Michael Stier and Exit Planning Institute for this special episode of the ‘CEPA inside’ to help drive the transformative work needed for a successful exit.
Finance
Annapolis, MD – Craig Decker, Managing Director, of Alex.Brown/Decker Global Wealth Group located at 2077 Somerville Road, Suite 320 Annapolis Maryland 21401, was among the Raymond James-affiliated advisors named to the Forbes list of Best-In-State Wealth Advisors. The list, which recognizes advisors from national, regional and independent firms, was released online April 4, 2023. Click below to read full press release:
How to Invest in Chaotic Times! Meet star financial planner Shinobu Hindert author of “Investing In Your Super Power” click here to meet and speak with the author:
The economic rebound has made the competition for skilled, technical professionals more challenging. A May 2021 report from Robert Half stated that 93% of companies are struggling to find skilled staff—meanwhile, current conditions for business growth and transformation can’t be missed. In finance, talent shortages have been no small challenge for today’s CFO. Dynamic companies are seizing low-interest rates to pursue M&A growth. Finance teams are racing to embrace tax savings opportunities brought on by new legislation. At the same time, there are more pressing risks in the new operating environment as information security protocols catch up to the ever-increasing use of technology and management grapples with the ramifications of hybrid work models. How to manage talent shortages requires a new plan of action. As finance teams work to become more dynamic, they have to focus more on the big picture than ever before, leading to another trend – supplementing teams through co-sourcing and outsourcing. IBISWorld published a sector report in April 2021 that states that outsourcing will grow to a mammoth $143.5 billion business by 2024. What’s driving that? Growing complexity with accounting standards Changes in tax codes, domestic reporting, and compliance requirements Needs to streamline and automate processes Changing requirements for management reporting from myriad systems to inform decision making The uptick in M&A and transaction activity Staffing shortages or lack of resources with specialized knowledge or expertise Need for financing to fuel growth Significant expansion of the hybrid work model Increasing phishing scams, ransomware, and cyber-attacks Reduction in internal audit budgets and staff The boom of companies going public The talent shortage in cybersecurity Join other CFOs looking for alternate ways to maintain their core functions while finding time and resources with the knowledge to evolve processes and systems to stage the next chapter for their company. Download the full guide to assess what ideas and solutions will benefit your company. CFO_Outsourcing_Guide_2_Digital (2).pdf
What makes an established business “bankable” as opposed to perpetually seeking investor capital? The standard suite of financials a bank looks for are pure data, such as the income statement, balance sheet, and AR-aging. These are backward-looking, based on past performance. However there are also a number of reports a client can create themselves that will help a bank grow comfortable with financing. Work In Progress (WIP) – this is a report with some standardized fields that will show current contracts a business is performing on. It is typical to include total value, % completed, and anticipated extensions Profit and Loss projections – for any business requiring capital for expansion, two years of projections are a MUST HAVE, preferably with the first 12 months broken out monthly. There should be detailed expense line items, and a list of assumptions. Pro tip: Don’t be too conservative as the bank will be conservative for you. It’s common to see high / low / mid scenarios with projections. Contract waterfall – specific to government contractors, this is similar to a WIP with some additional contract related fields Business plan – for a new venture or business expansion, this includes some details for what the business hopes to achieve. What business need will this solve? Who will the new customers be? What are the differentiators that make this company better than the competition? What are the risks associated with the venture? In addition to helping justify debt service and cash flow, professional reporting can demonstrate that a business has competent management. In case your client doesn’t know where to go for assistance, we have many professionals within XPX able to help!
When a new leader takes the helm, their decisions and maneuvers can cause a ripple effect that can be felt throughout your organization – especially regarding technological infrastructure. Even the most minute change can affect the delicate balance of technology within your organization and impact your control environment. During a leadership transition, CFOs have an opportunity to play a critical role in ensuring the passing of the baton is smooth and secure. Taking the proper steps to ensure consistent operations of critical controls during times of change is essential to keeping every aspect of your company secure. Where Do Things Go Wrong? Many scenarios could occur for a leadership change to create a technological disruption. Perhaps your new CEO doesn’t have a strong technological background, so they’re not focused on strengthening internal control processes, which increases the possibility of preventable risk. Or, they want to shake things up from the beginning, introducing new services or technology. Switching vendors or adopting different software tools without proper planning, vetting, and evaluation can create vulnerabilities. Recent headlines demonstrate changes in leadership have the potential to call digital operations into question. For instance, consider the recent takeover of one of the most prominent social media companies. Immediately upon acquisition, the new CEO took a hard-lined approach by significantly restructuring staff and fast-tracking product updates. In situations where such moves occur, leaders will want to be mindful of a potential public loss of confidence or resulting operational issues, which can result in negative publicity. This can have down steam impacts: remaining staff can be left scrambling to plug vulnerabilities and shoulder the added workload left by those let go. Meanwhile, frustrated users of the company’s applications can face glitches, bugs, and other disruptive issues. Another example is the recent collapse of a well-known cryptocurrency exchange group. The absence of a robust control environment led to the first crack in its fragile framework. For businesses looking to safeguard operations with potential leadership shifts in mind, some basic business process controls can help stop or identify issues in control environments early on. While navigating a leadership change, risk management is essential to continue operating ethically and remaining compliant. With the proper considerations in place, you can position your company to be as best prepared as possible when it steers into the unknown. How to Avoid Technological Pitfalls As many CFOs know, when leadership changes in an organization, everything could change, or nothing could change. Being proactive instead of reactive is the key to being prepared for any scenario. You must ensure all your bases are covered if changes are made to processes and technology, and perform due diligence to confirm other areas aren’t affected. When anticipating a change in leadership, consider how that change will affect your organization’s processes and technology and the continued operation of your internal controls. Be ready to address any potential problems swiftly and with proper communication from the top. Conduct an assessment of all IT systems, and evaluate and audit security protocols. Also, be sure to equip your team with the necessary knowledge and tools required for data protection today. And finally, analyze how third-party services might help reduce risk during times like these when changes require you to depend on them more than ever before. Having an independent party study your controls to ensure they’re secure and ready for a leadership transition can help increase consumer and stakeholder confidence. Furthermore, Connect with our seasoned experts today. Copyright © 2023, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).
The end of the year is drawing to a close, and CFOs everywhere have their sights set on 2023 — making it a perfect time to fine-tune organizational strategy and business operations. To ensure their companies are well-positioned for success in the new year, C-suite leaders must think big picture yet also focus on the daily details; this unique choreography of visionary oversight and intricate precision will give organizations an edge in a competitive environment. The upcoming year can signify reaching new heights for many organizations. To prepare, organizations should take a step back, developing pathways and objectives that align with their company’s overarching goals. Talent Retention The past year has been a rollercoaster, with businesses having no choice but to adjust to the realities of the Great Resignation and a tight labor market. However, the focus for many companies in 2023 may go beyond finding new employees — it should include options for retention strategies. According to a survey, employers worldwide plan to increase their salary budgets by 4.6% next year, the highest jump in 15 years. Most organizations attributed the increase to inflation and a tight labor market. If your organization doesn’t proactively look after the financial well-being of your workforce, your best and brightest could be recruited away. Remote and Hybrid Options: During the pandemic, remote work for office jobs became necessary for employers. Nearly three years later, most office workers don’t want to give up that flexibility, and many have proven they will find work elsewhere if that digital option is taken away. Offering flexible schedules and investing in tools and resources that enhance remote and hybrid collaboration will remain critical next year. Mergers & Acquisitions For most of 2021, mergers and acquisition (M&A) roared on. However, macroeconomic tensions in the air somewhat diffused that furor in the second half 2022: many large platform deals were halted, even as add-on deals stayed robust. This turning of the rides may be chalked up to the highest inflation in 40 years, rising interest rates, market volatility, supply chain disruptions and the Russia-Ukraine conflict weakening confidence for some transactions. Whether there is further change in store remains to be seen. Will the market change in 2023? It appears to be a toss-up. Some economic experts argue a sharp turnaround is surge in transactions next year. Despite the current wave of uncertainty that has left many companies to reduce some M&A activity, the classic motivations pushing firms towards these transactions remain. Seeking growth, expanding into new markets and gaining access to new products and services have long been a major impetus for companies an increasingly important role in aiding business operations by streamlining mundane tasks and freeing up resources that can be put to better use, therefore increasing the likelihood of success during uncertain times. Turning to intelligent automation, also known as robotic process automation (RPA), to conduct financial tasks or other processes requiring high levels of audit and oversight is a great place to start. Automation can also benefit employee retention, supply chain logistics and compliance with new accounting standards. Vendor and Service Pricing As we turn to the new year, it is also crucial for organizations to closely analyze their major contracts with vendors, suppliers and service providers. Taking time to reflect on each agreement is a proactive approach that will pay off in the short and long term. Considering options like renewing existing deals or negotiating more cost-effective terms helps keep costs down and can lead to better business relationships. Look for services and programs that may be underutilized — adapting, re-envisioning or cutting them can result in savings. Risk Management When considering potential risks for the coming year, it’s essential to stay ahead of the curve in assessing pitfalls and any areas of vulnerability. Think ahead to what risks your organization may face in the coming year. How can these risks be mitigated or minimized? Risk management areas to focus on include: Cybersecurity: Security and data breaches are becoming so common and detrimental that the SEC recently called for steps and processes can you take to make improvements? Supply Chain Vulnerabilities: This past year will be remembered for many things; unfortunately, it will also be remembered as a year rife with supply chain disruptions. Given the current economic state, organizations must a defensible stance regarding complex tax incentives, such as the Employee Retention Tax Credit and the research & development tax credit. Next Steps Our professional financial experts stand ready to assist you with any organizational strategies or business operations challenges you may face in the coming year. At CBIZ & MHM, we work closely with your organization to find solutions to your unique problems. With our assistance, you can focus on what you do best — running your business.
Date: December 2, 2022 Start Time: 12 p.m. EST End Time: 1 p.m. EST Platform: Zoom Questions: Chat
Meet one of the world’s top tech investors Guy Pelermuter author of “Present Future” Click here to speak to the author:
Lenders use the Global Debt Service Coverage Ratio to better understand your credit profile and it can either make or break your loan application If you read our most recent blog, the Global Debt Service Coverage Ratio (GDSCR) should not be a new term. Just in case you haven’t, the GDSCR is a tool that lenders use to verify your credit profile. It takes the sum of your gross income in a given year and divides it by the sum of your debts in the same year. The ratio takes both your personal and business credit profiles into account and can risk rejection if one lowers the ratio below an acceptable GDSCR. This is what happened to one Wallace Capital Funding, LLC client, a businessman who owns a mortgage broker, construction company and investment company. In addition to this, he and his wife also invest in real estate. With all of these income, debts, assets and liabilities, there was a lot of ground to cover. Although he understood personal mortgage and the debt to income ratio, which is all of your monthly debt payments divided by your gross monthly income, he did not understand why we needed to know all of the details surrounding his business ventures. This is because to calculate the GDSCR, all of this information is within his gross income — which includes “wages and salary plus other forms of income including pensions, interest, dividends, and rental income,” according to finance website Investopedia. And unless your business is a
With the supply chain and labor shortages caused by the pandemic, the blockage of the Suez Canal (remember that?), and the ongoing war between Russia and Ukraine, prices have gone through the roof. And while the Fed may claim some of it is transitory, many of us know exactly what it is: Inflation! But what exactly is inflation, what does it mean for a business, and what can a business owner do about it? In this article, we’ll define inflation and discuss some strategies for dealing with its ramifications. What is inflation? Inflation is an increase in prices not tied to an increase in quality. Inflation is when food prices go up for no reason at all; if package quantity went up to the same degree as food prices, then the price increases would not be an example of inflation But when we get away from simple things like food, it gets a bit murkier. If a car price goes up because the car is rare, is that inflation? How about putting out better but more expensive models…is that inflation? If cars are hard to come by because of a chip shortage, is that inflation? How about when the price of a commodity goes up because the price of fuel went up? Is that truly inflation? Or is it what the Fed would describe as transitory – something that will reverse itself when the price of oil comes back down? (Incidentally, the question of when the price of oil will come down is up for debate.) Our firm recently held a webinar with an energy analyst who opined that energy prices might stay high for some time (fact check and include link)) But, beyond defining inflation, the real question is – what does this mean for my business? How do I react and keep my business, reputation, and pricing power? Tips for Dealing with Inflation I recently had a conversation with a food service provider. He was facing a dilemma; commodity prices like flower, oil, and onions were up 80-150%. Labor was up significantly too. How can he keep selling food at a price people can handle while continuing to make a profit? Here is some of what I shared (and other things I did not share that may be interesting to a broader audience). Not all products are created equal. The cost for components of one product went up modestly while the cost of ingredients of the other went up much more significantly. Understand your margin by product and you can know where you need to raise and where you can absorb slightly tighter margins. Create efficiencies. If labor costs are up, what can you do to reduce the amount of labor inputs? Maybe hire robots for a piece of the process. Maybe buy certain items ready made from a larger vendor who can get economies of scale. If certain onions are up more than mushrooms, start offering mushroom salad as a standard and charge an extra fee for onion salad. Be thoughtful about inventory. Having extra inventory will cost you more money and you ultimately have to chare the customer more to cover your carrying costs. On the other hand, with prices increasing weekly, you may save significant money by buying things today rather than next month. Loss leaders are an option. Certain products might be unprofitable when viewed individually; however, if they enable you to sell other more profitable products, you might profit on a customer interaction even if you do not profit on each individual component. Consider buying in bulk. If you get a slight discount today and lock in your prices for the next few months, you are probably ahead of the game. Unless of course prices start rapidly falling, in which case you have price stability but are behind the 8-ball. Keep a long-term view while making sure you stay liquid and solvent. If you believe that commodity prices will come down (I do, but unfortunately, I do not know when), realize that there could be an opportunity to build or solidify those long-term relationships today and make the profit tomorrow. Keep an eye on the competition but know your numbers. Know where your business’s “line in the sand” is located. If you go past there, you will end up regretting it. Don’t let your competition entice you to chase unprofitable volume. You may not “make it up in volume…” Compete on things other than price. Provide a better dining experience, off hours delivery, customization, or something else your customers value that doesn’t cost you too much to provide. You will raise prices, but they’ll keep coming back for other reasons. Don’t just focus on margins. If you used to produce product for $5 and sell it for $10 but now it costs you $10 to produce, you can sell it for $15 and while you’ll have a much tighter percent margin (33% vs 50%), you’ll still be making the same number of dollars in profit ($5). Your competition may continue to mark it up 100% (so if the cost is $10, they’ll charge $20). Consider a loyalty program. If you do have to raise prices, consider instituting a loyalty program to “give something back.” While “points” are often left unused, you still build loyalty and if customers do come back for the freebies, you are giving my favorite type of discount – the one you only give when they come back. Monitor closely. If you do choose to operate on tighter margins, be very careful of waste and spillage. With tighter margins, every lost “unit” eats up a bigger piece of your profits. It’s been an interesting decade so far, these 2020s. When we are all grandparents, the kids are not going to believe this, but until then, keep paying attention to what is going on and make sure you are thoughtful about the scenarios in which you find yourself. Be intentional about your business (and life too!) and make sure to have good facts so you can make the right strategic decisions to help you weather this storm. — Gershon Morgulis is the founder and managing partner of Imperial Advisory CFOs. Imperial’s 8-CFO team provides owners and other executives of growing businesses with part-time CFOs and other consulting services which enables businesses to make better and more confident business decisions.
Wallace Capital Funding, LLC’s Business Funding Analysis gives undercapitalized businesses a chance for success What’s one thing you like to do backwards? Maybe it’s putting your socks on first or eating dessert before dinner. Well, for one Wallace Capital Funding, LLC client, doing things backwards almost led their company to bankruptcy. An hour before their grand opening, the client risked both their retirement and savings by signing a lease for their dream coffee shop in Alabama. But after spending over $15,000 of their personal money on business plans and consultants outside of WCF, they did not get approved for financing. Where did they go wrong? Timing. The client was in such a rush to get approved for financing that they missed a few steps in order to expedite the process, which ended up hurting their wallet in the end. It was only after the fact that the client came to Wallace Capital Funding, LLC to find a way to get approved. Due to their prior rejection — this client had a stain on their financial record and to lenders, they looked desperate for cash. Even with the odds stacked against the client, Wallace Capital Funding, LLC met with the client and conducted our reputable Business Funding Analysis (BFA) to better understand the financial standing of the client’s finances. The BFA allowed us to ensure our client would get approved without the headache they went through before. The analysis also puts lenders at ease to know our in-depth credit memo will show the client’s ability to pay back their loan. And even with a blemish on their record, we were still able to get them approved. When it comes to your business, don’t do things backwards. You are better off getting the BFA to ensure your business loan gets approved! Work with Wallace Capital Funding, LLC and our Business Funding Analysis to ensure you are in the best position to get approved. Talk to one of Wallace’s Capital Funding LLC’s experts today to get the process started. You can also join WCF’s mailing list, which can be found on our website or give us a call at 1-800-809-5629 to learn more. For all of your business financing needs, Wallace Capital Funding, LLC can help. Whether you need funding for new equipment, financing commercial real estate, or to cover staff expenses before your contract payment comes through, Wallace Capital Funding, LLC can create a custom funding solution that’s right for you.
It’s no secret that every business owner wants to make more money and maximize profits. The problem is they don’t know how to manage the finances of their business which leaves them confused and frustrated, not knowing which levers to pull to drive success. They may make decisions to make more money, but they’re not sure if those decisions are actually helping or hurting. It strikes a nerve with CEOs that accountants are often not giving them the data they really need to make better decisions. CEOs of closely held businesses, unintentionally, under-appreciate accounting. Because of that, accounting is often underfunded. If a business owner has an extra dollar of profit, they tend to invest it in marketing or selling their product/service.
Expense Reduction Analysts is pleased to announce that the whitepaper, entitled “Driving Enterprise Value Through Cost Management” has officially launched today. Please click on the link below to receive a copy of the report. CFO-ERA-Whitepaper_Driving-Enterprise-Value_Pages_vF
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COREnology is the first behavioral finance tool developed to help advisors identify, track and grow clients’ core values, beliefs and goals. Soon after David York and Andrew Howell started their estate planning law firm they noticed a glaring disconnect between what mattered most to their clients’ and how their clients were managing their wealth. Families were preparing wealth for their children, but were not preparing their children to have wealth. They knew how to gain wealth, but not how to be wealthy. When David and Andrew looked at the families that were successful at growing and transferring their wealth, they noticed some consistent trends. These families knew: Who they were What they valued What they believed Together David and Andrew wrote a book titled “
You have been working on the transaction for months. The business has gotten healthy with great valuation increase. Now is the time to get it across the finish line. Then… The owner struggles with the emotions of relinquishing the business. The owner gets overwhelmed with the process and gets cold feet. The owner’s health starts to decline changing the parameters of the sale. The owner’s spouse or child has an emergency or health crisis distracting from the final steps of the sale. The owner backs out due to fear of how to stay relevant and influential without the business. In the past most of the emphasis has been on financial planning and finance-related goals. When you have an expert on your team focused on the Wellness Portfolio alongside the owner’s financial and the business’s M&A portfolio, these delays are prevented and addressed.
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.
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
Sep 4, 2024
3 min read
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
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