There is no better time for small business owners looking to sell their closely held business. However, small business owners hoping to cash out can quickly discover that issues with their internal financials can become a roadblock to a successful sale. Disorganized or missing financial or corporate records can turn off potential buyers, who demand complete transparency when buying a business. Financial mistakes that can derail a transaction include:
Inaccurate inventory reports. With no one to hold them accountable, a small business owner’s main focus can be to minimize taxes. When business owners artificially lower inventory so the cost of their goods increase, it can cause tax issues at the end of the year. Over-reporting or under-reporting inventory, can lead to owners misreporting their taxable income.
Not using an accountant, professional bookkeeper or computerized account software. With a limited number of resources available, some small business owners try to be their own bookkeeper despite being unqualified. When small business owners don’t have a proper accounting system in place to track their income and expenses on a daily basis, it is difficult to get a good understanding of the earning potential of a business.
Failure to report all cash sales. Sellers can adversely impact the value of their business if they intentionally conceal cash transactions, such as pocketing cash from sales in order to avoid paying income and sales taxes. Since businesses usually sell for a multiple of cash flow, it’s in an owner’s best interest to report all income for a multi-year period ahead of a sale. A multiplier received on that cash flow will usually offset any taxes paid on the higher reported income.
Get Financial Religion. Beyond attracting potential prospects, organized and accurate financial records can help business owners identify what parts of their business need attention to prepare it for a sale.
The good news for sellers is that many of these mistakes are fixable, but getting the financial records in shape for a sale takes time and work. Correcting financial records to satisfy a buyer can take several years to fix. Some sellers may want to remove their personal expenses from the business financials and take steps to ensure their financial records match their tax returns. Owners should consider hiring an experienced bookkeeper and waiting until the business financial records appear credible to a prospective buyer.
Accurate financial records can also qualify your business for a Small Business Administration loan. If a business doesn’t have accurate and understandable financial records and tax returns, it won’t qualify for an SBA loan, Often, incomplete or inaccurate financial records can force a seller to offer seller financing, prolonging the seller’s exit.
While this is a great time to be selling your business, financial mistakes and inaccurate or incomplete financial records can quickly derail a sale. If you are serious about selling your business, there is no time like the present to get financial religion and begin cleaning up your business finances.Read More
On August 9, 2019, Illinois enacted the Workplace Transparency Act, which amends the Illinois Human Rights Act. This new law requires that all Illinois employers provide annual sexual harassment training to its employees.
Effective January 1, 2020, all employers must train all employees in Illinois each year. The first deadline is January 1, 2021. The annual sexual harassment training program must include:
An explanation of sexual harassment
Examples of conduct that constitute unlawful sexual harassment
A summary of federal and state statutory provisions, including remedies available to victims of sexual harassment.
A summary of the responsibilities of employers for prevention, investigation, and corrective measures of sexual harassment.
Employers who do not provide training will be subject to civil penalties, including a $500 penalty to businesses with less than 4 employees, or a $1,000 penalty to those with 4 or more employees. Penalties for repeat violations can rise to $5,000 per violation.
In addition to the training requirements, the Workplace Transparency Act makes the following changes:
Independent contractors. The Workplace Transparency Act amends the Illinois Human Rights Act to protect not just employees, but also independent contractors from harassment and discrimination.
Disclosures. The new law requires employers, labor organizations, and local governments to disclose to the Illinois Department of Human Rights (IDHR) the total number of final adverse administrative or judicial decisions involving sexual harassment or discrimination in the previous year entered anywhere in the U.S. Employers must make the disclosure beginning July 1, 2020 and each July 1 thereafter. Employers may also be required by the IDHR to disclose during an investigation the total number of settlements involving sexual harassment and discrimination claims entered into during the previous five years anywhere in the U.S.
Non-disclosure agreements, non-disparagement clauses, and mandatory arbitration agreements. The Workplace Transparency Act places significant restrictions on the use of these types of agreements for cases involving harassment, discrimination, or retaliation.
Victims Economic Security and Safety Act (VESSA). The law expands VESSA to allow victims of domestic, sexual, or gender violence to take unpaid leave to seek medical help, legal assistance, counseling, safety planning, and other assistance without penalty, if requested. A victim of workplace harassment could be entitled to such leave.
Bar and restaurant owners. Owners of restaurants and bars are now required to provide sexual harassment training annually to all employees (regardless of employee classification), available in both English and Spanish. The training must be specifically aimed at the prevention of sexual harassment in the restaurant and bar industry. Such employers must also provide employees with the company’s sexual harassment policy and instructions on how to report sexual harassment incidents within the first week of hire.
Casino and hotel owners. By July 1, 2020, owners of hotels and casinos are required to provide portable safety notification devices (at no cost) to employees who frequently work alone in restrooms, guest rooms, casino floors, or other isolated spaces. The safety device must allow them to call for help if they fear their safety or witness sexual assault or harassment.
Casino and hotel owners must also provide all employees with a current copy of the hotel or casino’s anti-sexual harassment policy (including reporting procedures and the prohibition against retaliation) and post the policy in clearly visible areas of the hotel or casino, both in English and Spanish.
This new law should be taken seriously and every Illinois employer must comply. Employers can design and implement their own in-house training program or outsource the training to a thrid party vendor. If you would like more information or need a referral to an outside training vendor, please contact Shelly Lustig at 847.509.9090, by email at firstname.lastname@example.org or visit us on the web at https://www.lustiglaw.comRead More
The Illinois Limited Liability Act was recently amended in ways that could adversely effect our clients who own an interest in an Illinois limited liability company. The amendment of most consequence is that an oral operating agreement is now binding on its members and managers.
This means that two or more people may decide one day that they had orally entered into an operating agreement even before the Articles of Organization of the company were filed. The terms and conditions of such an oral operating agreement would then be subject to each persons understanding of the agreement based upon memories that fade with time.
A second problem arises if and when a new person gets admitted as a member. The amended Limited Liability Company Act provides that a new member is deemed to assent to the existing operating agreement. If the existing operating agreement is oral, what terms and conditions has the new member agreed to?
Without a written operating agreement, the new member is agreeing to be bound by whatever the existing members remember the operating agreement to be.
If you own an interest in a multi-member Illinois Limited Liability company without a written operating agreement, you should call us to see how this amendment may effect you.Read More