one can deduct the losses against their business income. One benefit of this method is that these deductions are not subject to the same value reduction and can be used to directly offset business income. If these losses exceed income, then you can carry over a NOL to subsequent years.

At the end of the day, the tax right off is never going to make up for the entirety of the loss from any theft. But with the IRS coming after the cryptocurrency market with a vengeance this year, it may help to take some of the sting away to know that Uncle Sam will cut you a small break.

 

UPDATE!!!

NiceHash has released a press release, and while no details were given it seems they may make whole the people whose accounts were drained. It will take time but we are working on a solution to ensure all users are reimbursed. “In an exclusive interview with WikiTribune, Marko Kobal, the CEO of NiceHash – a Slovenian-based crypto-mining marketplace – said that his company is “working on a solution to ensure that all users are reimbursed” for the $60m hack that took place last week.” This means you may not be able to deduct these losses. As of yet, it remains unclear as to whether the company will ever recover, but until more information comes out, a possibility exists that the coins will be returned or reimbursed by the company.

The bad news if this reimbursement goal is true is it will mean no Theft and Loss deduction can be used on the missing funds (Until we know for sure the money is stolen and not coming back). The good news, if this news is true, Nicehash patrons will have your missing Crypto-Coin back.