Lenders are more cautious when lending to smaller businesses, especially those with less than $10 million in EBITDA. This may translate to a higher required DSCR for smaller businesses to compensate for the increased risk perceived by lenders. Investment bankers find it difficult to arrange senior debt for businesses with less than $10 million in EBITDA.

In California, capital gains are taxed at the same rate as regular income, which is unlike many other states. There is no distinction between long-term and short-term capital gains. California tax rates on capital gains range from 1% to 13.3%, and there may also be a "mental health" tax for high-income earners.

When selling your business, careful tax planning is essential to help lower the costs of the acquisition and minimize taxes for you as the seller. It's critical to understand the difference between short-term and long-term capital gains. Short-term capital gains, which come from assets held for a year or less, are taxed at your regular income tax rate. Long-term capital gains, from assets held for over a year, are taxed at a lower rate, but also include a 3.8% Net Investment Income tax. The structure of the sale—whether it's an asset sale or a stock sale—also has significant tax implications that will affect how much you take home from the deal.

Lenders assess other financial metrics in addition to DSCR. Banks consider ratios such as debt to cash flow and debt to net worth. Asset-based lenders also use Loan-to-Value ratios to evaluate risk. Lenders also consider factors such as: Revenue growth rate, Collateral, Cash flow, Quality of earnings, Operating history, Strength of the management team, Customer concentration, Industry.

When selling your business, it is important to seek out a CPA with experience in M&A transactions, ideally someone who has been involved in at least 5-6 transactions in the past 3 years. They should have more than 10 years of experience, with a deep understanding of multi-state implications and international compliance, if needed. Also, they should primarily work with businesses, and depending on the size of the sale, should be able to provide quality of earnings studies, tax and accounting due diligence, among other services. A good CPA should be able to discuss pros and cons of stock vs asset sale and identify potential issues.

The typical DSCR tend to vary by the type of lender and the purpose of the financing:

1. Senior Lenders: Banks look for a minimum Senior DSCR of 1.2 but prefer the average borrower to have a Senior DSCR of 1.3. The limit not to be exceeded is 1.2.
2. Total Debt: Banks look for a minimum Total DSCR of 1.1 but prefer the average borrower to have a Total DSCR of 1.3. The limit not to be exceeded is 1.1.
3. Mezzanine Funds: Mezzanine lenders typically look for a minimum Senior DSCR of 1.3 with an average borrower having a ratio of 1.5. The limit not to be exceeded is 1.3. They look for a minimum Total DSCR of 1.2 with an average of 1.6. The limit not to be exceeded is 1.2.

In summary, lenders want to see the cash flow be at least 1.1 - 1.3 times the debt service to be comfortable with their lending.

DSCR is a financial metric that lenders use to assess a borrower's ability to repay their debt obligations . It measures a company’s available cash flow to pay current debt obligations . A higher DSCR generally indicates that a company is more capable of handling its debt payments.

A transition plan details how a business will function if the owner retires or departs. It designates a successor, identifies key stakeholders, documents key processes, and assesses risks. A well-crafted plan ensures a smooth transition and preserves business value, while the absence of one can disrupt continuity and decrease value.

As per the International Business Brokers Association (IBBA), following states require licensing or registration with state securities commission for business brokers:

Alaska, Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Minnesota, Nebraska, Nevada, Oregon, South Dakota, Utah, Washington, Wisconsin, Wyoming

Mezzanine lenders are closing more deals. Higher interest rates for senior debt are reversing a tightening in the mezzanine debt market. Lenders are seeing decreased senior and flat total leverage multiples with a worsened general business environment and decreased appetite for risk.

An installment sale is another option where you receive payments for your business over time, instead of in one lump sum. This allows you to defer some of the tax on the gain to later tax years, potentially taking advantage of lower tax brackets. It could also help avoid some state taxes if you stay below a certain income threshold. On the other hand, there's a risk that you might not receive the full payment, and you are exposed to liquidity and market risks. Also, as a seller you can generate additional interest income from the principal valuation amount and possibly attract more buyers.

Purchase price allocation is a key process in a sale, and it involves assigning the total purchase price to the individual assets being sold. This affects your tax liability as the seller and the buyer's tax basis in the acquired assets. Generally, sellers prefer to allocate as much as possible to capital gain assets and intangibles, while buyers often want to allocate to depreciable assets. Therefore, the allocation is often a negotiated part of the sales agreement. Both parties should submit a purchase price allocation, and it's best to agree on it before closing to avoid potential issues with the IRS. In an asset sale, the purchase price is first allocated to tangible assets, with the remainder allocated to intangible assets such as goodwill.

"Day Zero" refers to a beginning, and in this case, the beginning of your succession planning journey with Zolidar.

There have been efforts to find solutions for employees returning from incarceration to tap into the benefits of EO. One example is the ChiFresh Kitchen in Chicago.