New Bank Wanted - Aug 11, 2010
Posted by: Kurt W. Altergott in Articles
Reprint of Article Appearing in CFO.com on August 11, 2010
New Bank Wanted
By VINCENT RYAN
Thinking about leaving your current bank for another one? Join the club. According to Greenwich Associates, a historically high number of companies have put their banking business — almost all of it — out for bid.
In the last six months, according to a Greenwich Associates survey of banking decision makers in late June and early July, 20% of midsize firms and more than 15% of small businesses issued requests for proposals (RFPs) for a new bank. What's more, another 19% of midsize companies and 16% of small businesses are planning to do the same in the coming 12 months.
And the changes corporate clients are seeking are not of the add-on or complementary variety: 39% of small businesses and 37% of midsize ones have put out RFPs for a new, comprehensive banking provider, says Greenwich, a financial services research firm.
Greenwich called the numbers "truly striking," given that typically only about 10% of companies switch banks in a given year. The number of companies putting out RFPs for new banks has also accelerated in the past 18 months. In the first half of 2009, only 4% of small and midsize firms were seeking a new bank, says Greenwich.
The primary driver of the new fluidity in banking relationships: companies' desire to reduce hefty banking fees. About half of both midsize and small companies cited fees as one of their top three concerns. The other top reasons were unhappiness with the current level of customer service and increased capital needs. For small businesses, dissatisfaction with banking service trumped access to new sources of capital, 33% to 27%. But among midsize businesses, 37% attributed the RFP to increased capital needs, while 23% cited unhappiness with the current level of customer service.
Greenwich Associates was cautious to say that more than poor customer service might be at work in the increased willingness of small businesses to switch banks. "Since credit is such an important part of business banking relationships, it can be difficult to separate companies' satisfaction with the customer service they experience from their ability to secure credit from these providers," Greenwich says.
Reuben Daniels, managing partner at EA Markets, a capital markets advisory firm, says many of the firm's clients are "just not getting covered by the banks with the focus and creativity the companies are accustomed to receiving. Banks generally don't view lending as profitabl....
Posted by: Kurt W. Altergott in Articles Reprint of Article Appearing in the New York Times on July 16, 2010 Determining Your Company’s Value: Multiples and Rules of Thumb My firm recently met with a business owner who told us right up front that he had started his business six years ago with the intention of selling it. He came to our meeting prepared with tax returns and financial statements and also informed us that he would be willing to stay on in a sales role with a new owner for up to three years. The business — a specialty subcontractor to the commercial building industry — did about $7 million in annual gross sales in 2009, had been growing rapidly every year since its inception, and showed $725,000 in Ebitda and $900,000 in seller’s discretionary earnings (S.D.E.). Everything about the business looked great. The meeting continued to hum along nicely as the seller recounted the history of his company and listed its biggest customers and possible buyer candidates. We listened carefully, impressed by how thoroughly he had prepared for this day. Then we asked if he had a particular asking price in mind. His number, he said, was $8 million. If I had sound effects in my conference room, I would have cued the needle scratching across the surface of a vinyl LP. So, what’s the problem with an asking price of $8 million for this business? The primary issue is that the price would be a multiple of 11 times Ebitda, or almost nine times S.D.E. according to the seller’s financial statements. Given the industry and the asking prices for similar businesses for sale across the country, those multiples are far beyond what most buyers would consider reasonable in today’s market. While there are many factors that help determine an appropriate asking price — including competitive advantages, opportunities for growth and historic financial performance — multiples and rules of thumb can be a good place to start. Several resources are available for obtaining data on pricing businesses for sale, including Business Valuation Resources and BizBuySell.com. A business broker, intermediary or transaction adviser will have access to....
Posted by: Kurt W. Altergott in Articles You would think that a cash flow statement would be an easy read since you are dealing with real money and there are no estimates in the numbers. Yet, many managers find this statement difficult to understand. One reason is that the statement is divided into categories and these categories may take a while to understand and the labels used on the categories can be confusing. Another reason is that it can be difficult to see the relationship between the cash flow statement and the other financial statements. The cash flow statement’s purpose is to show the cash moving into a business, termed inflows, and the cash moving out of the business, termed outflows. The statement is divided into three main categories. Cash From or Used in Operating Activities You may also see this category listed as “Cash Provided by or used for Operating Activities”. No matter what the exact language may be, the category includes all of the cash flow, both in and out, that is related to the actual operations of a business. It includes the cash received from customers and the cash paid out to vendors, employees for salaries, rents, and any other outflows made to keep the business operating. Cash From or Used in Investing Activities Please note that investing activities used in this statement refer to investments made by the company and not the owners. The most common example of an item in this category is cash spent on capital investments or long term assets. If a company purchases machinery which will benefit multiple periods, the cash it pays out will show up in this category. Conversely, if the company sells assets, the cash it receives will be shown in this category also. Cash From or Used in Financing Activities Financing activities refer to a company borrowing or paying back loans or transactions between a company and its shareholders. If a company receives proceeds from a loan or an equity investment from shareholders, the amounts would be shown in this category. Conversely, if the company repays a loan or pays dividends to shareholders, the cash paid out would show up here also. There is a lot of useful information within the cash flow statement. The Operating category may be the single most important number indicating the health of a business. The Investing category may indicate how much cash the company is spending on its future or if it is treating the business as a “cash cow”. The Financing category may indicate how dependent the company is on outside financing if viewed over time. The fiscal ramifications of the various stimulus and bailout packages will likely be felt for several years. As the government looks for sources to raise revenues, it will be increasingly necessary to keep a keen eye on the Treasury and IRS when planning strategies for both business and corporate structures. The impact of the combination of the expiration of the Bush tax cuts beginning in 2011 with the increase in the Health Insurance taxes beginning in 2013 has the potential to raise the top tax rates for wages by 5.5%, for long term capital gains by 8.8%, and for dividends by 28.4% assuming Congress does not limit the tax on dividends to 20%. As we near 2011 where the majority of the impact will begin to be felt, those that own closely held businesses (especially in the form of a pass through entity) should use this time to plan to increase revenues, defer deductions, and accelerate planned restructurings in 2010 to maximize their after tax earnings. By enacting certain strategies, the relative tax savings due to the rate differential may be significant enough, even on a net present value basis, to warrant the acceleration of income or deferral of deductions. There are several strategies that can be employed. Some are automatic and others may require the filing of a request with the IRS for an accounting method change. The scope of this entry will focus solely on business transactions. Your B2B CFO® in conjunction with your tax advisor should cover scenarios involving IRS approval as they are more complex. For business transactions, some general planning considerations should include: ü Adjustment of contractual terms so income accrues in an earlier year (accrual basis taxpayers). ü Acceleration of cash collections prior to year end (cash basis taxpayers). ü Change in accounting method for advance payments received (consult tax advice). ü Delay timing of economic performance to subsequent year (accrual basis liabilities). During the course of their existence, companies may run into issues for a variety of reasons but there is ultimately one thing that kills them: they run out of cash. Too many managers and investors become focused on the income statement and balance sheet at the exclusion of the statement of cash flows. There is one noted investor, Warren Buffett, who watches cash closely. The reason, “Cash is hard to fudge.” Why should cash flow be targeted as a key measure of business performance? Why not use solely profit as is found on the income statement? The income statement and balance sheet, although very useful, do have all kinds of potential biases as a result of the assumptions and estimates that are built into them. However, when you look at a company’s cash flow statement you are getting an indirect look into their bank account. So then, if cash flow is so important, why don’t more senior executives pay closer attention? Some managers do not understand the accounting rules that determine profit, so they may assume that profit is pretty much the same as net cash coming in or out. Some managers may think that their daily actions do not impact cash in a meaningful way while others may believe that they do affect cash, but do not know how. In some finance organizations, they believe that cash is their concern and nobody else’s. If time is taken to understand cash in an organization, the return on that investment in time can be considerable. The organization can then see how well they are turning profit into cash. They can see early warning signs of trouble and take appropriate action. They can learn how to manage their business so cash flow is healthy. Yes, cash is an ultimate reality check. WHY PROFIT DOES NOT EQUAL CASH Why is profit not equal to cash coming in? Some differences such as loans received which do not impact the profit and loss statement are pretty obvious. Others may not be as obvious but you can break them down into three main areas: - Revenue is booked at sale. In many cases a sale is recorded for accounting purposes in the profit and loss statement when a company delivers a product or service. In many cases, no cash has been exchanged at the time of sale since customers typically have a stated number of days to pay. So, since profit is partially determined by revenue, a component of that profit reflects a customer’s promise to pay. Cash flow reflects only cash actually received. The MoneyTree™ Report is produced quarterly by PricewaterhouseCoopers and the National Venture Capital Association based upon data from Thomson Reuters. The Report measures both number and amount of equity investments in venture-backed companies in the US where at least one round of financing involving a professional VC firm or equivalent has been made. The Report does not include debt, IPO’s, recaps, etc. For 1Q10, national VC Capital Investments amounted to $4.7 billion which was up 38% YOY from 1Q09 but fairly flat versus the last half of calendar 2009. Historically, levels of investment are running in line with those found back in 2003. Although the VC market has stabilized somewhat, concerns over the lack of exits and liquidity along with reluctance of limited partners to invest in this space continue to exist. On a national level some key takeaways include the following: Ø $4.7 billion was invested in 681 deals. Ø 32% or $1.5 billion was in 202 deals in Silicon Valley which was once again the leading region. Ø 15% or $685 million was in 78 deals in Southern California fairly evenly spread among LA, OC, and SD counties. Ø Leading sectors in terms of dollars were biotechnology, software, industrial/energy, medical devices, and semiconductors. Ø Leading sectors in terms of deals were software, biotechnology, industrial/energy, media and entertainment, and medical devices. Ø Funding was predominantly in expansion or later stage versus start up or seed. Posted by: Kurt W. Altergott in Articles Despite predictions that the dawn of the 21st century would bring developed countries like the United States to a paperless society, paper is still very much with us. However, its usage has been reduced on a variety of fronts which has the potential of significant benefits to both small and large businesses. The case for going paperless in a business setting includes the following advantages: ü Accuracy – All parties can receive the same information at the same time and older, incorrect versions of documents can be eliminated. ü Consistency – Reliable information is ensured for third party users such as banks and auditors. ü Time and Waste Savings – In many cases double entry is eliminated. ü Storage – Need for space and staff drops when needs for paper storage are reduced. ü Image – Creates an eco-friendly image that can be a draw for certain customers. These points may be compelling, but initial system costs can be high and if suppliers and certain critical procedures are not paperless, their advantages may dissipate. Thus it is important to take a hard look at the entire business operation and determine where the greatest net benefits lie as the ROI is generally available on some level. Although the world is not paperless and it may be a myth to assume this will ever occur completely, there are numerous cases where paper usage can be reduced at great savings to a company. A great example is e-ticketing in the airlines industry which estimates the cost savings per ticket at $9 to $16. Also, electronic documents are much harder to steal than paper counterparts. A number of companies now provide solutions in document imaging, sc....
Posted by: Kurt W. Altergott in Articles California cities, counties and state government have the authority to offer low interest financing to businesses locating in their communities through the use of tax-exempt industrial revenue bonds. An eligible bond project can be the construction of a new plant, or replacement of all or part of an existing plant. Industrial activities eligible for financing include assembly, fabrication, manufacturing and processing. The primary advantage of industrial development bonds is that the financing provided bears an interest rate significantly lower than conventional methods (the lower interest rate is the result of the tax exempt status of the securities), the bonds are long term 15-30 years maturity, and are assumable. Companies taking advantage of industrial bond financing receive approval for a project through a local industrial development authority or the California Economic Development Financing Authority. The authority makes findings regarding eligibility and public benefits pertaining to the project before authorizing the tax-exempt status of the bonds. To qualify for industrial development bonds a borrower needs to meet certain eligibility criteria: 1) the firm must be engaged in a manufacturing, processing or value-added industry, 2) the total project cost should be at least $1 million and may not exceed $10 million, 3) the borrower must secure a standby letter of credit for 100 percent of the issue value from a bank with a substantial credit base, 4) the capital expansion must provide a public benefit such as creating new jobs; and 5) the project must have city or county support. The proceeds from a bond issue can be used to pay for virtually all costs incurred by the company for its project including the financing of land acquisition, building construction, machinery and equipment, and other incidental costs as well as all expenses associated with the financing and issuance of the bonds. In addition, 5 percent of the net proceeds of the bond sale can be set aside for the working capital needs of the business. At B2B CFO® we concern ourselves with the client’s success and aspire for them to attain their goals and dreams. Cash. We help you get it. Posted by: Kurt W. Altergott in Articles Los Angeles County has a variety of incentive programs available to both small and large businesses. Incentives should not be the only reason why one should consider a location, but could be one of many factors that could help lead to a final location decision. Potential business incentives may be offered at the federal, state and local level. Incentives typically fall into two categories: legislated and discretionary. State and federal legislated incentives are "on the books” and available to any business that meets stated criteria. Discretionary incentives are customized and provided by certain cities and only for specific projects on a case-by- case basis. Rarely will either legislated or discretionary incentives turn a poor location into an acceptable one. Therefore, they should be considered only after a number of locations have been identified that satisfies a company’s key operation requirements. Incentives should be combined with other factors as part of a strategic comparison of contending site locations. Financial incentive availability depends on a variety of factors including the state or community’s needs and the project’s economic impact. One such incentive that is often overlooked is the Enterprise Zone Credit. Enterprise zones are specific areas in the community where the state & local government partner and offer a variety of incentives to attract private business investment. There are 12 Enterprise Zone areas in Los Angeles County: Antelope Valley, Compton, Long Beach, Los Angeles-East, Los Angeles-East Valley, Los Angeles-Hollywood/Mid City, Los Angeles-Central, Los Angeles-South, Pasadena, Santa Clarita, South Gate-Lynwood The Enterprise Zone Program spurs business development in designated communities through special zone incentives. Businesses located within the boundaries of an enterprise zone are eligible for tax credits against their California bank and corporation tax liability. An example of some of the credits include: 1.Sales and Use Tax Credit The first major enterprise zone tax credit is equivalent to the sales and use tax paid on the first $20 million of new or used manufacturing equipment purchased each year. 2.Hiring Tax Credit Secondly, businesses may claim a percentage of ....
Posted by: Kurt W. Altergott in Articles On March 30, 2010, President Barack Obama signed into law the Health Care and Education Reconciliation Act of 2010 (H.R. 4872), amending the comprehensive health care reform legislation enacted on March 23, 2010 (i.e., the Patient Protection and Affordable Care Act). Many of the specifics associated with the new legislation remain unclear. Further guidance will become available as clarifying regulations are made to address how the law is to be implemented. Until then, the impact certain aspects of the Acts will have on benefits plans and financial statements will have to be estimated and monitored as guidance is provided. The Acts are far reaching and too voluminous to fully summarize here, however highlights of certain provisions of the Act include: PROVISIONS TARGETING HIGH INCOME INDIVIDUALS Beginning in 2013, the Act imposes an additional 0.9 percentage Medicare Hospital Insurance tax (HI tax) on self-employed individuals and employees with respect to earnings and wages received during the year above specified thresholds. This additional tax applies to earnings of self-employed individuals or wages of an employee received in excess of $200,000. If an individual or employee files a joint return, then the tax applies to all earnings and wages in excess of $250,000 on that return. The Act does not change the employer HI tax. Self-employed individuals are not permitted to deduct any portion of the additional tax. If a self-employed individual also has wage income, then the threshold above which the additional tax is imposed is reduced by the amount of wages taken into account in determining the taxpayer’s liability for the additional tax on wages. For example, assume a taxpayer had self-employment income of $500,000 and also received wage income of $75,000. In determining the additional self-employment tax, the threshold would be reduced from $200,000 to $125,000. For wage earners, the Act requires the employer to withhold the employee’s tax from wages paid to the employee in excess of $200,000. In determining its withholding obligation, the employer is not required to consider wages that may be received by the employee’s spouse that would be subject to this tax. As a result, some married couples may have liability for the additional HI tax that is not satisfied by withholding. OTHER INDIVIDUAL PROVISIONS The Act generally requires that all individuals either obtain health insurance or pay a penalty on their federal tax return beginning in 2014. The penalty is not an insurance premium, and paying it does not entitle the individual to any health insurance coverage. To encourage individuals to obtain health insurance rather than pay the penalty, the Act includes a number of provisions intended to increase the availability and affordability of coverage. Most of these provisions are designed to help small employers and individuals who, unlike large employers, generally have little bargaining power in the market for health insurance and sometimes find insurance prohibitively expensive or completely unavailable due to prior or existing health problems. To avoid the penalty, individuals will need to obtain and maintain “minimum essential coverage” for themselves and their dependents.....
Posted by: Kurt W. Altergott in Articles On March 30, 2010, President Barack Obama signed into law the Health Care and Education Reconciliation Act of 2010 (H.R. 4872), amending the comprehensive health care reform legislation enacted on March 23, 2010 (i.e., the Patient Protection and Affordable Care Act). Many of the specifics associated with the new legislation remain unclear. Further guidance will become available as clarifying regulations are made to address how the law is to be implemented. Until then, the impact certain aspects of the Acts will have on benefits plans and financial statements will have to be estimated and monitored as guidance is provided. The Acts are far reaching and too voluminous to fully summarize here, however highlights of certain provisions of the Act include: BUSINESS RELATED PROVISIONS The Act does not require employers to provide health coverage to employees; but beginning in 2014, it penalizes them for failing to do so through penalties (administered by the IRS) that are imposed on certain employers with at least 50 full-time employees (those working 30 or more hours per week). Small businesses and eligible tax-exempt employers who are required to make certain non-elective contributions toward the costs of employee health benefits will be eligible for a small business credit to offset the cost of employee health insurance. When fully effective, the new credit will be up to 50 percent of the lesser of: (1) the employer’s aggregate contributions towards premiums paid to a qualified health plan offered by the employer through an exchange; or (2) the aggregate contributions an employer would have made if the employee had enrolled in a qualified health plan having a premium equal in value to the average premium for the small group market in which the employee enrolls. For years 2010 through 2013, the credit is 35 percent of the lesser of: (1) employer’s nonelective contributions for premiums paid for health insurance coverage; or (2) the average premium for the small group market in the employer state. In order to qualify, the business must have no more than 25 full-time equivalent employees, pay average annual wages of less than $50,000, and provide qualifying coverage. The full amount of the credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000, and will phase out when those thresholds are exceeded. The average wage threshold for determining the phase-out of credits will be adjusted for inflation after 2013. Small employers (generally those with 100 or fewer employees) will be allowed to adopt new “simple cafeteria plans,” which are conceptually similar to simple 401(k) plans and simple IRAs under current law. In exchange for satisfying minimum participation and contribution requirements, these plans will be treated as meeting the nondiscrimination requirements that would otherwise apply to the cafeteria plan. The provision is effective for taxable years beginning after December 31, 2010. Two significant design changes to employers’ health flexible spending accounts also will be required for 2013. The first is a new $2,500 cap on the amount of salary reduction contributions employees can make to their FSAs each year. The second change is more subtle, but likely will affect a larger percentage of the employee population on a consistent basis. That is, health FSAs can no longer reimburse employees for the cost of over-the-counter med....
Posted by: Kurt W. Altergott in Articles As market acceptance of the concept of a CFO who is not full time has taken hold, the question of how B2B CFO® differs from other interim solutions such as Tatum or similar type firms often arises when speaking with prospective clients along with other referral sources including bankers, attorneys, and CPA’s. However, that is merely the beginning. There are numerous differences in how we approach the client relationship, how we interact with clients, and the service approach taken with clients. There is a distinct and valuable difference between hiring a B2B CFO® versus other interim solutions. Please find a listing of some of the primary differences below: 1. Handshake agreement with a B2B CFO® partner vs. Signed Contracts with others. 2. Long term, Part time solution with a B2B CFO® partner vs. Short term, Full time at Tatum and others. 3. Successful Exit Strategies and Execution with a B2B CFO® partner vs. Project based focus at Tatum and others. 4. No hidden fees at B2B CFO® vs. several termination fees or transition fees with other firms such as Tatum. 5. National Partnership Resources and Collaboration at B2B CFO® vs. Employee Based at Tatum and local firms. 6. Seasoned Partners at B2B CFO® vs. use of Staff level employees at others. 7. Emerging to Middle market focus at B2B CFO® vs. Large entity focus at firms such as Tatum 8. Cash Generation Approach at B2B CFO® vs. Financial and Technology Services at other firms. B2B CFO® partners are building a long-term practice of local clients within a national presence and it is our goal to provide exceptional service to satisfied clients with honesty, integrity and objec....
Determining Company Value: Multiples - Jul 16, 2010
Language of Cash Flow - Jun 29, 2010
Paperless movement - May 18, 2010
Industrial Development Bonds - May 17, 2010
Los Angeles County Business Incentives - May 15, 2010
Comprehensive Healthcare Acts - Individual Provisions - May 15, 2010
Comprehensive Heathcare Acts - Business Provisions - May 15, 2010
Part Time, Long Term CFO vs. Other Interim Providers - May 15, 2010
One of my partners puts it brilliantly that at B2B CFO® we are a “long-term, part-time” solution contrasted with other interim solutions like Tatum who are a “short-term, full time solution”.
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