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Webinar How Premium Finance Life Insurance helps with Estate Taxes and Buy Sell Agreements

Dave Toeben of Insight Insurance Services is a member of XPX Nashville
Dave Toeben
Insight Insurance Services
4 months ago

Unlock the Potential of Buy-Sell Agreements and Estate Taxes with Premium Financing As a professional in the premium financing life insurance industry, staying informed about the strategies that can benefit your clients the most is crucial. One such strategy is premium financing, a powerful tool for paying estate taxes and fund buy-sell agreements. Join us on May 22nd at 9:00 a.m. CST for a webinar, where we’ll dive into the world of premium financing. Here’s why you can’t afford to miss it: Strategic Financing: Learn to utilize bank funds for life insurance to minimize estate taxes and buy-sell agreements Case Study Insight: Examine strategic buyout funding through a case study, highlighting how bank financing can uphold business continuity following a partner’s death. Timely Tax Strategies: Uncover vital estate tax strategies before the current provisions sunset on January 1, 2026. Expert Guidance: Gain insights from industry leaders, ensuring you receive ethical and well-informed advice. Don’t miss this opportunity to learn from Dave Toeben of Insight Insurance Services and Chris Dunham of Kuorum Partners. They’ll provide valuable insights that will empower you to offer top-tier advice and solutions to your clients. Register now: 

May 8, 2024
Nashville
Business Value Growth

Contribution Margin: Why Profit Planning Matters for Manufacturers

Nathan Doty of PNC Private Bank is a member of XPX San Antonio
David P DeMuth
CFO Consulting Partners LLC
11 months ago

By Jeffrey Appleman Manufacturers are focused on sales—not cost or profit. If they were keen on net income, manufacturers would know one key data point: contribution margin. Once you know it, the possibilities are endless for growth, sustainability and efficiency. In effect, a contribution margin is the percentage of revenue that remains after you pay for your variable costs, which include the materials and labor to make your products. If the remaining revenue covers your fixed costs—the top item tends to be salaries—then you have a profit. For manufacturers, a contribution margin should be in the neighborhood of 30%-40% so everyone gets paid including the business owners. Contribution margin helps a manufacturer figure out its breakeven point. Let’s say your fixed costs equal $1.2 million a year and your variable unit cost per unit is $10, while the sales price unit is $15. Because you know the variable cost, you can determine the contribution margin, which is the remaining $5 from the average sales price. So how many units would you have to sell to break even this year? Divide the fixed costs by the contribution margin ($1.2/$5) and you will need to sell 240,000 units. So, why don’t more manufacturers know their contribution margin? It’s because they don’t make time for profit planning, which is a financial plan for your business. The process aligns operations with financial objectives by projecting revenue and expenses. It views profit as a crown jewel, not as a byproduct, making everything else revolve around it through transparency. At first, the light may seem blinding. Here are several critical items that manufacturers will be able to see more clearly: Manufacturing Insight: We Need To Raise Prices Most manufacturers are not eager to test price elasticity with their stable of products, but your company could be living on borrowed time. Invest the time to find your true costs. Don’t take shortcuts with estimates unless it’s necessary. When I consulted with a manufacturer that made printed boxes, we broke down every operation in the process. For example, when making a printed carton, you need employees in many areas to make the final product. Every station in the process is a profit center that needs to be covered in the final sales price. So, every printed box started with a paper-sheeting operation, then the printing, the die-cut operation, the waste-product operation, the cellophane operation, the gluing operation and shipping. That’s six operations, each with one to three employees. If you don’t take the time to add it up, there’s a good chance your pricing will be too low. And then, you will pay the price. Manufacturing Insight: We Have Too Many Loss-Leaders If a squeaky wheel gets the grease, then manufacturers will undoubtedly end up with stains on their financial statements. Over time, manufacturers have a tendency to listen to the wrong people when it comes to their lineup of products. A contribution margin is a formula that brings one of the Laws of Business to life: 80% of outputs come from 20% of inputs. This general truth, which has withstood the test of time across any industry, is called the Pareto Principle. Does 80% of the company’s turnover come from 20% of the product line? Put another way: Is 80% of your product sitting there in the warehouse, typing up resources for an inordinate amount of time. Instead of listening to random customers about suspect marketplace needs, the C-suite at manufacturing facilities need to listen to the data, which should come from profit planning at the beginning of every year. Manufacturing Insight: We Pay Too Much Whether it’s your customer or your suppliers, most manufacturers are probably paying too much. Now that the company has a contribution margin and a 12-month profit plan, you actually know how much you can afford from both stakeholders. If you don’t make a reduction, something else will have to be reduced. Creating terms for your customer is the best way to reduce the cost of accounts receivable. If they have 45 days to pay, you will need to enforce it if the obligation is not met. Most manufacturers don’t have the discipline and persistence to protect the bottom line. In the end, 90 days can be too costly. Your suppliers are another area to scrutinize. Do you know the quickest way a manufacturer can get a discount from one of their suppliers? They can ask. (In the real word, this often works.) (This story originally appeared in

Oct 9, 2023
Tri-State
Business Value Growth

Three-Part Process: How CFOs Shore Up Finance Teams for Private Equity Resell

Nathan Doty of PNC Private Bank is a member of XPX San Antonio
David P DeMuth
CFO Consulting Partners LLC
11 months ago

By Tim Jung As CFO, you have 60 months before the private equity firm sells your company again. And the newly installed CEO doesn’t like the company’s reports. Maybe the reporting isn’t timely or lacks the right numbers. Maybe it doesn’t tell a story from the progress that has been made, how you’re going to achieve higher revenues, who on the team are the right resources and when this will be realized. Executing this strategy will result in a higher sale valuation. If your lawn is green, you don’t think about it. But if your grass starts to turn brown, you start asking questions. In any case, you have already started the prep work for upgrading the Finance Department. You have a better understanding of where your team fits within the five buckets: People, Process, Technology, Culture and Governance. Now, it’s time to start a three-part process with overlapping stages. This system can take three to nine months depending on your needs. Stabilization This part of the process is mission critical. Stabilization is about making sure people know what they should be doing, what they need to do is being done correctly and when these actions need to be done so reports and analysis are readily available for timely review. Let’s say you make a sale and send the invoice. Was the sale recorded in a timely manner so that various stakeholders along the process could track, forecast and report sales, profitability and cash flow? These actions need to be documented and verified. The company is working hard at selling goods and/or services, however, it may be inefficient at reconciling goods or services sold with billing, accounts receivables and cash receipts.  It all may work, but having timely processes, data flow and reports are important to manage the business. If your Finance Department is sending out invoices late due to antiquated manual processes, cash flows could bottle neck from purchase order fulfillment all the way to collections of accounts receivables. Are some of your customers still sending manual checks? Given the trend towards a hybrid working environment, if your team is only in the office once a week, incoming checks may sit uncashed for an entire week. Time is money. To establish an acceptable level of cash flow confidence, you must ask questions pertaining to resources, process and technology. Resources Are the resources capable (e.g., skills, integrity, training) of assuring that the cash flows are being compiled, reconciled and reporting completely, accurately and timely? Do the resources have the capacity to carry out the processes and controls? Processes Is the process coordinated (e.g., information hand off points) from stakeholder to stakeholder along the operational flow so that each stakeholder is receiving what they need? Is the stakeholder passing data to the next stakeholder based on what that person needs as compared to what the prior stakeholder believes the next needs? Are there information gaps that are filled with reasonable assumptions? Technology Does the current technology limit the resources and influence processes (e.g., manual, paper based, spreadsheet-based processes), but in a way that it functions with the basic controls, reviews and process integrity, be it not the most efficient? Are there technology capabilities available that would improve the process and control flow that drives efficiency, cost-effectiveness and allows resources to perform more value-added activities?   Transform The second phase of shoring up a finance team—transformation—can begin once deficiencies and opportunities are identified while the stabilization phase is still in flight. During this time, resources can be presented and moved toward a better team-based cross-functionally coordinated approach. Processes can be retooled to remove unnecessary steps, so they provide each stakeholder with the necessary data needed to perform their function efficiently, effectively and timelier. In addition, technology can be enhanced to incorporate capabilities that are available, but not being utilized. Manual processes can be automated to save time and improve controls. In an earlier example discussed in the stabilization phase, several factors could cause your company to fall behind your competition, including uncoordinated processes, a lack of innovation and technology that does not leverage automation. For example, to speed up cash receipts, you could ask your customers to electronically debit your company’s bank account (e.g., ACH, wire transfer). Not only would you turn receivables into cash quicker, there would be less processing time for your finance and treasury teams. Embracing technology, such as utilizing AI functionality, will help the Finance Department with forecasting, which would yield better case management, analysis and decision-making. Leveraging technology may lead to an analysis of personnel and training, which are important variables in the equation. Transition The third and final stage in shoring up the Finance Department centers on transition. At this point, the finance operating platform is functioning, any significant deficiencies should be remediated and the road map to the target operating model has been prepared. If you are working with a third-party partner or an in-house committee, there will come a time when oversight of the program needs to be handed over to the permanent team members so they can carry on. Then, going forward, the finance team is set up for success. In some cases where new skills are required, the upgraded program could include existing resources and new ones. Retraining and, in some cases, recruiting resources that embrace change can continually enhance the process flow and controls to meet the changing business demands. Having the technical skills are the minimum standards. Possessing a forward-thinking attitude without fear of challenging the status quo will provide the framework to conquer whatever impact from the market, clients and accelerated technology. (This story originally appeared in

Sep 27, 2023
Tri-State
Business Value Growth

Are De Novo Banks Ready for a Comeback?

Nathan Doty of PNC Private Bank is a member of XPX San Antonio
David P DeMuth
CFO Consulting Partners LLC
1 year ago

By Eric Segal The banking landscape has consolidated in the last three years. Maybe it was runaway inflation that caused cost-cutting branch closings. Or it was bigger banks gobbling smaller banks for quick market share. And let’s not forget the industry’s ongoing march toward digital transformation, which grabs more traction each month. Whatever the cause, several data points tell us that we may have reached an inflection point in the business cycle. Earlier this year, the Federal Reserve Bank of Philadelphia issued a report that found the closures of bank branches in New Jersey, Pennsylvania and Delaware has more than doubled since the pandemic. The three states lost a combined 627 branches during that time period, increasing the number of “banking deserts” to 63 areas in the region. Recent bank and branch consolidation have created some pockets of opportunity and could trigger the next wave of de novo banks. But here’s the catch: You may only need to raise $30 million of capital to open a bank, but you will need a lot more to make it successful. Crown Bank Vice Chairman Paul Fitzgerald says “due to ever increasing compliance costs, banks need to reach a critical mass sooner rather than later.  The first target is usually $100 million in assets.   Banks will not need a branch on every corner, but a well-defined branching strategy is still important.  Technology can help reach the target critical mass right from the start.” For startup banks, it’s not a straight line to success. Here are four factors a de novo bank needs to be part of the next wave: The Right Team If you have the right senior management team, they will hit the deck with existing relationships. Stocking the board with experienced directors who believe in the mission, however, could be the factor that turns a startup bank into a major success. Fostering unity on the board—with everyone on the same page supporting the business plan—would create a constructive environment. There is a period in the beginning when banks are on “probation.” When you give regulators a business plan, they view it as a contract. You are communicating to them that you will do in the first three years, which means you will have to explain every variance. If the board is not aligned on the plan, then you will have a problem. A supportive board can be the X-factor. Engaged board members will open doors and share their business relationships, which can give a de novo bank instant credibility within the community. And that’s an important thought when you consider the history of de novo banks driven by local business owners who felt their community was ignored by mergers that left their region without access to banking decision-makers. The Right Area Location. Location. Location. To be successful, you will need to launch your de novo bank in an area with attractive demographics for both consumer and commercial business, and that also has an abundance of experienced talent with industry experience. When it comes to winning over your new customers, make operations revolve around them. “When I started a bank in northern New Jersey, my office was visible from the main lobby” Fitzgerald said. “People could talk to me when they wanted. In large banks many of the credit decisions are now made out of state by anonymous back-office people. There are a significant portion of business owners who appreciate access to senior management.” Successful new banks don’t really start from scratch. The right relationships with other banks in the market could also yield participation loans, which are funded by multiple lenders to reduce risk and manage liquidity. These facilities can help startup banks generate interest income on the first day. Access to the right lending, operations, and senior management team also plays a large role in selecting the right trade area for a startup bank. De Novo banks can benefit from outsourcing some finance, accounting, balance sheet management and credit administration tasks until the core team has the bandwidth to take them on. One of my colleagues, Larry Davis, who has more than 25 years of senior financial management experience in commercial banking and manufacturing, has worked to train and mentor a de novo bank finance team with virtually no bank experience. “The regulators didn’t believe they had enough banking experience on the accounting team, so they called us,” Davis added. The Right Technology In today’s digital, on-demand world, banks must give serious thought to the right array of fintech providers, a daunting task. CFO Consulting Partners is part of the advisory board for

Sep 6, 2023
Tri-State
Business Value Growth

Short-List KPIs: Why Manufacturers Need More Than Historic Data

Nathan Doty of PNC Private Bank is a member of XPX San Antonio
David P DeMuth
CFO Consulting Partners LLC
1 year ago

By Chris Delaney When it comes to managing their business, manufacturers need much more than historical financials to project their future revenue, profitability and liquidity. Historic numbers simply capture what has happened in the past—but traditionally do a poor job predicting where a company will be in the near (3-6 months) or distant future (1-2 years). To make matters worse, most smaller manufacturers simply rely on financial statements as their historical data to help make decisions, but this is only the first level of information that they need to understand. Historical numbers will tell you if you grew, but they will not tell you why. Key questions are: Where is the growth and why? Is it sustainable? Which customers? Which divisions? How profitable was the growth and does it represent a new opportunity for investment? If your company is in growth mode, forget historic numbers and focus on the key KPIs that are going to be predictive of future growth and profitability. KPIs are easier to project and do a better job at forecasting future financials than historical data alone. Is there a new customer onboarding or is a recession coming? Are customers going to leave shortly? New mergers on the horizon? A handful of KPIs will create a more accurate forecast for manufacturers, which is invaluable. Here’s a good place to start: Sales Pipeline KPIs Most manufacturers have a sales pipeline, which is the life blood of the company, but they tend to do a poor job in predicting future revenue. Typically, that is because it’s not systematic nor consistent, and because it’s done in an ad hoc manner. “Garbage in, Garbage out” is what I typically see. Without reliable reports on future revenue, moving forward will be a challenge. Bottom line, manufacturers tend to not break down the sales data in ways that are meaningful. Start with the next 12 months and start framing it in two different ways. What is my core business (existing customers and existing SKUs in the marketplace)? Where are they and how can they be forecasted? I traditionally look at the core business in three ways: 1) what do you know (for example, future purchase orders that might be on hand, 2) what do you think (sales forecast provided by a customer) and 3) what are you guessing (no purchase orders or forecasts provided, but looking at historical data on how this customer typically behaves). On top of that, what is the new sales pipeline? What do we expect to “hit” and when? If one utilizes this simple technique from a “bottoms up” perspective, overlaying “core business” and future growth, forecast will be more reliable than what any historical data would predict. Revenue forecasts, by nature, will never be perfect. But performing forecasts utilizing the above technique and in a consistent manner will always be more predictive than historical data alone. And further, and perhaps more importantly, it will also allow management teams to better predict future performance by allowing an analysis of “what we thought back then and why” and comparing it to actual results. The easiest example of this is the new sales pipeline. Last year, you had a $10 million dollar sales pipeline and you predicted 50% of that would translate into incremental revenue over the next 12 months. Well, what happened? Did that pipeline translate into $3 million, $5 million or $8 million of actual revenue and how do you use that information to forecast the business over the next 12 months when the current sales pipeline is $15 million? Overhead KPIs When it comes to gross margins, manufacturers struggle with the real cost of delivering something out of the business. We used to call it “unit economics,” matching revenue to expenses per widget. Manufacturers understand direct costs and margins, but they have trouble quantifying semi-fixed costs, which are items that feature both fixed components—set expenses—and variable components that are based on activity like utilities, maintenance, R&D and labor to name a few. Overhead costs that are not part of direct labor or materials can be tricky to assess. They tend to show up on the income statement in different places. Your KPIs will break out the valuable parts that will serve as the basis of managerial accounting and forecasting. For example, a customer may require a special batching process to make the product. If the management team doesn’t understand the semi-fixed costs, the magnitude of increasing quantities and capturing indirect costs can create a situation where the true profitability of a project is not fully understood and could create problems in the future. In such a situation, the economics around a 30,000-unit order (after allocating for indirect costs) may still lead to attractive margins, but a 5,000-unit order may and will create an inability to scale into the future. Working Capital KPIs From a number’s perspective, working capital is current assets divided by current liabilities. More importantly, this number, which should range from 1.2 to 2, tells your management team and investors if you can sustain day-to-day operations in the short term. Your KPIs should include inventory levels, accounts receivable and accounts payable. Improving working capital could look like standardizing payments terms and providing incentives to speed up cash collections. Outsourcing operations, selling assets or leasing assets could improve your cashflow and generate a more favorable tax treatment moving forward. While paying vendors in a timely fashion may seem counter-intuitive, it could allow you to negotiate better terms in the future based on your strong relationships. This set of KPIs is about liquidity—the more, the better—for all your stakeholders. Utilization KPIs If you can’t measure something, then you can’t manage it. For manufacturers, the utilization rate deserves plenty of attention. It has been stated that 80% is the goal for utilization, but a recent survey shows that reality is a different story. More manufacturers believe their company’s utilization rate hovers around 50%, which takes into account setups, breakdowns, as well as staff breaks. Unfortunately,

Aug 23, 2023
Tri-State
Business Value Growth

How CFOs Upgrade Finance Team to Prep for Private Equity Resell

Nathan Doty of PNC Private Bank is a member of XPX San Antonio
David P DeMuth
CFO Consulting Partners LLC
1 year ago

By Tim Jung A private equity firm just bought your promising firm with high hopes. You estimate that the company will be sold again for a much higher margin within 60 months. But your finance team has trouble closing the books in a timely manner. So, what does the company’s financial picture look like? You can’t analyze results or establish a timely baseline. You don’t have true control over the bank account because you don’t know what is flowing in or out. Are there missing transactions or cash? How can you mitigate liquidity problems? Too many companies believe the finance and accounting arm just somehow works like gravity, but without an upgrade to the next level, everything will eventually come crashing down. As the CFO, you know promises need to be kept and old habits need to be broken. The acquisition closed last week, and you now live on Jump Street. You have three to six months to turn your band of silos into a well-oiled machine. Here is a checklist that will allow you to upgrade your Finance Department so they can hit their own numbers: People To begin the process of upgrading your team, start with stabilizing your current situation. That’s where your finance team members enter the picture. Assess their work based on timeliness, accuracy and completeness. Can they work independently at tasks, as well as collaborate with others to complete group projects? Now, look for skill gaps. Most of the workforce (58%) need new skills to do their jobs, according to research from

Aug 4, 2023
Tri-State
Business Value Growth

What Bank CFOs Are Missing From Their Finance Team

Nathan Doty of PNC Private Bank is a member of XPX San Antonio
David P DeMuth
CFO Consulting Partners LLC
1 year ago

By Paul Karr There is a common misconception that accounting policy is something that controllers can do in their spare time. Midsize firms especially can fall into the same trap: We’ve always had a small team, and everyone has to complete a lot of work, and we can’t afford another resource. Your controller already has a day job, supervising routine accounting activities, closing the books, keeping the internal and external reports moving forward, and, hopefully, improving the accounting, closing and reporting processes. Instead of an ad-hoc approach to accounting policy and technical accounting matters, which can be costly in terms of missed deadlines, increased audit fees, etc., bank CFOs should consider adding an accounting policy resource to the finance team. Following are five responsibilities that a new accounting policy resource can utilize to help fill the missing piece on your team: Manage New Transactions For example, you may want to modify employee compensation programs, change categories or move investments within categories in your investment portfolio, enter into a new type of lending transaction or vacate a building that you own or lease. The accounting ramifications of these transactions need to be understood up front, before decisions are made, and the execution needs to be carefully managed across the functions of the bank. Maintain Accounting Policies Boards, regulators and outside auditors expect accounting policies to be documented and kept current. The updating process needs to include subject matter experts at the bank and needs to be managed in order to be done efficiently. Implement New Accounting Guidance An accounting policy resource would play a major role when a rule maker comes along with new rules that you must adopt. The biggest recent change is obviously in how you reserve for loans (i.e., Current Expected Credit Losses or CECL). Other examples include the change from LIBOR to SOFR and how to treat cloud computing costs. Implementation of standards is a process requiring research, networking, planning, communication and execution. Assure Ongoing Adequacy of Documentation Some accounting policies are particularly onerous in their ongoing documentation requirements, and CECL is a perfect example. Maintaining that documentation can mean as much as 100 pages of documentation every year (every quarter if you’re a publicly traded company). Your accounting policy resource could help assure the appropriateness and adequacy of the documentation of the allowance for credit losses under CECL. The new team member could bring in all the people needed and drive the process—and before you know it, there will be new guidance sooner or later that will also have to be adopted. Assist in Preparing Financial Statements The significant accounting policies note to the financial statements—which seems to grow every year—is an obvious one for the accounting policy resource to own. This note is also an example of a part of the financial statements that can be completed prior to year end, and it can be used as a control to make sure all of the bank’s accounting policies are well documented (see “Maintain Accounting Policies” above). Because of their accounting expertise, accounting policy resources are also in a good position to provide quality assurance and quality. ***** An accounting policy resource can significantly strengthen a bank’s finance team by bringing focus to accounting policy/technical accounting tasks and enabling you to easily answer questions from your audit committee, outside auditors as well as regulators. As a bonus, an accounting policy resource could fit into your succession plan as they become a candidate for your next controller or chief accounting officer. Bank CFOs should fill the hole in their Finance Department before overwhelming workloads—not to mention climbing consultant bills—bury them. (

Jun 23, 2023
Tri-State
Business Value Growth

M&A Success: How Midsize Sellers Cash Out

Nathan Doty of PNC Private Bank is a member of XPX San Antonio
David P DeMuth
CFO Consulting Partners LLC
1 year ago

By Allan Tepper Often, parties interested in making a purchase are serial buyers, hence their advantage. But for midsize sellers, this will probably be the one and only time they sell. Sellers spend the better part of their lives building a company so they can now cash out and ride into the sunset. Unfortunately, mergers and acquisitions can be very challenging—and I’m not even talking about what happens after the deal. I’m solely focusing on the deal itself. There are many pitfalls and traps that await, especially if this is your first time. Here are five items that will help sellers obtain the value they created: Project Over Personality If you don’t get a good feeling from the buyer in the first few minutes, you should give passing some real consideration. In the end, the outcome of pending mergers and acquisitions will hinge on whether you can keep both parties focused on the project (i.e. the deal). Regrettably, the matter can shift to center on the personalities involved with the deal. And that’s usually the beginning of the end. It may start as a “chemistry” issue between two individuals, but it can quickly devolve into a lack of trust. You began the deal with plenty of trust, but what happened? Well, you just learned the price changed. Maybe it’s legitimate, but now your antennae are up. As soon as the win-win deal becomes a perceived win-lose, it’s no longer about the deal. Now, it’s about you versus them. Unfortunately, the lack of trust diminishes value. So, how can you avoid those barred-knuckled conversations? Say what you mean and mean what you say. The letter of intent is a great place to start. Make sure the critical aspects of the deal are captured in the letter. The letter will be turned into a contract, so if there are missing parts and surprises once the lawyers get involved, the deal may crater. Plan To Win For sellers, planning is the absolute key to success. Your goal is to win the war, not a battle, so start planning early in the process. What do you want to accomplish by selling your company? Do you want to sell to a private equity firm or a strategic competitor? Would you want a position in the merged company? How long will you stay after the deal closes? You will need to know the answers to these questions to guide you through negotiations. Even the smallest details matter. For example, gather all your required documents in the deal room to make sure the process goes smoothly. We had a client that had several contracts where the executed version could not be found. Failing to plan means planning to fail. Good planning should avoid seller’s remorse. Fix Your ‘Hair’ Negative items—things that give buyers consternation—need to be disclosed right away. Bad news, also referred to as “hair” in M&A speak, doesn’t age well. Worse yet, don’t create an opportunity where the buyers find out about the negative stuff first. This is not a birthday party; surprises are bad for business. When you present the negative news, make sure you include how it is being addressed. If the buyer thinks he is purchasing $5 million in inventory, he will be surprised to learn $3 million is obsolete. So, take a write-down to ensure the buyer gets quality inventory. Then, communicate your solution. Of course, performing due diligence on the buyer can go a long way. Sometimes, seemingly negative issues can be turned into positives. For example, if 80% of your revenue is coming from one company in a specific sector, it could be seen as a negative for your company, but it could be viewed as the missing piece for a larger company with a diverse customer base. Use The Right Numbers Numbers are the quickest way to build reputation and trust. They also are the quickest ways to kill the deal. The Chief Financial Officer should play the role of facilitator, gathering all the key players on the sell side. At that point, the CFO should go through the key numbers of the business that are important to the deal. Then, the other key players should highlight their key numbers that dovetail back to the CFO’s numbers. And then everyone should memorize their numbers. In my experience, many companies fail to do this part. Do you know what happens when the warehouse manager says you have $3.5 million in inventory, the CEO says it’s closer to $2.5 million and the CFO says it’s $3 million? The buyer runs out the door. Developing the right policies and procedures will also help you arrive at the correct numbers. Closing your books quickly and accurately is more about trust than accounting at this stage. Don’t allow poor quality of information to erode value and crater the deal. Quality Counts Earnings before interest, taxes, depreciation and amortization (EBITDA) is a measure of cash flow. And that’s important because it plays a large role in determining your company’s valuation. Every industry has a multiple, which will be used with your EBITDA to determine fair market value. But here’s where it gets interesting. Even the most scientific equations contain elements of art. You should conduct a sell-side quality of earnings analysis to create an adjusted EBITDA. For instance, you may want to add back the CEO’s salary because the acquiring company already has one. The purchasing company, however, argues that they will need to hire someone to fill a part of the role left by the outgoing CEO. You should consider the past and the future when thinking about what quality of earnings means. If you are selling an event production company that derives a large part of its revenue by hosting several annual events on set dates, what happens if those dates change? How much would quality of earnings dip? If you are selling a company that owns ski resorts, how will climate change impact future earnings? Forward-looking statements carry many shades of gray. Analyzing quality of earnings will remove a big part of the mystery and increase the chances for a successful merger. (

May 31, 2023
Tri-State
Business Value Growth

Are Your Business Financials in Order for Exit?

Bill McDermott of The Profitability Coach is a member of XPX Atlanta
Bill McDermott
The Profitability Coach
2 years ago

Every business owner dreams of selling their business one day for a lot of money then retiring with a home on the beach or traveling the world. However, when it comes to actually selling the business, many business owners don’t follow a unified strategy, leaving them confused and frustrated because they realize running a business is much easier than selling it. I have an HR consultant that I work with who was on the M&A team for the large company he worked for. He was brought into every company purchase they were about to make along with the company CPA and attorney. Their sole goal was to attempt to find weaknesses in the seller’s business in order to drive the price down. The HR consultant was looking for weaknesses in the HR portion of the business. But, the CPA was brought in to determine the reliability of the financial statements. Read more:

Aug 2, 2022
Atlanta
Business Value Growth

ProfitSense with Bill McDermott featuring Bradley Carroll, Progressive Lighting & Gary Clayton, Superior Business Management

Bill McDermott of The Profitability Coach is a member of XPX Atlanta
Bill McDermott
The Profitability Coach
2 years ago

A major theme of this edition of ProfitSense was accounting, as host Bill McDermott welcomed two CPAs, Bradley Carroll, CFO of Progressive Lighting, and Gary Clayton, CFO of Superior Business Management. Bradley discussed his move from a CPA firm to in-house practitioner, the significant problems associated with logistics and sourcing products internationally, and more. Topics Gary addressed included enhancing the value of the business, major challenges business owners face today, and why misclassifying employees is so high-risk for such small savings. ProfitSense with Bill McDermott is produced and broadcast by the 

Jun 14, 2022
Atlanta
Business Value Growth

Interpreting the Language of Accounting

Bill McDermott of The Profitability Coach is a member of XPX Atlanta
Bill McDermott
The Profitability Coach
2 years ago

For my wife’s and my 25th wedding anniversary, our family went to France. Paris, Provence, Chamonix and on the way back to Paris to catch our flight home, we went to the cathedral in Reims. The one with the Chagall stained glass and where Joan of Arc was to be crowned by King Charles in 1429 after her victory in Orleans in the 100 Years War. On the drive back to Paris, I was a little uncertain about directions so I pulled into a gas station to ask. By the way, none of us spoke French. But, in the best French I could muster I said, “Parlez-vous anglaise?”. The owner’s reply was to spit at the floor and give me a look that sent me quickly on my way. How dare I come to his country and not speak his language. Just like trying to speak the language in a foreign country, if you’re trying to run a business but you don’t speak the language, how do you know you’re headed in the right direction? Read more:

Apr 19, 2022
Atlanta
Business Value Growth

What Would Rockefeller Do?

Bill McDermott of The Profitability Coach is a member of XPX Atlanta
Bill McDermott
The Profitability Coach
2 years ago

Every business owner has a big vision for their company and wants to make it happen. However, most don’t follow a unified strategy to get there. Leaders often have trouble pulling the trigger on spending money on people or new strategies because they don’t understand what their numbers are telling them. Many business owners haven’t fully appreciated accounting as 

Apr 12, 2022
Atlanta
Business Value Growth

Annual Audit: 5 Ways to Save Time, Money

Nathan Doty of PNC Private Bank is a member of XPX San Antonio
David P DeMuth
CFO Consulting Partners LLC
2 years ago

By Allan Tepper Companies need about three months to receive a clean opinion for their annual audit. So why does your company need more time? Expending too much time and money on your annual audit is a red flag for the executives involved with corporate governance and financial oversight. New accounting rules and regulatory changes continue to drive the average hourly fees that public companies pay to external auditors. The rate has increased 31% during the last decade, according to a

Mar 30, 2022
Tri-State
Practice Tips

Dual-Residency Issues – Vacation Homes

Diane DeCesare of Armanino LLP is a member of XPX Philadelphia
Diane DeCesare
Armanino LLP
2 years ago

With more employees working remotely, it can be an escape to enjoy working from anywhere. If not home, maybe a vacation home? However, many may not realize if they stay in another state for a long period, they could be considered residents of both that state and their home or “domicile” state, resulting in double taxation of all of their taxable income for the year. In this blog, we will discuss the concepts of dual residency and double taxation, including how owning a home in another state can lead to it, and give points on how you can avoid it. Click

Dec 22, 2021
Philadelphia
Business Value Growth

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Understanding Qualified Small Business Stock (QSBS)

Billy Amberg of Bloomwood is a member of XPX Atlanta
Billy Amberg
Bloomwood
1 day ago

Qualified Small Business Stock is a type of stock that includes immense tax relief for investors. Those benefits serve to stimulate investment in small businesses by mitigating the tax consequences that attach to their returns. Below is an article that discusses the definition of QSBS, the relevant IRC section at play, the tax benefits flowing from QSBS, the standards for obtaining QSBS, and the costs and importance involved in gaining a QSBS certification. What is Qualified Small Business Stock? Qualified Small Business Stock is that class of stock issued by a small C corporation that meets specific qualifications specified in the Internal Revenue Code. It enables the investor in QSBS to exclude from federal income taxation up to 100% of the capital gain realized upon the sale of such stock, provided certain requirements are met. The provision is meant to incentivize investment in startups and small businesses as a means of promoting innovation and driving economic growth. Governing Section of the Internal Revenue Code Treatment of QSBS is given under Section 1202 of the Internal Revenue Code. This section was enacted as part of the Revenue Reconciliation Act of 1993 and has undergone several amendments to expand the benefits available to investors. Section 1202 outlines those requirements that must be satisfied for stock to qualify as QSBS, along with particular tax benefits available to the investors. Examples of Qualified Small Business Stock Tax Benefits Investing in QSBS offers substantial benefits in terms of tax. Example: Exclusion of Capital Gains: Depending on when the QSBS was acquired, up to 100% of the capital gains from the sale of QSBS can be excluded from federal income tax. The exclusion percentages are as follows: 50% of the stock acquired from August 11, 1993 to February 17, 2009. 75% for stock acquired between February 18, 2009 and September 27, 2010. 100% for stock acquired after September 27, 2010. Limitation on Gain: The amount of gain to be excluded is limited to the greater of $10 million or ten times the adjusted basis in the stock. The generous cap allows for significant tax savings by investors. The Alternative Minimum Tax (AMT) stipulates that gains exempted under Section 1202 do not qualify as preference items for the purposes of AMT, potentially offering supplementary tax relief. State Tax Benefits: Some states follow federal QSBS exclusion rules, giving additional state tax benefits. Investors should check the particular rules of the state pertaining to QSBS. How to Meet the QSBS Requirements To qualify for QSBS treatment, certain requirements must be met: Qualified Small Business: The issuing corporation must be a domestic C-corporation and it must meet the definition of a “qualified small business.” A qualified small business is one in which the corporation’s aggregate gross assets do not exceed $50 million at any time before and immediately after the issuance of the stock. Active Business Requirement: During at least 80% of the period the investment is held, assets of the corporation must be used in the active conduct of one or more qualified trades or businesses. The following types of businesses specifically do not qualify:. The stock must be obtained directly from the corporation when the stock is originally issued, in exchange for money, other property but not stock, or as compensation for services. Holding Period: The investor must hold the QSBS for more than five years to qualify under the capital gains exclusion. These requirements are often complex to navigate, and guidance is usually sought from a tax specialist to ensure compliance with the law. What is a Qualified Small Business Stock Attestation? A Qualified Small Business Stock Attestation is the declaration of a corporation; a formal statement that the stock of the particular corporation meets all the qualifications necessary for the classification to be deemed a QSBS under Section 1202 of the Internal Revenue Code. This certification gives assurance of qualification both to investors and the tax authorities, confirming the eligibility for the tax advantages to the owners. Importance and Cost of a Qualified Small Business Stock Attestation Investor Confidence: It enhances investor confidence because the attestation is basically a documented proof that the stock is qualified for favorable tax treatment; thus, making it more attractive to prospective investors. Tax Compliance: An attestation plays a crucial role in confirming adherence to tax regulations and can promote more efficient engagement with tax authorities. It functions as proof that the corporation satisfies the QSBS requirements, which may streamline the tax reporting procedure. Risk Mitigation: The attestation works by giving a risk mitigation of disputes or challenges in the future that may develop in the mind of the IRS about the stock’s QSBS status. Cost The costs for obtaining a QSBS certification will depend on many factors, such as the extent of complexity of the company’s organizational structure and how much any given professional services company charges for providing the certification. In most cases, the costs range between several thousand to tens of thousands of dollars. Regardless of the monetary investment, the tax advantages likely to be gained for the backers, coupled with increased certainty of conformity, could make the expense a wise investment. Conclusion Qualified Small Business Stock provides substantial tax advantages to investors in the interest of enabling small businesses to energize the economy. Controlled by Section 1202 of the Internal Revenue Code, QSBS enables considerable exclusions from federal income taxation of capital gains. However, fulfilling these requirements can be tricky, and the ability to get a QSBS attestation may provide much value through assurance with compliance and qualification for huge tax benefits. Although obtaining such certification does involve some costs, the potential tax incentives and reduced liabilities make it an important consideration for companies and investors alike.

Sep 8, 2024
Atlanta
Business Value Transfer

Private Equity and Privately Held Businesses

John Dini of The Exit Planning Coach is a member of XPX San Antonio
John F Dini
The Exit Planning Coach
5 days ago

Depending on who you are talking to, Private Equity is either the Great Satan or the savior of small and mid-market companies in the United States. The stories depend a lot on the personal experience of the speakers. Once a vehicle for high-risk investment plays in corporate takeovers (see Bryan Burrough’s Barbarians at the Gate,) Private Equity has morphed into tranches where specialists seek opportunities in everything from a Main Street entrepreneurship to multi-billion-dollar entities. What is Private Equity? The term itself is relatively generic. According to Pitchbook, there are currently 17,000 Private Equity Groups (or PEGs) operating in the US. The accepted business model for our purposes is a limited partnership that raises money to invest in closely held companies. The purpose is plain. Well-run private businesses typically produce a better return on investment than publicly traded entities. The current Price to Earnings (or PE – just to be a little more confusing) ratio of the S&P 500 is about 27.5. This is after a long bull market has raised stock prices considerably. The ratio is up 11.5% in the last year. That means the average stock currently returns 3.6% profit on its price. Of course, the profits are not usually distributed to the shareholders in their entirety. Compare that to the 18% to 25% return many PEGs promise their investors. It’s easy to see why they are a favorite of high net worth individuals, hedge funds and family offices. As the Private Equity industry has matured and diversified, they have even drawn investment from the usually more conservative government and union pension funds. Private Equity Types Among those 17,000 PEGs the types range from those who have billions in “dry powder” (investable capital,) to some who claim to know of investors who would probably put money into a good deal if asked. Of course, which type of PEG you are dealing with is important information for an owner considering an offer. private equity moneyThe “typical” PEG as most people know it has a fund for acquisitions. It may be their first, or it may be the latest of many funds they’ve raised. This fund invests in privately held businesses. Traditionally PEGs in the middle market space would only consider companies with a free cash flow of $1,000,000 or greater. That left a plethora of smaller businesses out of the game. For a dozen years I’ve been writing about the pending flood of exiting Boomers faced with a lack of willing and able buyers. I should have known better. Business abhors a vacuum. Searchfunders Faced with an overabundance of sellers and a dearth of capable buyers, Private Equity spawned a new model to take advantage of the market, the Searchfunders. These are typically younger individuals, many of whom graduated from one of the “EBA” (Entrepreneurship By Acquisition) programs now offered by almost two dozen business schools. These programs teach would-be entrepreneurs how to seek out capital, structure deals, and conduct due diligence. Some Searchfunders are “funded”, meaning they have investors putting up a stipend for their expenses. Others are “self-funded.” They find a deal, and then negotiate with investment funds to back them financially. Both PEGs and Searchfunders seek “platform” companies, those that have experienced management or sufficiently strong operational systems to absorb “add-on” or “tuck-in” acquisitions. The costs of a transaction have bumped many seasoned PEGs into $2,000,000 and up as a cash flow requirement. Searchfunders have happily moved into the $500,000 to $2,000,000 market. In the next article we’ll discuss how PEGs can promise returns that are far beyond the profitability of the businesses they buy.

Sep 4, 2024
Business Value Transfer
Member News

OSHA Proposes Increased Heat Regulations

Robert Brody of Brody and Associates, LLC is a member of XPX Tri-State
Robert G. Brody
Brody and Associates, LLC
1 week ago

Early last month, the Occupational Safety and Health Administration (OSHA) proposed the Heat Injury and Illness Prevention in Outdoor and Indoor Work Settings rule. The aim is to curb heat related injuries or death which OSHA identifies as “the leading cause of death among all hazardous weather conditions in the United States.” The proposal places new responsibilities on employers: establishing heat thresholds, developing Heat Injury and Illness Prevention Plans, regularly monitoring temperatures, and establishing safety measures when heat thresholds are met. This rule is yet to be finalized however, it is a sign of what’s to come. The standard applies to all employers except for the following: Work activities for which there is no reasonable expectation of exposure at or above the initial heat trigger. Short duration employee exposures at or above the initial heat trigger of 15 minutes or less in any 60-minute period. Organizations whose primary function is the performance of firefighting and other certain emergency services. Work activities performed in indoor work areas or vehicles where air conditioning consistently keeps the ambient temperature below 80°F. Telework (work from home). Sedentary work activities at indoor work areas that only involve some combination of the following: sitting, occasional standing and walking for brief periods of time, and occasional lifting of objects weighing less than 10 pounds. Heat Thresholds There are two heat thresholds which will trigger employer action: An “initial heat trigger” means a heat index of 80°F or a wet bulb globe temperature (defined below) equal to the National Institute for Occupational Safety and Health (NIOSH) Recommended Alert Limit; and A “high heat trigger” means a heat index of 90°F or a wet bulb globe temperature equal to the NIOSH Recommended Exposure Limit. The “heat index” is calculated by measuring the ambient temperature and humidity. Wet bulb globe temperature is a heat metric that considers ambient temperature, humidity, radiant heat from sunlight or artificial heat sources and air movement. Employers may choose either method of measuring the temperature.   Heat Injury and Illness Prevention Plan (HIIPP) Requirements If an employer does not fall under the exceptions, it must develop a HIIPP with the input of non-managerial employees and their representatives for occasions when the heat threshold is surpassed. This plan may vary on the worksite but must be written if the employer has more than 10 employees and use a language employees will understand. The HIIPP must contain: A comprehensive list of the type of work activities covered by the HIIPP Policies and procedures needed to remain compliant with the standard. Identification of which heat metric the employer will use heat index or wet bulb globe temperature. A plan for when the heat threshold is met. Along with creating the HIIPP, employers must designate one or more “heat safety coordinators” responsible for implementing and monitoring the HIIPP. The HIIPP must be reviewed at least annually or whenever a heat related injury or illness results in death, days off work, medical treatment exceeding first aid, or loss of consciousness. Employers must seek input from non-managerial employees and their representatives during any reviews or updates. The definition of “representative” is not defined; if this is broadly defined, this could be a major complexity employers must face. Identifying Heat Hazards Employers must monitor heat conditions at outdoor work areas by: Monitoring temperatures at a sufficient frequency; and Track heat index forecasts or Measure the heat index or wet bulb globe temperature at or as close as possible to the work areas. For indoor work areas, employers must: Identify work areas where there is an expectation that employees will be exposed to heat at or above the initial heat trigger; and Create a monitoring plan covering each identified work area and include this work area in the HIIPP. Employers must evaluate affected work areas and update their monitoring plan whenever there is a change in production processes or a substantial increase to the outdoor temperature. The heat metric employers choose will affect the thresholds. If no heat metric is specified, the heat metric will be the heat index value.  Employers are exempt from monitoring if they assume the temperature is at or above both the initial and high heat trigger, in which case they must follow the controls below. Control Measures When Heat Triggers are Met When the initial heat trigger is met, employers must: Provide cool accessible drinking water of sufficient quantity (1 quart per employee per hour). Provide break areas at outdoor worksites with natural shade, artificial shade, or air conditioning (if in an enclosed space). Provide break areas at indoor worksites with air conditioning or increased air movement, and if necessary de-humidification. For indoor work areas, provide air conditioning or have increased air movement, and if necessary de-humidification. In cases of radiant heat sources, other measures must be taken (e.g., shielding/barriers and isolating heat sources). Provide employees a minimum 15-minute paid rest break in break areas at least every two hours (a paid or unpaid meal break may count as a rest break). Allow and encourage employees to take paid rest breaks to prevent overheating. At ambient temperatures above 102° F, evaluate humidity to determine if fan use is harmful. Provide acclimatization plans for new employees or employees who have been away for more than 2 weeks. Maintain effective two-way communication between management and employees. Implement a system to observe signs and symptoms of heat related problems (e.g., a Buddy system). When the high heat trigger is met, employers are additionally required to: Provide employees with hazard notifications prior to the work shift or upon determining the high heat trigger is met which includes: the importance of drinking water, employees right to take rest breaks, how to seek help in a heat emergency, and the location of break areas and water. Place warning signs at indoor work areas with ambient temperatures exceeding 102° F. Other Requirements Training: all employees and supervisors expected to perform work above the heat thresholds must be trained before starting such work and annually.   What’s Next? The rule is yet to be published in the Federal Register. Once this happens, there will be a 120-day comment period when all members of the public may offer OSHA their opinion about the rule. Whether this rule comes to fruition may also depend on which party wins the White House. Furthermore, if finalized this rule would likely be challenged in the courts, which now have more discretion to overrule agency rules following the US Supreme court case of Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce (overturning the Chevron deference decision). Employers should review their heat illness prevention policies to maintain compliance with regulations. If you have questions, call competent labor and employment counsel. Brody and Associates regularly advises management on complying with the latest local, state and federal employment laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560  

Aug 30, 2024
Tri-State
Business Value Growth

From Overwhelmed to Empowered: Reclaiming Your Time and Energy

Maria Forbes of FIREPOWER Business Catalyst, LLC. is a member of XPX Atlanta
Maria C Forbes
FIREPOWER Business Catalyst, LLC.
2 weeks ago

Today we are highlighting the FIREPOWER Owner Sweet Spot Sessions! We’re about to embark on a game-changing conversation that will revolutionize the way you approach your business. It’s time to shift gears and start envisioning the future of your company in a new personal role. The Small Business Universe: Common Concerns of Owners Similar concerns echo throughout the small business universe. Maybe you feel like you’re lacking the right leadership, or worse, you don’t have any leadership at all. Perhaps your workforce has hit a plateau, or you’re dealing with the frustrating challenge of high turnover. And let’s not even get started on the never-ending cycle of decision-making, where it feels like you’re carrying the entire load on your own. What is the Work that Only You Can Do? We’re here to share a secret to successfully moving your business into the future. It all starts with a simple question: What is the work that only you can do? It’s time to tap into your natural talents and abilities that have fueled your business success from its inception and then refocus your efforts in a new way. Now, brace yourself for a little revelation that’ll bring a smile to your face. The answer to that question is much less than what you’re currently doing. Yes, you heard it right. You’re probably sporting way too many hats, it’s time to bid farewell to those unnecessary responsibilities and rediscover your true sweet spot. Enter the FIREPOWER Owner Sweet Spot sessions. These sessions are crafted to help you pinpoint those burdensome responsibilities that are holding you back from doing the work your company desperately needs from you. We’re here to lift that heavy weight off your shoulders and set you free to focus on what truly matters in achieving your future goals. Deciphering the best use of your time is the key to solving both short-term challenges and long-term business goals. It allows you to stay fully engaged in the work that only you should do, helps your teams to know your true superpowers, and ultimately unleashes your full potential to lead your company into the future. At FIREPOWER, we truly get the challenge, we live it every day. We understand the struggles you face as an owner.  Juggling numerous roles and tasks can be incredibly overwhelming and downright draining. But here’s some fantastic news – it doesn’t have to be that way. By identifying your unique strengths, you can reclaim your valuable time, restore your energy reserves, and reignite your enthusiasm for your business. So, are you ready to unlock your Owner Sweet Spot? Then it’s time to bid farewell to all the hats you’ve been wearing, delegate those unnecessary responsibilities, and rediscover the true value you bring to your company. Our owner-focused approach led by Maria Forbes, will expertly guide you through the process, empower your team, and take your business to unprecedented heights. Conclusion Remember, sustainable growth flourishes when you harness the potential of your team and become laser-focused on the work that only you can do. The number of hats you wear will shrink, while the quality of your life expands. It’s time to embrace the FIREPOWER within you and achieve the success you’ve always dreamed about. Together, we can make it happen! Fuel your people power, Maria Forbes with FIREPOWER Teams

Aug 23, 2024
Atlanta
Business Value Growth
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