Incenting Employees Could Bring You Higher Dollars

Posted on July 31, 2012 by in Blog

One of the first things a buyer will ask is: who will run the company in your absence and are they willing to stay?  Having the right people in the right jobs and retaining them will get you a higher price for your business, not to mention some pretty nice financial numbers on the ramp up to the event.  Short and long-term incentive plans should be a part of every business owner’s play book.

Incentive aspects to consider:

  • Amounts should be significant and meaningful
  • Criteria to achieve goals should be written, clearly articulated, and directly impact the value of the company.
  • Implement the strategic use of long-term plans that vest over time and build so that leaving becomes very unattractive and hard for a competitor to match
  • Impact to the financials.   Payouts are evaluated as liabilities and the overall numbers need to look good, so use the plans sparingly where they make the greatest impacts.

This white paper provides detailed information and tips of some of the incentive plans that can be used to drive your business.  When used correctly, incentive plans can take your business to the next level.

Social Security Benefit

Posted on July 27, 2012 by in Blog

Everyone, especially the first round of Baby Boomers, should review and analyze their options to maximize their total lifetime Social Security benefit.

To this end, there is a good summary in this story from The Wall Street Journal.

You’d think claiming Social Security would be a simple retirement decision—you retire and you start your benefits. But there are certain complex strategies that can help pad a married couple’s retirement savings with tens of thousands of dollars of additional income.

Don’t make your claiming decision lightly, says Joe Elsasser, an Omaha, Neb., certified financial planner and creator of Social Security Timing, a software program for pre-retirees and advisers to run scenarios to assess strategies. “It’s a decision that’s going to impact you for your entire life, and it’s a decision that’s going to make up a substantial portion of your income,” he says.

Specific strategies can help maximize savings, but couples also need to avoid a common mistake. “Almost everyone thinks of it as their own earnings record, their own benefit, as opposed to integrating what they receive,” Mr. Elsasser says.

imageEnrico Varrasso

Instead, make the decision as a couple. Consider a hypothetical situation. The husband, the higher earner, believes he’s going to die relatively early and the wife thinks she’ll live a long time. So the husband claims his benefits as early as possible and the wife delays.

“That’s exactly opposite of the scenario that should happen,” Mr. Elsasser says.

Each year you delay claiming your benefits past your normal retirement age, your benefit ticks about 8% higher, up to age 70, thanks to what the Social Security Administration calls “delayed retirement credits.” And in the event of a spouse’s death, the surviving spouse can take the higher of her own benefit or that of the dead spouse.

If the husband claims early and then dies first, “effectively he’s shortchanged his wife’s survivor benefit,” Mr. Elsasser says. Instead, that husband should delay his claim, so if need be the wife can claim the highest possible benefit for the rest of her life. If the wife dies first, the husband simply keeps his own benefit.

“You’re trying to maximize benefits over both spouses’ lives. That’s the key that most people miss,” says Brett Horowitz, wealth manager at Evensky & Katz Wealth Management in Miami.

 

Is It Time to Sell Your Business?

Posted on by in Blog

Barry Moltz had a great article at the American Express Open Forum about when to exit and how to prepare for an exit. You can read the original article HERE.

“Quitters never win and winners never quit.” —Vince Lombardi

In small business, it’s not that winners never quit. Rather, winners know when and how to get out at the right time. Making a change is always tougher than the status quo. Most owners hang on too long and delay a decision when their businesses are either wildly successful or just plain not profitable any longer.

A fading business. When a business is fading, owners often keep waiting for that the next prospect, the next big customer or a new employee who will make the difference and finally propel the business out of its financial mess. They believe that they can grow their way out of whatever financial difficulty the business faces. It rarely happens this way. Most of the time, they spend too much time going down the same path, doing the same thing over and over and hoping for a different outcome (per Einstein’s definition of insanity). Many times, the business barely breaks even and gives the owner only a minimal amount of money to survive. Eventually, too much debt piles up until a lack of cash crushes the business. While hope is an important component of the entrepreneurial spirit, it alone is not a marketing or sales strategy.

A poorly performing business. If the business is doing poorly, it may be time to shut the doors. The key indicator is the level and rate of the debt. Watch the cash flow statements to see if the business continues to fall deeper into debt on a monthly basis. If the business is borrowing money constantly from any available source just to fund company losses, it’s time to shut the doors. In most businesses, when the current liabilities become more than 200 percent of current assets, it is too difficult to recover. Finally, if the business is keeping the owner up every night thinking about their financial risk, it’s time to move on and start again.

A profitable business. If the business is still growing profitably, maybe it’s time to sell. The key indicator is to look at the business owner’s passion. Does the flame still burn inside? If their passion is lost, and they no longer like working at the company, it’s time to sell. The second step is to ask “What will the owner do the day after the business is sold?” The answer will determine readiness as well.

To maximize a business’s sale value, here are five things that buyers look for in any business:

  1. Consistently upward profit and sales trends. Buyers love a revenue line that is going up and to the right for at least three years. Understand where a business is in the growth lifecycle and sell towards the end of it.
  2. Large gross profit margins. Over time, margins have a tendency to shrink for companies as competitors enter the marketplace. Sell when the margins are still fat and before they begin to erode.
  3. Long-term customer annuities. Has the business had the same customers over a long period of time that reliably uses the product or services? Do they pay the business a monthly fee billed to a credit card? Is 80 percent of the business spread over at least 10 customers? All these items attract buyers that are willing to pay high prices.
  4. Financial statements that match tax returns. If these statements are not accurate, owners must do more homework before the business is sold.
  5. No surprises. Buyers hate this in the due diligence process. Any skeletons in the closet? Any “off the financial statement” accounting going on?
  6. When a successful entrepreneur has a profitable business, too many times they want to roll the dice to build it bigger. Greed gets in the way. They see this as their one chance to get rich. Ask yourself, are you ready to double down or cash out your gains? Set a firm deadline by which you make a decision and do not allow “overtime.”

International Gathering of Dealmakers

Posted on July 26, 2012 by in Blog

Corporate Finance Associates is a middle market investment bank with offices in 14 countries. We get together as a company twice a year. The exit of entrepreneurs is a big topic of discussion at the meeting. The leading edge of the baby boom tsunami of entrepreneurs looking to exit their company has hit.

CFA Meeting

Audit

Posted on July 25, 2012 by in Blog

This article addresses the benefits and advantages of having your financials audited.  Verifying the accuracy of the financials can increase the value of your company.  Here’s how:

Financial statements provide managers, shareholders and potential investors with the information they need to determine the financial health of an organization. The preparation of financial statements is also a legal requirement for many companies. However, financial statements are only useful if they are accurate. To that end, businesses often employ third-party auditors to monitor the accuracy and reliability of their financial statements. Additionally, federal and state agencies require companies to provide audited financial statements when their stock is publicly traded.

Accuracy

Audited financial statements are more likely to be free of reporting mistakes, such as data entry errors, as auditors check the accounting procedures companies use to record transactions and invoices used to prepare financial statements. For instance, if a balance sheet reports $100,000 in assets, an auditor will check the accuracy of that figure by looking at the receipts and invoices on file. This provides stockholders and investors with a reasonable assurance that the financial statements offer an accurate reflection of the company’s financial situation.

Information Asymmetry

Information asymmetry is a fancy word used to describe what happens when a business lies on its financial statements so that shareholders and investors do not have access to the same information as the company’s managers. Shady businesses will often have two sets of accounts: the accounts they use to run the company and the accounts they show to government authorities and potential investors. However, if an impartial auditor checks over the financial statements of a company, she will likely be able to spot irregular accounting methods that signal that a company’s financial statements are bogus.

Standardized

Auditors do not merely check the accuracy of the information included in financial statements. They also ensure that the financial reports are consistent with national and international accounting standards. This is especially important for multinational corporations that must follow different accounting systems. Audited financial statements are also checked for consistency to ensure that the accounting methods and figures used within a company are not only correct but also follow a regular and uniform reporting methodology.

Reliable

Even if an auditor does not find any mistakes in your financial statements, simply having them checked by an independent third party increases their reliability. For instance, lenders will usually require audited financial reports from potential borrowers because they want an auditor to put her seal of approval on the borrower’s financial records. Management also benefits from audited financial reports because they may alert them to dishonest employees who embezzle assets from a company and cover their tracks with phony invoices and transactions.

We Live in Interesting Times

Posted on July 24, 2012 by in Blog

Check out this video of Dr. Stephen Klineberg of the Kinder Institute for Urban Research at Rice University recapping 30 years of demographic surveys on Houston’s transformation. Tracking Houston’s Transformations Through 30 Years of Surveys…

Hat tip: Strategic CFO

Exiting Your Business

Posted on by in Blog

Here is a presentation I gave last week to several business owners about their exit from their company and what to do now to prepare for it.

Home on the Range

Posted on July 23, 2012 by in Blog

Home on the Range – Best Places to Retire

There are lists upon lists of the best places to retire based on everything you could imagine, ranging from the love of nature and outdoor activities to sociable communities and living the simple life.  For years, AARP has visited towns and cities and compiled lists based on a variety of criteria. Being comfortable where you retire obviously depends on your personal preferences, like if you would feel more at home in a small town or large city. 

Wherever you choose to live, one thing is crystal clear – the main consideration for retirees is the ability to stay put in their homes as they grow older.  With over 10,000 people turning 65 everyday, a trend that will continue for the next 19 years, some cities are even taking the initiative and building “livable communities.” Otherwise known as “age-friendly” cities, these planned areas are focused on accommodating the needs of both the active and frail individual with the intention to make life easier for our country’s swelling senior population.  

No matter what you are looking for in a retirement location, you have to start somewhere. So here’s a look at AARP’s list for the top ten healthiest cities to retire in. Looking at the list, it seems like the scenery might not be so bad either.

AARP’s Top 10 Healthiest Cities for Retirement

  • Ann Arbor, Michigan
  • Honolulu, Hawaii
  • Madison, Wisconsin
  • Santa Fe, New Mexico
  • Fargo, North Dakota
  • Boulder, Colorado
  • Charlottesville, Virginia
  • Minneapolis-St. Paul-Bloomington, Minnesota
  • San Francisco Bay Area
  • Naples-Marco Island, Florida

If you dream of settling down in an exotic location and living out an adventure in paradise, then you might want to check out the top ten overseas cities. With warm and sunny climates these communities also happen to be friendly to Americans and have health care that is rated as good to excellent. 

AARP’s Top 10 Cities for Retirement Abroad

  • Buenos Aires, Argentina
  • Corozal, Belize
  • Central Valley, Costa Rick
  • Languedoc-Roussillon, France
  • LeMarche, Italy
  • Puerto Vallarta, Mexico
  • Granada, Nicaragua
  • Boquete, Panama
  • Cascais, Portugal
  • Costa del Sol, Spain