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Key Idea: Sell Through a Public Offering (7)

While the Initial Public Offering (IPO)  is relatively well examined, the Direct Public Offering is not. Little known among DPOs is the Small Corporate Offering Registration, known as a SCOR.  Stockbroker David Porter explained the benefits.  More...   Related...

Key Question:

A: 

Peter took the anonymous road and Lorraine took the friendship path. Peter wrote an ad (just like an advertising man, right?) and ran it in the Wall Street Journal. He described the type of person he was looking for which was the way he found a person like himself.

Lorraine told her banker friend that she wanted to sell and it turned out that she had more than one offer. The person who "won the right" to buy the business told Lorraine that he loves plants and that was the opening of the buy-sell negotiations. Because she was able to sell to a plant lover, Lorraine felt good about the sale. She felt that the employees and customers would be happy because the new boss is in simpatico with the founder.

The big bonus for Peter and Lorraine is they didn't just get money for their businesses; they transferred the business to a person that they felt would keep the business much like they found it.

Questions for this clip: 1 | 2

Think about it

Can you imagine having shareholders? What would you do with the money you could raise with a SCOR?

Clip from: From Equity to Exit Strategies - 8 Possible Paths

The world:  Most of us small business owners do OK competing with the big businesses in our industries or we don't survive. But when it comes to our exit strategy and succession planning, most of us fall on our face.

This episode is to explore business valuation and exit strategies.

An exit strategy is just like doing a will, but here you try to maximize the dollars you get out of your life's work.   Nobody wants to see you liquidate. That's getting pennies on your dollars. Tangible assets get sold (fire sales) and the intangibles are lost forever. Liquidation is the worst kind of liquidity.  

Most of us will sell our business through merger or acquisition. But, if we get much over two-to-three times sales or six times earnings, we all think we've done very well. Yet, when big business sells, they usually begin at six times earnings. Then we see 40 times and even 300 times earnings on the open markets. Why should we be satisfied with so little?

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We all must prepare today for the invevitable tomorrows.

Small Business Owners Everywhere in the world, We all will exit our business someday.

Visit our web site: http://smallbusinessschool.org/page1107.html

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Sell Through a Public Offering (7)

HATTIE: Number seven. Sell it over time to the general public through one of the direct public offering instruments.

HATTIE: (Voiceover) The people of Blue Whale movers really move on the job, and that's one of the reasons this Austin, Texas, company has been so successful. When the owners wanted to grow the business, they needed additional money, and they raised it through a Small Corporate Offering Registration.

DAVID PORTER: It cost them a lot of money.
 
HATTIE: (Voiceover) Stockbroker David Porter has helped them.

DAVID: The company needs a very well-defined, thought-out business plan that will enable people to look at the company and be willing to put money aside for four years, five years, two years, whatever it turns out to be, while they're waiting for that company to effectively employ their money. That's generally the way it works. Generally, people are patient and their reward comes at the end of some period of time.

HATTIE: All right. But with a SCOR offering, the individual who bought into my business is going to hold onto those shares until they find someone to buy it from them.

DAVID: Well, there are several reasons that they want to do that, not the least of which is a tax reason. If you purchase most of these small corporate offerings, the majority will qualify under Section 1202 of the tax code, which means that if you hold them for five years or more, whenever you sell them, you get to exclude 50 percent of the capital gain from taxation.

HATTIE: So that's a good reason to buy a SCOR.

DAVID: That's one good reason to buy a SCOR. Another reason is, that the company may qualify under Sections 1244 or 1245, which say that if you sell that stock and make an equal investment in another qualified company, you at least defer that tax. You don't pay the tax on it right now. Additionally, you have the ability, if things really go badly for the company, that you may be able to write the entire investment off as a direct write-off against your taxes, rather than have to take it as a capital loss.

HATTIE: All right. So tell us why small business deserves our investment?

DAVID: Small business deserves your investment because it has the potential of making you more money with tax advantages that are not available in large companies.
 

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