Author: rickandrade121

I had the honor of participating on a recent webinar panel with 3 other guest speakers discussing how and why business owners should pre-plan their exit before they sell their most valuable asset.

Click on the link below for a Free copy and hear from experts on the subject as well as my take on the difference between Price and Valuation Multiples.

Here was the agenda:

– Creating a Check List is your first move

– Pre-planning (>2 yrs before transition)

– Short term planning (<2 yrs before transition)

– Exit strategy

– How to execute the plan

 Who attended:

CEOs, CFOs, business owners and advisors

The Panel:

Rick Andrade, Managing Director – Janas Associates M&A Investment Banking firm

Andy Horowitz, VP with Morgan Stanley Wealth Management

Ronald S. Friedman CPA Partner with Marcum LLP

Lewis Stanton, Managing Partner at Stanton Associates LLC

 

Audio:

http://lighthouseconsulting.org/openline/091013/OpenLine091013.mp3

Slides:

http://lighthouseconsulting.org/openline/091013/OpenLine091013.pdf

 

After years in the making, this coming October 2013 marks the beginning of the roll-out of the Affordable Care Act, aka ObamaCare. Given the sweeping changes of the new law much mis-information and media hype trying to explain it has only fueled the flames of confusion and distrust as to what actions small business owners must take. Congressman Waxman’s office recently offered to help by sending me a link to the SBA which is now conducting Free Webinar updates on their website to help clarify employee vs employer impacts starting this fall.

The SBA is offering several Free LIVE Webinar opportunities so business owners can ask questions and get answers. Here’s the link http://www.sba.gov/community/blogs/community-blogs/health-care-business-pulse/affordable-care-act-101-weekly-webinar-se

Remember the “employer mandate” component of the law has been postponed 1-year to January 2015. Meaning businesses with more than 50 employees will have one more year to prepare to offer health insurance to their employees. Recall the actual number of small businesses with more than 50 employees that currently DO NOT offer health insurance is below 5% nationally. So for the vast majority of small businesses in the U.S. nothing will change.

The “individual mandate” on the other hand, will roll-out this fall as scheduled, unchanged by the 1-year delay. That means by January 2014 uninsured Americans en masse will be expected to participate in the market by purchasing healthcare insurance on the new state Healthcare Exchanges popping up across the country. For those in California the new H/C exchange is called www.CoveredCalifornia.com

Given this new law will likely impact you or somebody you know, aka your employees, I suggest each CEO get better educated on the subject before employees come asking about their options. These new SBA Webinars as a result offer an easy opportunity to get up to speed quickly.

Rick

My latest article published by CEO Magazine briefly juxtaposes traditional M&A finance with Crowdfunding.

 

As middle market mergers and acquisitions heat up this year, the value of your company could be viewed more specifically if you are near the employee threshold of 50 Full Time Equivalents (FTEs).

From a middle market investment banker point of view putting your finger on how these issues for business owners will impact valuations and buyer perspectives is in the DCF assumptions, right? Let’s say you come to me and want to sell your company. You have 60 FTEs and spend $360,000/yr ($6,000/employee) for benefits and expenses. Under the new laws a new owner could cut that expense down to $30,000. That’s a savings of $330,000 each year. How?

According to the ACA (Affordable Care Act) employers on the 50 person cusp are given a 30 person exemption, and penalized only 2.5% over $9500 in salary per employee for the remaining 30 staffers. Depending on how much you pay your staffers, ie) Salaries in the $50,000/yr range will incur roughly a $1,000 penalty, you can see where this is going. In other words if a small business owner decides to sell the business, there could be a tempting maneuver to increase take home earnings immediately by pushing health care costs onto the public at a huge discount. Notwithstanding the inherent risks of the switch, saving over $300,000/yr could be irresistible. For a seller that is approached under this scenario the increase in enterprise value could conservatively exceed $1.5mil in today’s deal dollars. Add that to the deal value and many sellers might blink.

While I have not seen this M&A scenario baked into any new deals yet in 2013, it will certainly become a growing question between middle market business owners on the cusp looking to sell later this year. If you’re interested in how a few real world companies are expecting to deal with the new Obamacare rules, take a look at Adam Bluestein’s article in Inc Magazine this month where he takes a close look at 4 case study company CEOs on the edge.

Last month E&Y reported a near 50% drop in global M&A from $4Trillion in 2007 to $2Trillion last year, and while that may not be a fair comparison as M&A crawls back from the depths, the perennial fear and anxiety buyers have of overpaying for mergers and acquisitions has probably never been higher. Often missing is the acquirer’s ability to accurately measure the value of the Seller’s customer base and its recurring revenue streams.

The reason for the error according to Walker Research, an Indianapolis based customer research firm, is the acquirer’s inability to properly survey the top 80% of the Seller’s customer base and categorize them into 4 Key Value groups:

Properly identifying the “customer type” and matching it up with the likelihood that those customers will stick around can help avoid overpaying for an M&A target sometimes by $millions. The simple rule of thumb or takeaway is to recognize when you the CEO of the acquiring company may need to hire a 3^rd party to re-evaluate and re-value the Seller’s customer base more closely in a riskier transaction.

Walker Research recently gave members of the ACG (Association for Corporate Growth) an informative webinar explaining the importance of Advanced Customer Due Diligence – which is now available to the public.

Ladies and Gentlemen, our first New Year’s present has arrived.

It’s another gift from our kids; a generation feverishly bent on serious change. And this time they’re re-engineering the perennial landscape of small business financing. It’s the Internet meets Crowd Funding part 2, courtesy of the Jobs Act in Washington. You’ve heard of it, Crowd Funding, where budding entrepreneurs raise money on the internet for new sticky-wand hair removers and degravitizing dust particle vacuums, right? There is that. But what if, as well, it was soon to become the most measureable small business economic payoff from Social Media of all time? Would that get more attention?

Until now, for most of my clients (and me) crowd funding has been little more than a mere curiosity. Most business owners I know still think to raise money the old fashioned way, they borrow it, from a bank, with thick walls and a vault. But what if that were not the right way anymore? Enter the rise of the CFPs (crowd funding platforms) in 2013. That is when under the Jobs Act crowd funding platforms are expecting to expand beyond facilitating donations and rewards. The new options which include debt and equity raises may begin to ruffle old feathers. Why? Think of it. One company has already seen over $10 million in crowd funds pledged for their product line! That’s serious coin. But how is that possible without Gangnam Style you wonder??

In business school we all learned about how innovations like Facebook can dramatically disrupt an industry’s rate of change. Well, perhaps on some smaller level it’s proper to say, like it or not here we go again. This time, it’s not brick and mortar bookstores going down, it’s brick and mortar banks. Especially small local banks, they better watch out. Is that a stretch? Maybe. But at some point the key question becomes obvious: why would anyone (like a small company) let a local bank have all the fun (so to speak) when you can now tap into a growing planet of online users (you don’t even know) to help finance your company’s next big thing?

Well, 2013 could be just that bell ringing, and the year this thing takes off. According to crowdsourcing.org there are already over 500 CFPs (crowd funding platforms) worldwide. Most are in the US where new rules have been written, lessons have been learned, and it’s where over $800mil in crowd funds were raised in 2011. So maybe it’s time to get more familiar with it and in what better way than by using a recent SCORE Crowd Funding webinar to spread the word. It’s a 1-hour moderated prerecorded online webinar from SCORE.ORG (where I too am a proud Business workshop instructor). The program is a moderated slide show discussion between two crowd funding companies, Indiegogo and Somolend, who (like Kickstarter) facilitate specific crowd fund-raising processes for a fee of about 4%, although pricing varies.

They use a few simple real-life case studies to explain exactly how crowd funding successes are achieved… start to finish. I would consider the info an early 2013 heads up present for small business owners, and it’s free: You’ll quickly learn:

• What      is Crowd Funding & How it Works
• Types      of CF: new Debt/Equity option vs Donation/Reward
• Why      the 30-Day Campaign is a big hit
• Best      Practice Case Studies & Tips for Success
• SEC      and FINRA views and rules

Is it a global tide change for small business lending; a disruptive evolution in the making? It could be that. But on the face of it, do I see crowd funding platforms replacing Wall Street bankers anytime soon? Not really. But then $10 million isn’t play money either.

http://www.score.org/workshops/crowdfunding-alternative-source-financing

About the author: Rick Andrade is a Managing Director and investment banker in Los Angeles. He represents active sellers and buyers of middle market companies. Rick has his BA and MBA from UCLA along with his Series 7, 63 & 79 FINRA securities licenses. He is also a Real Estate Broker, a volunteer SBA/SCORE instructor, published writer and blogger at www.RickAndrade.com for issues important to middle market business owners. You can reach him at RickAndrade@earthlink.net

Alas… the chance at a new beginning once more for all of us in the U.S. And at what better time is there than now to re-focus on what’s important going forward. As a writer and business banker I often listen specifically for a client’s go-forward growth strategy, whether it’s global expansion, or in their own backyard. What’s key to remember is in fact the title of this well done article at CEO Magazine Is Your Company Fit for Growth? 

As a strategist I help many CEOs figure this question out. As a buy/sell business banker I insist on having a specific growth plan because having one opens the doors wider for bank financing and investment interest. Your growth plan is part of the language we bankers’ speak… and for those business owners who make the adjustments, the future can be very bright. Have a look at the article and you can tell me if You’re Fit for Growth in 2013 or not.

Here it comes… the last weeks before year end 2012, and what a year. From a financial point of view, it’s the most active time as wealth managers and business owners re-think their strategies and plan ahead.  Meanwhile, a historic hurricane, a historic Election, and a looming Fiscal Cliff and it’s enough to make you dizzy.  So what can we top that with as we wrap up 2012?

 

Well as it turns out nothing as exciting. Because as year end comes to a close it brings forth waves of financial services professionals from all walks of life to your doorstep. Some of these professionals work at major banking institutions, while others work for smaller firms. Most will tend to focus on a specific market segments and/or wealth concentration areas, such as middle market business owners.

These days, however, there seems to be quite the proliferation of new certifications along with their associated acronyms from A to Z covering every conceivable financial service twice over. And on the one hand that’s good, as industry professionals seek to be recognized and stand out more. But on the other hand, when even I can’t follow the number of new 3-letter acronyms I see on business cards these days, something has to give, no?

That’s why as year end approaches and the time comes to hire experts to get your financial house in order, it’s a good time to recognize what you’re getting for your money… And while most business owners know the importance of having a CPA on their management team for accounting and tax issues, beyond that designation, the increasing number of new acronym credentials spreading like wild fire is confusing clients. This is why I am here to help.

A good rule of thumb is to start with the most widely recognized certifications and licenses, like a Certified Public Accountant (CPA), the name says it all right up front.  Or you may run across a Certified Financial Planner (CFP), a top drawer professional designation for financial analysis. But what if you’re looking for someone more specific to help you with estate planning, retirement planning, insurance planning, etc? If that’s the case then you need to know more about which certifications, education, and professional licensing to look for.

Enter a great article here at Investopedia (the online wiki-library resource of financial terms)  which tries to sort it out. You should read it, because the author clearly identifies which key Licenses and Certifications such as a ‘Series 7’ for investment bankers like me who advise business owners on how and when to sell their business, are important.  And it’s not a long list of 3-letter acronyms either, in part because the time, effort, and advanced education coursework required to attain, and maintain these best of breed credentials sort the wheat from the chaff for you.

So be sure to read the article before year end 2012. This way, the next time you get a call from an MBA, CPA, CFP, CBB, ABC or XYZ  professional looking to help you with the most important decisions in your life,  you won’t have to worry about which Certifications and Licenses they have  matter most, and which don’t…

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Not all my CEOs are in perfect shape. These are tough times. Executive leaders I know are juggling quite a bit of uncertainty to say the least this cycle. And while most can take a pounding and snap back… many others won’t.

Remember the old Dale Carnegie words of wisdom that one should try to “live in ‘day-tight’ compartments?” Well what happens if you never read Dale Carnegie?Read my article at CEO Magazine

As I have written before and in my recent article  Top 10 Middle Market Merger and Acquisition Drivers in 2012 (selected by Vistage International for its 15,000+ global CEO Newsletter). In it I break down the impact of the Fiscal Cliff (as it’s become best known), and its affects on CEOs in the Board Room.

The Fiscal Cliff,  is essentially a combination of expiring Bush tax cuts, Obama tax increases, and mandated congressional budget cuts known as Sequestration, from the Budget Control Act, all hitting the books roughly at the same time. A bad time for taxes to be going up on small businesses. And, given the nature of a too-close-to-call upcoming election, no one really knows if this impending fiscal train wreck will be avoided by a new act of Congress or not. One thing is certain, though, nothing will happen before election day, which makes the stakes even higher if something isn’t done. So what should you do next Monday Morning at 9:00am?

I suggest all CEOs call together all significant senior execs and/or Board members to a Special Emergency Planning meeting. In it you will define strategic what-if scenarios and plan for their outcomes just in case. This analysis may result in no action. Or, it could be a call to arms or one to build an economic moat around your business.  Counsel from Venable LLC attorneys says to remain or become “transactionally nimble.” Either way,  just remember not only are there winners and losers in troubled times, but also hunters and prey…

Link to Venable LLC Fiscal Cliff webinar white paper:

THE FISCAL CLIFF: SEQUESTRATION AND TAXES ANALYSIS BY VENABLE LLP OF THE IMPLEMENTATION OF THE THREATENED ACROSS THE BOARD REDUCTION IN FEDERAL SPENDING ON JANUARY 2, 2013 AND THE RELATED TAX POLICY OUTLOOK