BusinessConnection

Exclusively for Tri Counties Bank Corporate and Business Clients

Vol. 16, Issue 1

Service With Solutions™

24-hour banking (800) 922-8742 TriCountiesBank.com

For many growing companies, new equipment represents not only significant cost, but significant opportunity. Certain pieces of equipment can offer increased capacity or efficiency, and sometimes even entirely new lines of business. So it’s important that you understand the differences

between leasing and buying equipment, and the advantages that both can provide.

Whether it’s best to lease or borrow varies for each business. Four factors to consider before deciding are:

1. What are the tax effects?

There are substantial differences in leasing versus buying as it pertains to your taxes. Most lease payments are counted as a business expense and may reduce your tax burden*. Any tax benefit should be calculated into the net cost of the lease.

When buying equipment, you are also allowed certain depreciation deductions, depending on the cost and type of equipment. Make sure to research what the tax differences will be for your organization.

2. When will the equipment be obsolete?

Depending on what you’re looking to acquire, leasing may be well-suited to your needs. If the equipment will be significantly improved in five years, it’s worth asking if ownership is important.

However, if the equipment is unlikely to improve much over the next five years, you may be better served by purchasing. This way you can continue to get value from the equipment even after it’s paid off, in addition to the benefits of full ownership.

3. What are your company’s current financial priorities? Arethere other things that are more important to purchase?

Even if a company has the ability to take out a loan for equipment, there are still instances where leasing can make more sense. It depends on financial priorities.

Often, a company may choose to lease because there are other things they need to spend on, such as staffing, additional marketing or simply other equipment. In these instances, it may make sense to lease in order to take advantage of lower upfront costs and allow additional liquidity for other areas.

New Equipment Needs: Loan or a Lease?

However, if a company isn’t planning on additional spending in other areas, taking out a loan for the purchase of equipment may be the more attractive option.

4. Do you want the option to purchase at the end ofthe lease?

Usually there is a provision in lease contracts for purchase of equipment at the end of the agreement. This can be determined upfront so that there’s a buyout clause in the lease agreement.

If you’re looking into leasing or purchasing equipment, a Tri Counties Bank business banker will work with you to evaluate what makes sense for your business. We’ll give you straightforward advice and suggest a solution tailored to your needs.

* Please consult with your tax advisor.

Business Connection Spring 2016

For many small businesses, acquiring another company seems like an attractive way to grow. Just find the right target company, then enjoy new customers, trained employees and a proven sales process — all set up and ready to go!

But choosing the perfect business to purchase is only the first step, and subsequent steps can prove just as challenging. An acquisition can be a great way to grow your company, but you have to be committed to making it work. Don’t overlook these steps:

Provide constant communication. Communicate a clear vision for the transition and integration plan. Share as much information as you can at each stage

so employees, customers, suppliers and other business partners know how they can be part of it. Don’t wait until everything is finalized or approved to begin communicating. By then, people will have filled in gaps in their knowledge with their own interpretations and anxieties.

Get passwords and rights for digital property. You may have thought about the need to lock up rights to intellectual property, like trademarks and copyrights. But

don’t forget about passwords and rights for digital property such as Web domains, social media and email. If a website domain name expires, someone else can — and probably will — snap it up, and may demand an exorbitant price if you want it back. Without rights, you could be locked out of social media, or someone could hijack the accounts. Also, be sure the seller transfers all customer emails to you and sends out a message telling customers you’ve bought the business. Otherwise your future emails to customers could show up as spam.

Budget for transition costs. Technology may need to be replaced for the newly integrated company to function with one system. This may involve not only the

purchase of equipment and software, but training for employees to get them up to speed on the new system. An acquisition also requires an investment of time to establish and integrate the best of two cultures, operations and processes.

Eliminate redundancy without delay. Having duplicate expenses, systems and people can quickly wreak havoc on your bottom line. Once the deal goes through, be

prepared to integrate the businesses rapidly.

Capture the goodwill the newly acquired company built. Rather than immediately rebranding, which could wipe out some of the value of the company you

acquired, consider keeping the old company’s name in some

5 Steps to a Successful Acquisition

form for a time. If local employees are key to the company’s success, focus on retaining them. You might also consider asking the seller to stay on in some role. Having the seller be your advocate post-sale can help ensure the new company is seen in a positive light.

RELY ON OUR EXPERTISEIf you’re looking to make an acquisition, talk to a business banker at Tri Counties Bank about financing. Helping to grow your business success is our business!

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(800) 922-8742 TriCountiesBank.com

4Prepare your business to operate without you. Having your business too dependent on you will hurt its sale price. It should be able to keep growing on its own after you walk

away. Buyers want a business that allows them to easily step into running it.

5Offer seller financing. Seller financing for a portion of the purchase price plays a role in the sale of many small businesses, and can be beneficial for both buyer and

seller. The buyer puts down a portion of the purchase price with the remaining balance secured through a promissory note. You negotiate the amount you will finance, interest rate, loan period, collateral, payment schedule and other terms. The seller often stays involved in the business for a time. Both parties need the business to thrive and generate profit in order to satisfy their individual financial stakes.

6Polish your listing. Assuming that like most sellers, you don’t want to let competitors and employees know your business is on the market, your for-sale listing should provide

as many details as possible without revealing the exact identity of your business. It’s helpful to include financial information such as revenue and cash flow and geographic information such as state and county. Emphasize your company’s top selling points.

EXPERTISE YOU CAN TRUSTWhen you’re ready to sell, the business bankers at Tri Counties Bank can help you organize and document your business finances. We can also refer you to a specialist for help in managing the proceeds from the sale. For more information, call us at (800) 922-8742 and speak with a business banker or visit your nearest branch.

When you sell a house, enhancing its curb appeal can boost the price. In much the same way, your business can fetch a better price if you take the time to make it attractive to prospective buyers. How you prepare to sell your business can make the difference between a sale that goes quickly

and smoothly at a satisfactory price and one that is long and drawn-out, with a disappointing price.

Each business sale is unique, with its own distinctive challenges. In general, though, you may be able to make your business more marketable with the following steps.

1Get your books in order. Be prepared to offer documentation of your business revenue and expenses, profitability, cash flow, etc. Buyers will likely want to see detailed financial statements

going back at least three years. You’ll need complete and accurate records for all financial aspects of your business.

2Spiff up the workspace. Make sure your business is in presentable condition. Take care of any renovations or upgrades that may be necessary. Don’t wait until you’ve listed

the business for sale. You never know how long a renovation might take or how soon a prospective buyer may want to see the business in person.

3Boost the curb appeal. When cleaning and renovating, don’t forget the outside of your business.

First impressions matter! Your business’s exterior should be clean and welcoming, with attractive landscaping.

Grooming Your Business for Sale: 6 Tips

Buyers will likely want to see detailed financial statements going back at least three years.

This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material. Websites not belonging to this organization are provided for information only. No endorsement is implied. Images may be from ©iStock and/or ©Fotolia. ©2016 Bluespire Marketing | bluespiremarketing.com

SBA Loan 7(a) Explained

The U.S. Small Business Administration (SBA) has programs for qualifying small-business owners that might make securing a loan a lot easier. The most common of these SBA loan programs is the 7(a). A 7(a) loan doesn’t come directly from the SBA. Instead, an authorized SBA lender (such as

Tri Counties Bank) makes the loan and the SBA guarantees a portion of it, mitigating much of the risk for the lender.

When you are approved for a 7(a) loan, you can use the loan proceeds to help finance a large variety of business purposes. Basic uses for 7(a) loan proceeds include:

Long-term working capital to pay operational expenses, accounts payable and/or to purchase inventory Short-term working capital needs, including seasonal financing, contract performance, construction financing and exporting Revolving funds based on the value of existing inventory and receivables, under special conditions Purchase equipment, machinery, furniture, fixtures, supplies or materials

Purchase real estate, including land and buildings Construct a new building or renovate an existing building Establish a new business or assist in the acquisition, operation or expansion of an existing business

The SBA’s loan programs are generally intended to encourage longer term small-business financing. However, the actual loan maturity is based on your ability to repay, the purpose of the loan proceeds and the useful life of the assets financed.

Most 7(a) term loans are repaid with monthly payments of principal and interest. For fixed-rate loans, the payments stay the same because the interest rate is constant, whereas for variable rate loans the lender can require a different payment amount when the interest rate changes.

The SBA expects every 7(a) loan to be fully secured, but the SBA will not decline a request to guarantee a loan if the only unfavorable factor is insufficient collateral, provided all available collateral is offered.

Tri Counties Bank is one of the top-producing SBA Preferred Lenders serving Northern and Central California. As a Preferred Lender, we can streamline the application, review and approval processes. To begin the process, contact your local Tri Counties Bank business banker, who can develop the best solutions to help your business thrive and grow.

To begin the process, contact your local Tri Counties Bank business banker, who can develop the best solutions to help your business thrive and grow.