Tuesday, May 31, 2011

401k Changes that Affect SMBs

There's a pending rule change in the law that governs 401(k)s. Unlike many of the previous changes, this change will also apply to small and medium-sized businesses that offer 401(k)s to their employees. (Many of the previous laws only applied to companies of a certain size or with a minimum number of participants.) The fees that the plan charges to administer the funds, as of November 1, must now be shared in an easy-to-view location, in the same way plan performance is shared. Here is an excerpt from the article, "A Sense of Disclosure: New 401(k) rules pose a challenge to small and mid-sized companies" written by David McCann for CFO Magazine.


"CFOs at small and midsize companies should monitor new 401(k) plan disclosure requirements. There are several new or forthcoming rules, and one in particular — ERISA Section 404 (a)(5) — could cause headaches. Plan fiduciaries have new obligations that carry substantial penalties and are likely to impose new costs.

Under that new rule, plan sponsors must (for plan years starting on or after November 1, 2011) prominently show on participants' quarterly statements the administrative costs for running the plan, and on annual statements any investment-related fees.

Until now, such information has been buried in fine print, unlikely to be read. Now, the disclosures must be made in the same far-forward area of the statements that describes investment returns. Regulators hope this will improve awareness of plan costs and, where such costs are high, lead participants to push their employers to seek lower-cost plans. While most plans' annual costs come to 1.5% of plan assets or less (in many cases, far less), for some plans the tab can be as high as 5%, says Lou Harvey, president and founder of Dalbar, an advisory firm that evaluates 401(k) providers."


As someone who focuses on the bottom line, I've always paid attention to administration costs. I read the fine print. I do this for the businesses I've been involved in and for myself personally when I invest in mutual funds, whether directly or through IRAs or Keoghs. If you haven't and your company offers 401(k)s, now is the time. Why pay extra fees when you don't have to? If you look at Morningstar fund ratings and compare that to administrative costs, there is no correlation between higher costs and higher performance. If the industry average is 1.5% (as the article implies) and your 401(k) plan costs are 5%, then it is your fiduciary duty to seek a plan with lower costs UNLESS that cost differential can be explained by higher overall returns (VERY rare), better customer service, or some other benefit to your company. Remember, this is NOT the fee your company pays the 401(k) admistrator which, of course, is higher for smaller companies. This is the fee that the participants - the employees - pay the fund to manage and invest their money.

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Budgets or Rolling Forecasts?

I'm not saying that I wholly agree with the comments expressed in the article, "Let It Roll: Why more companies are abandoning budgets in favor of rolling forecasts" by Russ Banham (from CFO.com). As with your business plan, as a cash management cfo you need to regularly check performance against actual and whether or not your assumptions about the industry, your market, and the next steps for your business hold out. All of these affect your budget and this review process should be done on a quarterly basis.The headline uses the term 'abandon' but the more appropriate word would be 'amend'. We're talking about a change from a more rigid traditional budget approach to a flexible budget approach. See the excerpt from the article below.


"Indeed, these days a budget is practically past its expiration date the moment the ink dries. "We used to have what we called the annual plan, and we'd spend six months of the previous year putting it together," says Neal Vorchheimer, senior vice president of finance for North America at consumer-products giant Unilever. "As soon as the budget was approved it was out of date. So we decided to do away with it."

Going with the Flow
In lieu of a traditional budget, Unilever now relies on an eight-quarter rolling forecast. The company, whose parent recorded 2010 revenues of $54 billion, forecast demand for all of 2011 and 2012 in January, while keeping in mind the fact that change is constant."


Click here to read "Let It Roll" in its entirety.

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Thursday, May 26, 2011

Narrated presentation: How to Build Business Credit

Check out, How and Why to Build Business Credit, a narrated powerpoint presentation I did. It's posted on Authorstream. It's more in depth than my articles on the same subject. Check it out when you get a chance. I believe it can be helpful...even to those who have been in business for years. Some owners have been reluctant to pursue any real debt for fear of the burden it places on them. If you don't do anything else, at least get a free monitoring Dun & Bradstreet account and make sure what's listed is accurate.


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Tuesday, May 24, 2011

Family and Friends Funding

Here's a great excerpt from an article about obtaining funding from family and friends. This excerpt stresses the need to keep it professional. Everyone - you, your family member(s) or your friend(s) will all feel much more comfortable if you professionally document your agreement. It also removes the, "I thought you said or meant..." factor, which often happens when friends and family communicate but don't document that communication. As I've said before, it always amazes me how two people can be in the same conversation but have vastly different recollections of what was said. You avoid this by documenting your important discussions, such as those related to raising funds. The Entrepreneur.com article by Eileen P. Gunn, Five Tips for Asking Friends and Family for Funding, has a number of other tips you may find of interest. Click on the title to read the article in its entirety.


"Keep your documents and communications business-like.
When you're dealing with people you know well, it's easy to want to keep agreements informal out of concern that official documents might make things feel less friendly. But don't be too casual.

If you don't want to involve a lawyer (but if equity is involved, you should), you may want to consider trying websites such as 40billion, Caplinked or LendingKarma that can help you structure, document and manage investments from friends and family."

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Investors Focus on Management Teams

I read this on Inc.com's website. I thought it was interesting. Ashton Kutcher says he invests in management teams. Go figure! That's what I repeatedly tell people investors seek. I devote a page to that in many of my presentations. A great management team can take a mediocre idea and build a really good company. A mediocre manager team can kill a great idea and a great company. Here's the excerpt from "Would Ashton Kutcher Invest in You" by Nicole Carter (to read the rest of her comments on other topics, click on the link.)


"Would Ashton invest in you? Ashton Kutcher took the stage at TechCrunch Disrupt this morning. Interviewer Charlie Rose asked him how he decides which companies to invest in. Kutcher, the actor-and-media-company entrepreneur who's invested in Hipmunk, Blekko, Path, and others, said he doesn't care at all about market potential ("I've become immune to is people talking about market cap," he says). Rather, he's looking for a strong team working extremely hard to fill a need. (My bolding.) A good indication of future success, he says, is when founders are working hard to keep servers from crashing at the start."

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Monday, May 23, 2011

Ready to Sell? Consider This

Here is an excerpt from an article on Entrepreneur.com entitled: Tips to Consider When You're Ready to Sell: HARO founder Peter Shankman shares insight from the sale of his business, by Eileen P. Gunn.

"What advice do you have for entrepreneurs looking to sell in order for the companys to grow?
Ask yourself if selling the company is really what you want to do, and make sure you're selling for the right reason. If you're having a crappy day, that's not a reason. If you wake up one morning and don't love what you're doing, that's a reason. If you want to get your company to the next level and don't have what it takes to do it on your own, that's a reason."


This is an interesting article. Read the article if you are thinking of selling out to a larger company in your industry or a related industry. Or if you are a tech-driven company. (Some of the comments about revenue multiples are completely unrealistic for most industries. In most industries, multiples of cash flow or EBITDA is a better indicator of market value.) If not, this excerpt will suffice. If, as an entrepreneur, you are burned out, overwhelmed or frustrated, you may need to bring in a strategic advisory board or build out your management team to allow you to focus (or re-focus) on the company and get more strategic input that keeps you thinking big. Or you may need to bring in outside investors or a partner to help you take the company to the next level. There are a number of ways to bring in the outside help you need to help your company grow. Getting bogged down in the details and feeling like you need to do everything yourself leads to dissatisfaction and burnout. If you decide these feelings are here to stay, that you do not love what you do anymore, then it is time to sell out before antipathy sets in and takes the company on a downward trend. I agree. If you like what you do but you want the company to get to the next level and don't believe you can shepherd that growth - that training, a mentor, an advisory Board, or a supportive management team - can help you drive the growth, then it is time to sell. Know your limits and move on to the next good thing.

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Good News for Syndicated Revolving Credit Lines

Here's an excerpt from an article I read on CFO Magazine's website, CFO.com, "Revolvers Return, with Some Twists: Good news for credit-seekers as banks relax, a little" by Vincent Ryan. Click on the title to read the article in its entirety.

"In 2010, lenders doubled their issuance of syndicated, revolving lines of credit, a staple of corporate finance, according to data from Thomson Reuters Loan Pricing Corp., with borrowings accelerating the second half of the year, to $381 billion.

During the financial crisis, banks cut their exposure to revolvers, downsizing instruments or flatly refusing to renew them. Now, individual banks are slowly raising the amount of untapped commercial-credit commitments they're willing to keep on their books, according to federal call reports."


Medium-sized companies can participate in syndicated, revolving credit lines. Talk to your banker. If you bank with a community or regional bank that has a strong business customer focus, they may occasionally syndicate loans that are too large to for their portfolio. The bank may take the lead. So, if you need $15 million and the typical loan limit for your community bank is $8 million (meaning that most of the loans they approve are $5 million or less), in order to keep your business they may wish to syndicate the loan among 3-4 other banks of their size. You never know until you ask.

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Saturday, May 21, 2011

VC Returns Improving - Good News for SMBs

Below is an excerpt from the article, Venture Capital Returns Rebound: VC firms enjoyed their best quarter since 2006, but companies may continue to have difficulty securing venture funding, by Alix Stuart of CFO.com. From everything I'm reading and in talking to companies I know that are seeking venture capital, the venture capital market is steadily improving. As with all news articles, this article has a hint of negativity. That is not included in my excerpt but in the article as a whole. Given that 2008 and 2009 were recession years, I'd say what happened in 2010 and is happening in 2011 is excellent news. When VC firms can exit their investment AND do so with a good return, they are more willing to invest, which makes the improving market returns for VCs great news for applicable small and medium business (SMB) owners.


" According to figures released Wednesday by the National Venture Capital Association (NVCA) and Cambridge Associates, returns for venture funds showed sharp improvement in the last quarter of 2010 (the most recent period for which data is available) and for 2010 as a whole.

Fourth-quarter returns were 8.4%, up from 3.7% for the previous quarter and the highest for any quarter since 2006. One-year returns were 13.53%, mostly driven by higher returns (28.16%) for later-stage firms. That compares with an average 3% return in 2009 and a 20.9% average loss in 2008.

"We typically discount the one-year numbers, but for 2010, the data is actually starting to show the positive impact of an IPO market that is better — not great, but better — and a better acquisition market as well," says Mark Heesen, chairman of the NVCA."

Click here to read the remainder of the CFO.com article.

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Friday, May 20, 2011

Want to Attract Investors? Be Coachable

Check out this excerpt from, How to Pitch Investors: Four Tips from TechStars New York: by Eileen P. Gunn

'Be coachable.
These professional or semi-professional investors pride themselves on "adding value," to the companies they invest in. They want to know you're interested in their industry knowledge, technical savvy and contacts, not just their money.

Billings notes that several of the program mentors who introduced one of the companies "made a point of saying how receptive they were to feedback." His advice to entrepreneurs who are making an appeal to VCs and angels: "Don't be the smartest guy in the room."

"We tell the companies early on to make sure to actually ask for something in their presentation," says David Tisch, managing director of TechStars New York. This means requesting a specific sum of money to accomplish a particular goal, like expanding into new markets. It also means stating how you'd like your investors to help you.'


I am highlighting this tip because it is important. I remember speaking with a few people from ATDC (Atlanta Technology Development Center) at Georgia Tech. They said that the entrepreneurs who reaped the greatest advantages from their program were those that were coachable. Those that were not were arrogant and resistant to input. They also had a much more difficult time finding venture capital. (Word gets around.) Yes, entrepreneurs tend to be a stubborn bunch (you have to be with so many people letting their fears make them tell you what can't be done), but your company - and you - grow best when you are receptive to input from knowledgable sources.





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Beware of the Angry Post: Maintain Your Funding

This post is less about funding and more about what you can do to lose funding. I once had a boss ream the team (and rightfully so) because one person sent a poorly thought out, angry email to a funding partner. Although the person sent it on his own, my boss wanted to ensure that NONE of us ever made that mistake again. He told us to treat email communication the same way we'd treat snail mail. If you are angry, upset, irritated, etc., write the email, then sit on it for several hours or a day. Or have someone else review it. Make sure you are advancing your relationship with your communications, not tearing them down. That was 12 years ago but that approach has stayed with me. I now demand the same thing. ANYTHING that can be forwarded - emails, texts, voicemails, tweets - deserves a review before sending. If you send an angry ranting email or tweet, it could come back to bite you. We all get upset on occasion, but we want to remain professional. Check out the story below for an example. - Tiffany C. Wright

How To Lose Funding in One Tweet

Eric Markowitz @EricMarkowitz

Stop being stupid on social media. Seriously. We've all heard the stories of people getting fired because of salacious Facebook posts and offensive tweets. Now, companies are getting in on the action too. The Wall Street Journal reports that Reel Grrls, a Seattle-based nonprofit that offers classes for women, tweeted "OMG! @FCC Commissioner Baker voted 2 approve Comcast/NBC merger & is now lving FCC for A JOB AT COMCAST?!? http://su.pr/1trT4z #mediajustice." Steve Kipp, a Comcast vice president, sent the company an e-mail saying "Given the fact that Comcast has been a major supporter of Reel Grrls for several years now, I am frankly shocked that your organization is slamming us on Twitter…I cannot in good conscience continue to provide you with funding—especially when there are so many other deserving nonprofits in town." In a twist, though, another Comcast VP swooped in and apologized for Kipp's e-mail, and restored funding to the company. The moral? Think before you tweet.

Click here to read more of Eric Markowitz' article on Inc.com.

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Thursday, May 19, 2011

How smaller companies get bigger companies to pay up

Check out this article on "How smaller companies get bigger companies to pay in a timely fashion". It's a good article. However, much of it is a bit wishy-washy, as in, with the examples given, the companies are largely having mixed success. But there are still some good tips. If you are having similar issues, it's definitely worth the read.

Here's an excerpt from the article, Negotiating with Goliath: How smaller companies get bigger companies to pay in a timely fashion ' "Alternately, the company might try asking for better terms from suppliers. "If we have an opportunity with a large customer, we'll go to suppliers and say, 'We're not getting paid for 60 or 90 days, so can we pay you in that time?'" Donargo says. That approach often works when the manufacturer wants to do more business with a certain end customer. If neither of those alternatives is viable, though, "we're more likely to walk away from the deal." '

Click here to read the article in its entirety on CFO.com.

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Tips for Approaching Investors

Pre-work is usually required before you get a meeting with an investor.

As someone who is a big advocate of financial packaging - or making sure that you present both you, your company, and your financials in the manner that the financing source you are pursuing is most comfortable with - here is an article that I found very interesting. I believe you'll also find it highly informative and helpful. Tip #1 is one I say repeatedly, with a caveat. You have to start somewhere and sometimes reaching out to people and entities you don't know is the only viable way for you to get started. In that case, you have to find a common thread that connects you (alumni, church, other organization, similar interests) and weave that into your approach.

5 Tips for Talking to Investors

Make sure your growing company gets the funding it needs by perfecting your pitch.

A young company looking for outside funding won't get very far without a well-crafted pitch. And pitching to investors doesn't just mean showing them a raft of numbers; it also requires skillful storytelling.
A compelling pitch is especially important for seed-stage companies these days, given current trends in the venture capital market. Although first-time financings by venture firms in 2010 were up about 30% from 2009 — with more than $4 billion going to about 1,000 companies — the flow of funds going to seed-stage firms declined by 2%, according to the Moneytree Report by PricewaterhouseCoopers and the National Venture Capital Association.
1. Don't cold-call potential investors. Use your network instead to connect with angels or venture capitalists. "The first priority in approaching any investor is to have a credible referral," Erman said. This person should know "enough about the entrepreneur and the business to be able to offer recommendations that are authentic." If an investor allows electronic submissions, entrepreneurs should submit a plan and try to reach out through a referral.
Read the CFO.com article in its entirety.
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Wednesday, May 18, 2011

Business Plans - The Numbers

I thought this article was interesting. It discusses the primary components of a good business plan with an emphasis on inputting quantifiable, analyzed data (i.e., "the numbers"). This article is slanted towards business start-ups.


Business Plans by the Numbers

When writing a business plan, here's how to run the numbers that matter without getting hung-up on those that don't.

Entrepreneurs are a courageous bunch—except when it comes to math. I've seen many notoriously tough senior executives shudder at the prospect of running financial projections for their business plans. So I've developed a much kinder, simpler guide to help you crunch the numbers that matter most.

Break-Even Analysis
The most important numbers for a start-up are often the most basic. Among them: Predicting what it will take to have more money coming in per month than going out. Get that wrong, and you could find yourself out of cash, and out of business.

Continue reading the article on Inc.com.

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Tuesday, May 10, 2011

Presentation: Additional Sources of Capital

Here's a narrated presentation I did on Additional Sources of Capital. It's hosted on Authorstream. It provides more detail than my typical blog articles. This article discusses alternative and creative sources of financing.

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Friday, May 6, 2011

AuthorStream: Re-post of Powerpoint Presentation

Wednesday I posted an embedded youtube video but I also uploaded the narrated Powerpoint presentation on Friends as Business Partners on AuthorStream and Slideshare. I've embedded the AuthorStream post here. Enjoy! I appreciate comments and suggestion on other presentations you'd like to see or hear.

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Wednesday, May 4, 2011

Friends as Business Partners - Video Presentation

This narrated powerpoint presentation provides an explanation and overview on how to successfully build and maintain a friendship while creating and building a business or company together.

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Monday, May 2, 2011

10 Steps to A Successful Business Turnaround - Part 2

Step 6: Meet with your bankers and other lenders.
With many lines of credit and term loans, a company must provide quarterly or monthly updates. So your bank or other lender will often notice the degradation in your finances before you do. They may not say anything but, believe me, they are watching. Therefore, it is crucial for you to reach out and discuss the issues and the steps you are taking to identify the sources and resolve all the issues. If you need help with certain areas, your banker may be able to refer you to someone who can assist, such as a turnaround consultant. 

Be honest and give your banker the bad news and show him/her how your financials have been impacted. (Remember, the bank has seen the numbers drop but do not know why.) Outline your plan of action and solicit input from them. Although you are probably very worried, make sure you appear confident when meeting with the bankers. If you are not sure how to get out of this situation, tell them you know there is a way but you need help figuring it out. Bankers often do a fair amount of networking in the business community. They may have ties to business consultants and others who can help. They want to protect their asset - your loan. If the banker can help you save your company, you save their asset, become a loyal customer, and thus may become even more valuable to him/her over time. 

Meet with your bankers before you notify others external to your business. (Remember, investors/shareholders are internal to your business.) Bankers have a fiduciary duty to you so they cannot share your confidential financial woes with others. Your customers, suppliers and others do not have the same responsibilities.
Step 7: Meet with your customers.
Perhaps you have had trouble paying your vendors and suppliers. Or you may have had difficulty paying your employees or your employees have picked up on your stress. When you are having financial difficulties, word gets out in myriad ways. That is why it is CRUCIAL to communicate to those that matter - your lenders, investors, employees, customers, vendors,... The rumor mill will start and, as most people are aware, rumors are usually significantly more negative than the truth. Before you know it, you'll hear that your company is about to go under. Avert this. Remember, as I previously stated, the best defense is a good offense. Let your most important customers know as soon as possible (AFTER you notify your employees) what is going on and how you are resolving the issues. You want to keep your customers happy. If they think you will not be around to serve them, they'll look for another service or product provider. Reassure them yet be honest. 

If you can meet with your customers face-to-face, do so. There is nothing like the human touch to help convey sincerity and drive. Unless your customer list is fairly short, you will not be able to meet with all in the short time frame required. Meet with your key customers and call and send letters to all the other customers. As time permits, schedule a face-to-face with as many customers as you can. This will also serve to strengthen your customer relationships as your company recovers and grows. 

Step 8: Meet with suppliers and vendors.
Your suppliers and vendors want to make sure they get paid. If you have a credit line with them or terms, you must notify them immediately, otherwise they could cancel the credit line or terms putting you into more of a cash crunch. No supplier wants to be left holding worthless receivables. You wouldn't either. If you've been paying your suppliers late, they may begin to worry and begin making inquiries. You know the copy servicer attendant? He may comment on the poor morale he observed or the past due notices he saw near the fax machine. An employee may comment to the IT provider. Word spreads many ways. 

Unlike the others where a face-to-face meeting is important, in most cases a well-written letter delineating the problems and the actions your company is taking to address them is the best way to communicate with vendors. Address the letter to the primary decision maker and the person you interact with the most (if these are two different people). If you speak to the vendor regularly or if they are your largest vendor or supplier, then meet with them after sending the letter. 

You're not soliciting suppliers for input on resolving your issues. You want to negotiate with them to keep the best terms possible as you go through this period of uncertainty. When the suppliers call, as they definitely will, speak with them and reassure them. Promise only what you can adhere to. This is how you maintain you and your company's credibility and your relationships.

Step 9: Cut all that is non-essential.
The operational business plan is very important in that the process of writing it will enable you to determine what is essential in maintaining your business as a going enterprise and what is not. You must cut but you do NOT want to cut indiscriminately. You want to return the company to good financial and operational health and maintain that which will strategically position your company for growth once your business recovers. You must maintain some marketing, sales, and customer service. Look at what is crucial to maintaining your company's competitive advantage. Everything else you may be able to reduce or outsource. 

Take a hard look at every line item in SG&A (sales, general, administrative expenses). What can you cut and how? Can you outsource some of your sales and marketing to an external entity? Do you need five customer service reps or can you streamline procedures and make do with two? Do you need all ten service technicians or is it best to keep the five high perfoming ones? 

If you must layoff employees, this is where you make that determination. Then you must take swift action. When people are uncertain about their job security, employee morale plummets. Your business will plummet in tandem. 

Step 10: Communicate, communicate, communicate.
Continue to communicate with all the stakeholder, but especially with employees. Keep the lines of communication open. Send out emails or schedule brief meetings more frequently. Let them see that you are hopeful or optimistic and committed to making the changes needed to restore the company to financial health. Keep everyone abreast of the changes that are occurring, as they are implemented. Sometimes it takes several months to begin to see a significant positive, so little victories can help maintain morale, support, and focus.

As the owner and/or CEO, you may or may not be the one to successfully lead the turnaround of your business and the restoration to financial health. However, even if you step aside and allow others to lead the turnaround, you are the one who must make the decision and hire the external entity(ies), consultants, etc. Sometimes it is hard for owners to see the issues. Other times it is hard to confront and resolve the issues. No matter whether you, as the owner, follow these steps alone or solicit outside help, you are responsible for the company's return to success...or demise. Part of being a good leader is knowing what you are good at and what you are not, and enlisting others to assist. As the owner, the company is your baby. Follow these steps (with or without assistance) and your company can return to good cash flow and profitability...or exit the industry with dignity.

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