When It’s Time to Fire a Customer

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By Phil Britt
June 12, 2019

Companies pour a lot of resources into customer experience, customer acquisition and customer retention efforts. Yet there are times when a particular customer is no longer worth the investment.

Customer Is too Costly
Some businesses will take on a customer who is initially unprofitable in the hopes that the relationship will change in the future. For example, some financial institutions will have very low fee accounts for college students, with the idea of building a relationship with someone who will need loans and other products and services down the line, or a business may offer a large initial discount to get a customer “in the door,” yet the relationship may never become profitable.

“Sometimes you may have customers who love you and your products — to death,” said Linda Popky, president of Leverage2Market Associates, Inc . “While your support model allows for occasional customer interactions, these customers may contact your support team on a daily basis with questions and requests. They may expect upgrades or customization that you aren’t prepared to support, given the margins you have on those product lines.”

Other times, the customer may be devoted to an older, legacy version of your product line — one that you can’t afford to continue supporting as you transition to newer offerings, according to Popky. This is why companies like Microsoft and Apple stop supporting older releases of their products. They can’t make newer features and functionality backwards compatible with older versions, and it’s too costly to continue to support multiple product streams.

“If customer behavior leads to lower profits — say a client runs an architect ragged with irrational changes during the building time of a custom house, yet the contract is based on a set percentage, and they refuse to pay excessive change order fees, yes — firing the client may be in order, along with a stronger contract next time,” said Baron Christopher Hanson, owner of RedBaron Consulting, LLC . “We’ve worked with a few clients such as high-end art galleries whereby the profit in the sale is somewhat set — 50% split between artist and gallery. However, each sale and delivery cycle can either be easy and quick (highly profitable) or lengthy and excruciatingly not as profitable.”

However, the reason to fire a customer isn’t always financial.

Too Much Tension
“The time has come to fire a client when there are clear signs of an escalating pattern of tension. At that point the client relationship becomes increasingly less beneficial, and more problematic,” said James Cassel, co-founder of the Miami-based investment banking firm Cassel Salpeter & Co . “Most business owners know when such a relationship is not a good one, or working well, but are hesitant to fire the client. And yet, more often than not, firing a client turns out to be for the best because you end up concentrating on expanding and improving relationships with existing clients, or on spending time and resources to find new clients.”

The tension can arise from several sources, Cassel said. There could be ethical issues about the way they do business, or you may have knowledge of the customer operating at the margins of the law, or even breaking it. The customer’s “risk profile” may prove problematic, which could hurt an organization’s own reputation.

No Longer a Fit
As companies grow and business environments change, they often have the need to pivot, said Popky. “IBM has reinvented itself numerous times — from offering big mainframes to PCs to software to services. Western Union transitioned from sending telegrams in the 19th century to providing money transfer services to 200 countries across the globe. Apple moved from personal computers to iPods to iPads to iPhones. Along the way, each of these companies had to shed customers that didn’t need the new product offerings or didn’t want to make the switch. There may be a short-term business hit, but the longer-term upside makes the decision to fire these customers worthwhile.”

Popky adds that sometimes there isn’t one clear, definitive reason as to why a customer is no longer a good fit for your organization. It could be there’s a change in management at the customer’s organization and they’re now looking for a different relationship with their suppliers. It could be that a change in economic conditions is driving them to a low pricing model, while you offer a more premium product that no longer fits their strategy.

The Right Way to Terminate
Some companies will quietly fire certain customers through pricing policies — like banks that raise minimums for checking accounts. They’ve determined the customers that don’t meet the minimum are no longer the type of customer that it makes the most sense to serve. Other times, the “firing” action is a little less subtle. But even though the organization is cutting ties, there is still a CX element to ending the relationship.

“When firing a client, above all, you want to be respectful and professional, and careful to avoid burning bridges,” Cassel said. “This is not a time for carelessly venting your pent-up frustration. The business landscape and marketplace are dynamic, and you never know when, or how things might change. Sometimes it is better to terminate the client by phone, or even in person, rather than by email or text, since a sensitive customer could mistakenly read their own tone into the words you’ve written.”

From GoPro to Lenovo, Trump tariffs would have raised prices on tech from Mexico

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By Ed Oswald

President Donald Trump’s now-scrapped plan to impose a 5% tariff on Mexico starting Monday could have made a major impact on the cars and tech Americans love.

The impacts may seem less obvious than the tariffs the Trump administration imposed on China in early 2018. Americans depend on Chinese manufacturing for products like iPhones, computers, and TVs, as well as the components inside. But Mexico is a major producer of cars sold in the U.S., along with computers and electronic parts.

Mexico is second to only China in the number of computers it exports: GoPro will manufacture U.S.-bound devices in Guadalajara later this year. Foxconn, which manufactures a ton of brand-name tech products, has multiple factories in the country, and Universal Electronics will soon move remote control manufacturing from Mexico to China.

Tech manufacturers are likely happy that the tariffs aren’t going to happen (for now). Trump tweeted Friday that the U.S. had reached an agreement with Mexico in order to stop the tariffs, though he did not give specifics on the deal.

Trump initially said he’d increase the tariff by 5% a month, to a maximum of 25% by October 1. Such punitive measures would have had far-reaching effects and American consumers would likely foot the bill on a variety of tech products.

That said, deals like this are fickle and tariffs could still come in the future. Here’s how an escalating U.S.-Mexico trade war would impact tech:

THE BIGGEST LOSER: AUTOMAKERS

Mexico’s largest export to the U.S. is in automobiles and auto parts. At $116 billion annually, a third of its exports are U.S. bound, according to Census Bureau statistics. Cars are where American businesses and consumers could feel the most pain. Thanks to free trade, automobile manufacturing often spans North America.

Take the modern Volkswagen Passat. Manufactured in Chattanooga, Tennessee, the engine is built at the automaker’s Silao, Mexico plant, but contains parts manufactured by partners across all three North American countries, as well as China and elsewhere. It’s incredibly difficult to find a car in the U.S. that’s completely manufactured here.

It’s important to mention that the level of exposure varies manufacturer to manufacturer. Volkswagen stands to lose the most because it imports nearly half of its automobiles sold in the U.S. from Mexico, Cars.com executive editor Joe Wiesenfelder told Digital Trends. But U.S.-based automakers have plenty to worry about too: Ford, GM, and Fiat Chrysler also import significant numbers of fully-manufactured cars back into the U.S.

This may be the biggest threat of Mexican tariffs. “Though the Chinese tariffs are a full 25%, they affect only two major models, SUVs from Buick and Volvo,” Wiesenfelder explained. “If the proposed Mexico tariffs happen, they’ll start at 5% but will encompass both many assembled vehicles and countless auto parts.”

Wiesenfelder noted that all automakers with plants in the U.S. source parts from Mexican factories, so the effects could be much further reaching than some might expect.

If a deal falls through and tariffs eventually do take effect, the end result might be higher prices for new cars, but it’s hard to say if prices could rise in time for the 2020 model year. “If it turns into a standoff, however, I think it’s likely we’d see prices increase. Because so many brands are affected, it’s more likely the automakers will pass on some of the cost rather than absorb it indefinitely,” Wiesenfelder said.

Not good news for an industry with an already difficult market thanks to higher interest rates for many borrowers.

A U.S. TECH MANUFACTURER SOUNDS THE ALARM

It’s not just automakers that are concerned. Illinois-based component and accessory manufacturer OWC says it has focused on bringing its manufacturing back to North America, but the threat of new tariffs poses a real threat to its business.

OWC manufacturers around 3,000 different products, ranging from hard drives to solid state drives, PC docks, memory kits, and even smartphone cases. With annual sales of $125 million, the company has done well by pairing its offices in Austin and Brownsville, Texas with its manufacturing facilities in Matamoros. But tariffs would threaten the future of this strategy, and he says both sides of the border will be affected — and people could lose their jobs.

While CEO Larry O’Connor told DigitalTrends that OWC could weather a short term 5% percent tariff on Mexican imports without an effect on its workforce or prices to the end consumer, the threat of higher tariffs is unacceptable.

“A longer-term 25% tariff on Mexican imports could be devastating to our business, our customers, and the hundreds of team members in Mexico,” he said. O’Connor lamented the uncertainty caused by the Trump Administration’s trade strategy, arguing businesses need ” a level of consistency and predictability to operate successfully,” and that a long-term tariff battle could spell trouble for his company’s plans.

“If the proposed tariff situation regarding Mexican imports is not resolved quickly, OWC will have no choice but to reconsider our overall North American manufacturing strategy,” he warned.
But it’s not just OWC that will be affected. Much larger companies stand to lose as well. Dell and HP manufacture their computers and other peripherals in Mexico: Cisco uses a Mexico-based partner for components. Apple uses at least three component suppliers with ties to Mexico, while Lenovo has multiple production lines in the country.

‘IT’S POSSIBLE FOR THEM TO GET HIT TWICE’

Trump’s insistence on tariffs as a method of trade negotiation will have a compounding effect, say economic experts. James Cassel, co-founder and investment banker with Cassel Salpeter & Co says that some tech companies may find themselves dealing with new costs they hadn’t planned for, in multiple aspects of their business.

“With tech companies using an international supply chain, it is possible for them to get hit twice,” Cassel said. It’s common for components to be sourced from multiple regions — so your tech gadget might have a circuit board or other parts from China, but assembled in Mexico. It’s the nature of the globalized economy we live in. And it’s not like these companies can make major shifts overnight.

“I do not believe that companies, whether manufacturing tech gadgets or anything else, have had sufficient time to shift production to Mexico from China, if they did not already have production in Mexico prior to the tariffs,” he argued. In the short term, those costs are going to be eaten by these companies, and more likely passed along in the form of higher prices for a wide variety of products in the longer term as the trade war ravages on.

Like O’Connor, Cassel also took the Trump Administration to task over its seemingly haphazard trade policies, and the unpredictability it brings.

“What is really of concern is that we are being forced to play whack-a-mole where companies that produce tech components need to be ready to respond at any moment to another challenge that pops up,” Cassel said

That’s the issue that many tech manufacturers seem to not have an solution for, and has many of them scrambling to contain the damage.

Re-skilling employees for the jobs of tomorrow

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By James S. Cassel

In a rapidly shifting world where business models are being reinvented, digital is king, and automation is the endgame, companies must be forward- thinking to survive — particularly given the tight labor market.

Adapting to seismic change requires having employees with the right skill sets, which may be best achieved by retraining your staff. You have an obligation to help reskill employees for the jobs of tomorrow, but the process has challenges, including pinpointing weaknesses and securing employee buy- in. To succeed, a clear road map must be developed and executed.

First, identify your company’s objectives. What are your immediate, medium, and long-term goals and needs? For example, if you own warehouses, your immediate objective may be to implement enhanced commercial two-way radios, laptops, or scanners.

Your medium-term goal might be to introduce a conveyor system that partially automates unloading trucks—technology that Walmart is currently incorporating into its stores. Long-term, you might want smart robots that handle all warehousing needs, following the example of Amazon and JD.com, China’s largest retailer.

As you identify company goals, determine what employee skill sets will be needed to transition into the future. Automated warehousing necessitates a staff to train, maintain, and repair the robots. Reskilling now will ready workers for those tasks, while having an understanding up front of what robots cannot do, will help management fill in the gaps.

Next, develop a plan, timeline, and budget detailing your business objectives and breaking them into manageable steps. Refine the plan as your reskilling strategy develops.

A sound strategy begins with taking inventory of your employees’ current skills, as well as their strengths and weaknesses. Enlist the help of supervisors to identify both skills in place and those that are lacking.

In assessing your staff, prioritize employees who have proven their mettle, loyalty and cultural fit; their continued employment and livelihood should be protected. For each employee, identify skill adjacencies to facilitate training for new positions requiring similar skills.

If you are entertaining the “buy, not build” talent acquisition strategy, remember there is always risk in external hiring. Although you may be acquiring a skill set you don’t currently have, new employees may not share your work ethic or company culture. As the saying goes, “Better the devil you know…”

Open internal lines of communication, review training options, and keep your team engaged and motivated. Show your employees the importance of being future-ready; listen to their ideas and concerns and engage the process as a unified team.

Unavoidably, as you future-ready your company, some workers won’t sync up with company goals or will refuse to learn new skills; assist in outplacing them. In the long run, it will be good for both them and the business.

For flexible employees, evaluate alternative forms of training, such as bringing in contract trainers, accessing webinars and e-learning platforms, or paying for them to pursue coursework and degrees on their own time.

Based on individual needs, consider implementing a mix of training options. Some people may have to commit to night school, while for others a few webinars may suffice. Boost employee buy-in by keeping their sights set on stronger outcomes, including higher compensation. Share the benefits that everyone will gain from more productivity with fewer people. Amazon’s 16- week certification program enables warehouse workers to become data technicians—and double their salary! Better pay is also important to retain talent and ensure that after investing in training, your employees aren’t snatched away by the competition.

Business owners are generally aware that in a transforming world, the way business was done yesterday won’t fly tomorrow. The problem is that rather than plan and prepare, many are playing ostrich and hoping challenges will somehow disappear. With autonomous technology taking over, truck drivers, for example, might become as extinct as dinosaurs. Businesses that don’t evolve will suffer the same fate.

Avoid insurmountable issues tomorrow by tackling them today. Take a hard look at your business, where you want to take it, industry and technology trends, and how your team measures up. Then, focus on implementing your plan. Reskilling may not be for the faint of heart, but neither is conquering tomorrow.

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., an investment-banking firm based in Miami. jcassel@casselsalpeter.com or via LinkedIn at https://www.linkedin.com/in/jamesscassel.

How to Handle a PR Crisis: What Boeing Should Have Done

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By Andrew Martins

  • After a crisis occurs, get ahead of the narrative by addressing it right away.
  • Be sure to convey empathy for any problems caused. Be sympathetic to anyone emotionally or physically hurt, but consult your legal team before admitting guilt.
  • Don’t forget to use social media as a signal boost for your business’s post-crisis message.

Financial, existential and reputational crises can happen to any business. Planning for the worst-case scenario can save a lot of headaches, regardless of how big or small your company may be.

Even though the best course of action is to avoid crisis and controversy altogether, sometimes it’s completely unavoidable. How a business handles the fallout and responds to a disaster can mean the difference between a blip on the radar or a full-blown PR nightmare. When things go sideways, it’s
imperative that you have a crisis management plan in place so your reputation and livelihood aren’t irrevocably damaged.

While there are plenty of examples of major companies going through tough times, the ongoing crisis at Boeing and its 737 Max aircraft is the most high-profile and damaging situation making headlines today. Below are three crisis management tips that small businesses can learn from Boeing’s mistakes.

Boeing’s crisis and PR missteps

Few crises have hit a business as hard in recent years as the one that’s left Boeing reeling over the last few weeks. In the months since two of Boeing’s 737 Max aircraft crashed, killing more than 300 people , the situation for the aircraft manufacturer has gone from bad to worse. Nearly the entire fleet has been grounded due to a faulty stabilization system, which is suspected to have caused the crashes. Airlines have requested compensation for the stoppage, and orders for the aircraft have ground to a halt.

With massive losses expected in the company’s foreseeable future, experts are pointing to at least one particularly damaging aspect of the crisis that Boeing spectacularly failed to navigate: its public response.

While Boeing’s woes are uniquely their own, it’s still important to remember that any business can find itself at the center of a major crisis. When problems arise and your business must respond, here are some pointers to help you navigate difficult times without damaging your company’s reputation.

1. Respond quickly with transparency

When businesses are facing a potentially damaging situation, the first thing that needs to happen is to address the situation as quickly and clearly as possible. It may be uncomfortable, but according to James Cassel, founder and chairman of Cassel Salpeter & Co. , it’s better to just get out in front of it.

“When you have a problem, you need to acknowledge it right away and take active measures to deal with it,” he said. “Too many companies fail to understand that stalling or obfuscating just increases the risk for your business.”

Being the first out of the gate with a response is just half the solution. United Capital Source CEO and Founder Jared Weitz urged companies to be more transparent to “get ahead of the story.”

“Rather than obfuscate and allow external perspectives to shape the narrative, step into the light and be transparent from the start,” Weitz said.

In the immediate aftermath of the crashes and the 737 Max’s grounding, Boeing was harshly criticized for how it handled the crisis. Slow response times and an apology that some considered insincere compounded the PR nightmare.

By the time Boeing CEO Dennis Muilenburg released an apology letter and accompanying video on April 4, nearly a month had passed since the second crash. While it wasn’t the company’s first attempt at addressing the situation, it was considered by critics as a case of “too little, too late.”

Cassel said the fact that it took Muilenburg so long to publicly apologize was a bad look since “it takes years to build up a brand, but only a few minutes to destroy it.”

2. Be empathetic, but seek legal advice before admitting guilt

Regardless of who’s impacted by a company crisis, it’s important that any apology is handled carefully. Company officials may want to avoid admitting guilt, but failing to address the issue at all can make it seem like those at the top don’t care.

In the case of Boeing’s current woes, it took the company nearly a week before they released a statement that expressed their concern for passengers’ safety. Coupled with the news that Boeing lobbied President Donald Trump to not ground the aircraft, David E. Johnson, CEO of Strategic Vision PR Group said public perception around the manufacturer soured.

“Boeing’s handling of the crisis was a classic study of what not to do. The key to successfully handling a crisis is being proactive and taking responsibility,” he said.  “Boeing failed in this and allowed others to set the narrative, …[which] conveyed the impression that Boeing was more concerned about profits than people’s safety.”

While most experts agree that addressing the event head-on and being empathetic to the victims is the best course of action, that may not always be the best legal move. Tina Willis, a Florida-based injury and accident attorney, said careful planning between a company’s public relations and legal teams can go a long way in addressing the public’s concerns while mitigating potential litigation.

“Any media presentation should be reviewed by the business’s lawyer before release. Otherwise, if a business admits fault, or even tries to explain what happened, you can bet those statements will become valuable evidence in a future accident or death lawsuit,” she said.

In the case of Boeing’s 737 Max where they recently admitted they knew of the faulty sensors prior to the crashes, Willis said potential lawsuits could come with massive penalties as families of the victims seek restitution. Knowing that, it would explain why companies often struggle with empathy versus liability.

“The bottom line is, from a liability standpoint, Boeing faced an extremely difficult dilemma,” said Willis. “However, when combining PR goals with avoiding liability goals, the best approach would have been to have the PR people develop a game plan with the company’s lawyers. If having the statement reviewed by lawyers is not possible, the best legal approach for any company would be to stay silent and speak only to their lawyers, then have their lawyers speak to the press.”

3. Have a social media strategy as part of your crisis management plan

These days, nothing delivers your message to the public as fast as social media. As such, businesses in crisis mode should include both a social and traditional media response in their disaster recovery plan. Since social media usually sets the narrative and has quickly become a major player in the information space, he said ignoring it would be a major detriment.

According to a 2018 study conducted by the Pew Research Center, approximately 1 in 5 adults said they get their news from social media. Conversely, the percentage of respondents who said they got their news from television went from 57% to 49%, while those who cited print journalism as their main source of news dropped from 20% to 16% from 2016 to 2018.

While the hardest-hitting headlines surrounding Boeing’s 737 Max were found in traditional media, the story took on a life of its own on social media. While it may be tempting to ignore the likes of Twitter and Facebook when managing your own crisis, it’s important to recognize how important those platforms are in the news world.

“With the crash of the 737 Max in Ethiopia, the company was facing a human tragedy, yet did not express empathy and sympathy in addressing the issue,” said Johnson. “[Boeing] ignored social media critics who largely set the narrative that the traditional media [picked up on].”

How to Refinance a Small Business Loan

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By Rebecca Lake
April 29, 2019

If you have a small-business loan, you might be wondering if you can refinance it. Business loans, like most other loans, can often be refinanced — meaning you get a new and ideally better loan to replace the old one. Refinancing could save you money by lowering your interest rate or freeing up additional working capital in your budget if you can reduce your monthly payment.

Usually, refinancing a small-business loan is a pretty straightforward process, but equip yourself with knowledge before you begin.

How Business Loan Refinancing Works

The mechanics of refinancing a business loan aren’t that different from refinancing a mortgage or a student loan. The process involves getting a new loan to pay off your original loan. You then make payments on the new loan going forward. Ideally, the new loan has more favorable terms, such as:

— A lower annual percentage rate, or APR

— Lower monthly payments

— Less frequent payments

The terms a business owner may qualify for depend on several factors.

“When you refinance a business loan, the terms you get are typically based on what the original purpose of the debt was,” says Maggie Ference, SBA program director at Huntington National Bank in Columbus, Ohio. “In cases where the purpose of the debt is tied to an asset that might be past its useful lifespan,  such as a piece of equipment, the refinance terms can be more aggressive.”

Refinancing a business loan may have a few added steps, however, compared with refinancing personal or other types of loans. As with your initial business loan, your new business loan may require extensive documentation and specific qualification factors.

“When collateral is involved, the lender may require, among other things, a security interest in receivables as well as inventory and equipment,” says James Cassel, chairman and co-founder of Cassel Salpeter & Co. investment banking in Miami.

Types of Business Loans You Can Refinance

Business loans aren’t all the same, and you may be wondering whether the nature of your loan makes a difference for refinancing.

“There are actually very few types of business debt that can’t be refinanced,” Ference says.

With that in mind, the kinds of business loans you may be able to refinance include:

— Term loans

— Working capital loans

— Equipment loans

— Commercial real estate loans

— Microloans

You can also refinance business lines of credit and merchant cash advances.

If you have a Small Business Administration loan, however, refinancing could be a little tricky. Refinancing is only possible when borrowers have new financing needs and their SBA lender has either denied funding or refused to modify their loan. The alternative may be seeking a non-SBA loan and using that to refinance SBA or other business debts.

Pros and Cons of Refinancing Small Business Loans

Business owners may enjoy several distinct benefits when refinancing a business loan. Ference says the biggest advantage is the potential to improve business cash flow.

“The ability for a small-business owner to consolidate his or her balance sheet is extremely important, especially for small businesses that have grown rapidly and are looking to increase their organic cash flow,” she says. “You get a cash flow benefit when the refinancing of your debt allows for a lower monthly payment.”

The cash flow struggle is real for many business owners. In a February 2019 Kabbage survey, 51 percent of business owners said they sometimes sacrificed paying themselves for months at a time to smooth the flow of cash in and out of their businesses.

Freeing up room in your business budget can be helpful if you’re hoping to pay yourself regularly or to build up a cushion of savings for your business. Additionally, the extra funds can help you keep pace with rising overhead costs or cover necessary business purchases without taking on additional debt.

Refinancing at a lower interest rate can yield savings in a different way if it reduces the total cost of borrowing and allows you to pay off the loan faster.

On the con side, a few considerations:

— Possible prepayment penalties or fees when paying off the old loan early.

— The effect of applying for a new loan on your credit score.

— The current interest rate environment.

Lenders charge a prepayment penalty when a loan is paid in full before the loan term ends. This fee, which is typically a percentage of what you borrowed, allows the lender to recoup some of the interest charges it can’t collect when you repay a loan early.

Not every business lender charges a prepayment penalty; these penalties are more commonly associated with mortgages or car loans. But read the fine print on your original loan documents to determine if one applies and how much you might pay.

Also, refinancing a business loan — or any loan, for that matter — could affect your business and/or personal credit scores if the lender does a hard pull of your credit. This results in an inquiry on your credit report. A single inquiry may have a minimal effect on your credit scores, but multiple inquiries for loans in a short time span could signal to lenders that your business is desperate for financing.

As far as rates go, business loans, including SBA loans, often have interest rates that are tied to the prime rate, which is the lowest rate at which banks lend to their most creditworthy customers. It can change depending on economic factors.

If you took out a small-business loan when rates were relatively low, refinancing after rates have increased may not be as fruitful for interest savings. Of course, you might want to refinance for other reasons, such as extending your loan term and reducing your monthly payment.

Qualifying for a Business Refinance Loan

After weighing the possible advantages and disadvantages of refinancing a business loan, the next step is knowing what you need to qualify.

“Qualifying for a refinance loan really varies by lender — both with banks and nonbanks,” Ference says. “Minimum credit scores, revenue, time in business and a host of other factors will all be taken into account, and it will all be based on the individual credit expectations of the lender.”

Some of the factors that could work against you when applying for a refinance loan include:

— A poor personal credit score

— A recent bankruptcy filing

— Outstanding tax liens

— Not enough time in business

— Not meeting minimum annual revenue requirements

Still, this doesn’t mean you won’t qualify; it just means your business and personal finances will come under closer scrutiny to get approval for a refinance loan.

“A bank that might provide an unsecured loan will look at the overall creditworthiness of the business borrower and may want a personal guarantee,” Cassel says.

A personal guarantee is a legally binding agreement that gives the lender the right to collect from you personally if you default on a business debt. In other words, the lender could use business assets to recover a defaulted loan as well as personal assets such as your home or your bank accounts.

One upside to signing a personal guarantee, Cassel says, is that it could help you secure a lower interest rate on a refinance loan.

Is Refinancing Small Business Debt the Right Move?

Whether refinancing makes sense is unique to every small-business owner.

If refinancing would save you a substantial amount of money on interest without triggering a prepayment fee from the original lender, for instance, then it may be a no-brainer. On the other hand, refinancing business debts may not be as beneficial if you’re only getting a marginally lower rate or monthly payment.

When determining whether to refinance, consider:

— What you hope to accomplish by getting a new loan.

— The cost to refinance, including underwriting, origination and other fees, which may total 1% to 5% percent of the loan.

— Your business credit and financial profile.

— The rate and loan terms you’re most likely to qualify for.

— Whether the lender requires collateral or a personal guarantee for a refinance loan.

Remember to account for differences in lending practices between banks and alternative lenders, such as online lenders. Banks, for example, may offer lower rates but require a higher credit score or more revenue to qualify than an alternative lender.

“Many times, you’re not comparing apples to apples,” Cassel says. “Be careful to understand the real all-in costs as well as the fine print.”

How to Refinance a Small Business Loan

/in /by

By Rebecca Lake
April 29, 2019

If you have a small-business loan, you might be wondering if you can refinance it. Business loans, like most other loans, can often be refinanced — meaning you get a new and ideally better loan to replace the old one. Refinancing could save you money by lowering your interest rate or freeing up additional working capital in your budget if you can reduce your monthly payment.

Usually, refinancing a small-business loan is a pretty straightforward process, but equip yourself with knowledge before you begin.

How Business Loan Refinancing Works

The mechanics of refinancing a business loan aren’t that different from refinancing a mortgage or a student loan. The process involves getting a new loan to pay off your original loan. You then make payments on the new loan going forward. Ideally, the new loan has more favorable terms, such as:

— A lower annual percentage rate, or APR

— Lower monthly payments

— Less frequent payments

The terms a business owner may qualify for depend on several factors.

“When you refinance a business loan, the terms you get are typically based on what the original purpose of the debt was,” says Maggie Ference, SBA program director at Huntington National Bank in Columbus, Ohio. “In cases where the purpose of the debt is tied to an asset that might be past its useful lifespan,  such as a piece of equipment, the refinance terms can be more aggressive.”

Refinancing a business loan may have a few added steps, however, compared with refinancing personal or other types of loans. As with your initial business loan, your new business loan may require extensive documentation and specific qualification factors.

“When collateral is involved, the lender may require, among other things, a security interest in receivables as well as inventory and equipment,” says James Cassel, chairman and co-founder of Cassel Salpeter & Co. investment banking in Miami.

Types of Business Loans You Can Refinance

Business loans aren’t all the same, and you may be wondering whether the nature of your loan makes a difference for refinancing.

“There are actually very few types of business debt that can’t be refinanced,” Ference says.

With that in mind, the kinds of business loans you may be able to refinance include:

— Term loans

— Working capital loans

— Equipment loans

— Commercial real estate loans

— Microloans

You can also refinance business lines of credit and merchant cash advances.

If you have a Small Business Administration loan, however, refinancing could be a little tricky. Refinancing is only possible when borrowers have new financing needs and their SBA lender has either denied funding or refused to modify their loan. The alternative may be seeking a non-SBA loan and using that to refinance SBA or other business debts.

Pros and Cons of Refinancing Small Business Loans

Business owners may enjoy several distinct benefits when refinancing a business loan. Ference says the biggest advantage is the potential to improve business cash flow.

“The ability for a small-business owner to consolidate his or her balance sheet is extremely important, especially for small businesses that have grown rapidly and are looking to increase their organic cash flow,” she says. “You get a cash flow benefit when the refinancing of your debt allows for a lower monthly payment.”

The cash flow struggle is real for many business owners. In a February 2019 Kabbage survey, 51 percent of business owners said they sometimes sacrificed paying themselves for months at a time to smooth the flow of cash in and out of their businesses.

Freeing up room in your business budget can be helpful if you’re hoping to pay yourself regularly or to build up a cushion of savings for your business. Additionally, the extra funds can help you keep pace with rising overhead costs or cover necessary business purchases without taking on additional debt.

Refinancing at a lower interest rate can yield savings in a different way if it reduces the total cost of borrowing and allows you to pay off the loan faster.

On the con side, a few considerations:

— Possible prepayment penalties or fees when paying off the old loan early.

— The effect of applying for a new loan on your credit score.

— The current interest rate environment.

Lenders charge a prepayment penalty when a loan is paid in full before the loan term ends. This fee, which is typically a percentage of what you borrowed, allows the lender to recoup some of the interest charges it can’t collect when you repay a loan early.

Not every business lender charges a prepayment penalty; these penalties are more commonly associated with mortgages or car loans. But read the fine print on your original loan documents to determine if one applies and how much you might pay.

Also, refinancing a business loan — or any loan, for that matter — could affect your business and/or personal credit scores if the lender does a hard pull of your credit. This results in an inquiry on your credit report. A single inquiry may have a minimal effect on your credit scores, but multiple inquiries for loans in a short time span could signal to lenders that your business is desperate for financing.

As far as rates go, business loans, including SBA loans, often have interest rates that are tied to the prime rate, which is the lowest rate at which banks lend to their most creditworthy customers. It can change depending on economic factors.

If you took out a small-business loan when rates were relatively low, refinancing after rates have increased may not be as fruitful for interest savings. Of course, you might want to refinance for other reasons, such as extending your loan term and reducing your monthly payment.

Qualifying for a Business Refinance Loan

After weighing the possible advantages and disadvantages of refinancing a business loan, the next step is knowing what you need to qualify.

“Qualifying for a refinance loan really varies by lender — both with banks and nonbanks,” Ference says. “Minimum credit scores, revenue, time in business and a host of other factors will all be taken into account, and it will all be based on the individual credit expectations of the lender.”

Some of the factors that could work against you when applying for a refinance loan include:

— A poor personal credit score

— A recent bankruptcy filing

— Outstanding tax liens

— Not enough time in business

— Not meeting minimum annual revenue requirements

Still, this doesn’t mean you won’t qualify; it just means your business and personal finances will come under closer scrutiny to get approval for a refinance loan.

“A bank that might provide an unsecured loan will look at the overall creditworthiness of the business borrower and may want a personal guarantee,” Cassel says.

A personal guarantee is a legally binding agreement that gives the lender the right to collect from you personally if you default on a business debt. In other words, the lender could use business assets to recover a defaulted loan as well as personal assets such as your home or your bank accounts.

One upside to signing a personal guarantee, Cassel says, is that it could help you secure a lower interest rate on a refinance loan.

Is Refinancing Small Business Debt the Right Move?

Whether refinancing makes sense is unique to every small-business owner.

If refinancing would save you a substantial amount of money on interest without triggering a prepayment fee from the original lender, for instance, then it may be a no-brainer. On the other hand, refinancing business debts may not be as beneficial if you’re only getting a marginally lower rate or monthly payment.

When determining whether to refinance, consider:

— What you hope to accomplish by getting a new loan.

— The cost to refinance, including underwriting, origination and other fees, which may total 1% to 5% percent of the loan.

— Your business credit and financial profile.

— The rate and loan terms you’re most likely to qualify for.

— Whether the lender requires collateral or a personal guarantee for a refinance loan.

Remember to account for differences in lending practices between banks and alternative lenders, such as online lenders. Banks, for example, may offer lower rates but require a higher credit score or more revenue to qualify than an alternative lender.

“Many times, you’re not comparing apples to apples,” Cassel says. “Be careful to understand the real all-in costs as well as the fine print.”

How to find and retain talent in a tight labor market? Flex your creative muscles

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By James Cassel

In the past, when my colleagues lamented over their hiring difficulties, I asserted that there was plenty of talent available in the area — and regardless, South Florida would always be able to attract qualified employees. Having now experienced first-hand hiring challenges as our own firm grows, I believe I was wrong.

With unemployment around 4%, the talent pool appears to be running dry. The just-released 2018 Greater Miami Chamber of Commerce Executive Survey indicates that the top concern among area executives is finding and retaining qualified employees. Nationally, according to Aptitude Research Partners, three in four hiring decision-makers say that, “ finding quality candidates is their #1 challenge.” To grow, despite this difficulty, companies must aggressively recruit.

First, announce on a range of channels that you’re hiring. Post available positions on all top job sites, including Indeed, Monster, and LinkedIn. Consider supporting these efforts with digital advertising, a cost-efficient means of targeting the segment you’re after.

Other valuable channels for accessing talent include headhunters and your network. Speak to clients and vendors—particularly any that are downsizing—as well as employees, friends, and family. Contact organizations that could help you tap into the local workforce, like colleges, chambers of commerce, and business councils.

Having broadly disseminated your talent needs, contemplate candidates that aren’t currently in the workforce or don’t fit a traditional mold. Parents raising kids and other homebound caregivers ready to rejoin the workforce are often discounted due to lack of recent experience, which training can readily overcome. Offer workshops and mentoring to re-sharpen skills.

Also important are underemployed, semi-retired, and retired individuals who bring a wealth of knowledge and experience. On the other end of the age spectrum, internship programs can yield employment offers upon graduation, giving you a leg-up on the competition.

It’s also wise not to discount applicants lacking some credentials. Motivation and a good work ethic often surpass a degree, and many of the best employees don’t always look perfect on paper.

Capturing and retaining talent also requires offering compelling pay, benefits, equity or profit sharing, and perks. 2018 saw wage increases across companies and industries, including Walmart, American Airlines, and Comcast. Prioritize competitive salaries and reward existing employees with annual raises, which shouldn’t fall below the 3.1% national average. Equally important is vacation time, which can be a reward for tenure, increasing annually. Keep an eye on how your competitors are compensating, it’s very costly to lose good people to others who are willing to pay more.

Offer desirable perks, such as childcare or a gym membership, and implement a plan for out-of-the-box benefits, which may include assisting with the costs of certain medicines or treatments not typically covered by insurance plans. Helping to pay off student loans has also become a hot new benefit. Create a culture that is inclusive, supportive, enjoyable, and prioritizes giving back to the community and your employees won’t want to go anywhere else.

A general dearth in people for hire needn’t block your upward momentum, but it requires a paradigm shift in thinking. The challenge in finding and retaining good talent is to scrap preconceptions, think strategically, flex your creative muscles, and keep seeking. In the words of Zig Ziglar, “There is no elevator to success. You have to take the stairs.”

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., an investment-banking firm based in Miami. jcassel@casselsalpeter.com.
At LinkedIn: https://www.linkedin.com/in/jamesscassel

Top 26 Financial Tips for Entrepreneurs

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By Benilyn Formoso-Suralta

Starting and growing your own business can be exciting, but it is also extremely challenging. Your business’s finances are a crucial aspect of entrepreneurship, and you need to know how to manage them well. We spoke with business leaders and industry experts to get the best financial tips for entrepreneurs to elevate their business.

Below are the top 26 financial tips entrepreneurs wish they knew earlier, straight from the pros:

1. Manage Your Inventory Efficiently
James Cassel, Co-Founder, Cassel Salpeter

As entrepreneurs, you should always check your inventory levels and make sure that they are efficiently managed. Reduce your inventory during a downturn to help free up capital, avoid obsolete products, and maybe even cut down your warehouse/holding costs.

2. Keep Your Business & Personal Finances Separate
Yoko Kawamoto, Finance Staff, Founder’s Guide

Even at the early stage of your business, you should strive to keep your business and personal finances separate. Open a bank account intended solely for your business, and as soon as you can, get a business credit card as well. If you need to use your personal credit card because you are not yet eligible to open one for your business, just make sure you monitor and record your business expenses and account for them properly.

3. Provide Customers with Convenience Through Technology
Julie Pukas, Head of Commercial Product Integration, TD Bank

Entrepreneurs should look to merchant solutions providers that can keep them on top of the latest payments trends and POS systems, many of which offer features beyond just simple payment processing. By adopting technologies that parallel those of larger organizations, but at a smaller scale, entrepreneurs are able to deliver the convenient experiences consumers have come to expect. Contactless payments, for example, offer increased security and reduced transaction time, allowing businesses to focus on other important tasks while pleasing customers with a shorter checkout time. Entrepreneurs and business owners should start by identifying weak points in their current processing systems and find a merchant solutions provider that has the ability to tailor service to meet unique needs.

4. Create New Cash Flow Without More Debt
Viktor Monder, Founder, Monder Law Group, PC

Creating small amounts of cash flow through your investments early on will help push a marketing campaign that many entrepreneurs would normally not have had the budget for until years down the road. Entrepreneurs may find the journey to be difficult and getting into debt feels like the easiest option at times. But if you want to build a sustainable business, you should learn to diversify and begin a collaboration effort to bring in additional cash flow while you are building the business. Figure out ways to leverage ideas to create small streams of income to fund your business and try to stay out of debt as much as possible.

5. Be Careful Using Debt to Fund Operations
Tony Schy, Chair, Vistage International, Inc.

As a small business owner, the first time you take on debt and later work to pay it back, you are met with a rude awakening. Normal accounting rules allow you to deduct the expense that you funded with debt at the time you incur the expense. But later, you have to repay that debt with after-tax cash (profit). If you funded operations with debt, you could find that servicing that debt consumes a large portion of your after-tax cash flow. This can lead to an income statement that looks good, but a cash flow statement that looks terrible.

6. Know the Importance of Accounts Receivable
Ben Ricci, Managing Partner, Stevens & Ricci, Inc.

In setting up your business make sure you invest the time to develop a strong credit application and invoicing/payment policies – and stick to them. Accounts receivable can be used strategically to increase revenue (cash flow) and minimize bad-debts. Learn to manage, control and even profit from slow- pay and no-pay customers with incentives to pay on time and penalties for slow or no payment.

7. Budget More Time & Money for Setup
Jonathan Rosenfeld, Founder, Nursing Home Law Center

Probably the biggest bit of advice for a new entrepreneur is to budget significantly more funds and provide more time towards their initial set-up and opening. Opening and getting a business off the ground always costs more and takes longer than anticipated. The people who are willing to endure and see the projects through are the ones who will be successful in the long-term. It’s important to know that things will be difficult at the start, but that’s what makes the reward that much sweeter, because you earned it through a lot of hard work and risk.

8. Invest in Health Insurance
Sally Poblete, CEO, Wellthie

Entrepreneurs should invest in health insurance because it supports their employee’s health and productivity. Employees who feel well directly correlate to their performance at work and the company’s bottom line. Health insurance is an important benefit that employees value in seeking a job – thus, it helps with attracting and retaining good employees. Even for sole proprietors, solo entrepreneurs or freelancers, getting health insurance is an important step in securing both your health and financial security. Getting access to full coverage for preventive, routine, urgent or more serious medical conditions can be costly if you pay for it out of your own pocket, and it can even lead to bankruptcies for some.

9. Identify Your Market Before Developing a Product
Ross Cohen, Co-founder & COO, BeenVerified.com

It is important to spend time identifying your target market before getting your business up and running. Don’t spend years developing a product that doesn’t have a distinct customer base. Some businesses find it difficult to determine their target market. Instead, most of them just went after the broader consumer market.

10. Don’t Spend Too Much on Branding
Deborah Sweeney, CEO, MyCorporation.com

Entrepreneurs should know not to spend so much money on branding without focusing on its return on investment early on in their business career. As time progressed, you’ll find that many of these marketing expenditures were ROI negative. Many business owners lost money because of irrelevant or bad marketing bets when they should have been more careful to watch what was working and what wasn’t for the business. Small business owners should pay attention to their company’s ROI at every stage in business. Know exactly where the money you spend is going and how the investment is paying off.

11. Learn Basic Accounting
George Krueger, Co-Founder, BIGG Success

It’s not exciting, but the most successful entrepreneurs understand the basics of accounting. Accounting is the language of business. Your financial statements have so much to say about the status of your business and you should know how to listen. They will help you understand how your performance stacks up. They will serve as a tool to pinpoint what you need to do to improve your business.

12. Maintain Majority Control
Noel Moran, CEO, Prepaid Financial Services

One of the biggest mistakes most entrepreneurs make is scaling a company without enough investment. It’s important for business owners to keep onto as much of their company as they can, for as long as they can. If you don’t go down the investor route at the start, it would be a lot easier to not dilute the shareholding or ownership of the company.

13. Diversify Your Investments
Allan Dib, Founder, Successwise

Once you start to see a good ROI from your business, you need to think about investing in something other than your business. Whether that is property or the stock market or whatever, it’s essential that you have a portion of your money invested elsewhere. Some entrepreneurs were raking in dollars one minute and overnight lost everything because of the rise of something bigger and better.

14. Evaluate Your Breakeven Point
Walker Peek, Founder & CEO, Commercial Acoustics

It’s important to develop a good break-even model in the beginning and use that to evaluate your business strategy. As entrepreneurs, we want to do and execute as soon and as fast as possible. But it’s important to stop for a moment and look at the numbers. Has your break-even changed? If so, why? Was your original assumption about cost and COGS correct? Are things more expensive? Can you cut costs? Overall is your model correct? and are you focusing on the activities that are going to get you past break-even?

15. Learn to Manage Invoices
Marwan Forzley, CEO, Veem

Although you may exchange dozens of emails detailing your order with your supplier, the invoice will tell you the exact nature of the product you are to receive. Be certain the specifics are in the invoice. That means that if the invoice doesn’t specify that the product be boxed, expect it to arrive in bulk. You should request a product sample before finalizing the invoice. These can help you control the quality of the product you’re importing. Be sure to find out about points of no return: once production is started, you may not be able to make changes to the product. You should also manage how your supplier will be invoicing you and when they need to get paid. For first orders, many will want the money before they release the goods. Some will need payment before production starts so they can purchase materials. If you’re on the same page as your supplier in regards to payment terms, it will smooth out your entire supply chain and potentially stop costly mistakes from happening down the line.

16. Know Your Contribution Margin
Justin Tysdal, CEO & Co-Founder, Seven Corners Inc

Many business owners thought that each piece of new business or sale was good and added positively to the company’s performance. The process of assigning workload and effort towards a revenue number was something most entrepreneurs did not take into consideration when they started the company. Make sure to determine your company’s contribution margin and that it positively impacts your business.

17. Avoid the Lifestyle Creep
Mark Ortiz, Founder, ReviewingThis

One of the best financial tips for entrepreneurs is to avoid lifestyle creep. Some business owners experience that as their business grew, their day-to- day personal expenses increased as well. Some make unnecessary upgrades on apartments, cars, gadgets. This is a grave mistake because it meant less money to re-invest into the business. Also, if the business is on a downturn, it would be difficult to scale down your personal expenses as quickly. So, if you’re an entrepreneur, and your business is growing, focus on re-investing back into it, instead of upgrading your lifestyle.

18. Learn to Screen Ideas
Shane Walker, VP & CMO, ProActive

To maintain stronger financial staying power, you absolutely must say no to some good ideas to focus on the right ideas. Not every idea drives excellence and adds to your core value. Lots of ideas will come that could help make the product or service better in some aspect but every idea costs money. Remember that and be choosy about where you spend. Chasing too many good ideas that don’t add to the excellence of your core business can lead you down a financial rabbit hole and straight out of business.

19. Talk to Customers & Identify Their Needs
Sherman Lee, Founder, Good Audience

Entrepreneurs should know the value of having real revenue from real paying customers. Spend more time talking to your target customers and identify their needs. That way, you can develop a product and/or service that can cater to their needs. This helps ensure that they will buy your products and services and earn revenue from them.

20. Start Tracking Your Expenses From Day 1
Rhian Williams, Founder, Rhian’s Recipes

Small business owners should start tracking their expenses from day one. Even if you don’t know if your company is going to generate any income, it doesn’t hurt to prepare for the future by keeping track of expenses. Use accounting software like FreshBooks or QuickBooks, which allows you to store all the necessary information as well as photographs of the receipts/invoices. It’s much better to do this kind of thing as you go along rather than leave it to build up over a few months or even years, because once your business start generating income and you have to do tax returns, you’ll definitely thank yourself for having kept on top of your bookkeeping from the beginning.

21. It’s Not How Much You Make But How Much You Keep
Michael Brennan, Founder, Law Offices of Michael J. Brennan

As small business owners, we are always concerned about our income and the day-to-day operations of our business, that we can lose sight of the expenses and the costs of doing business. At the end of the year, we see our income went up, but our expenses also went up even more and what we think was a great year turns into a disappointing one. Keep track of your finances and ensure that your costs don’t eat up your income.

22. Keep Your Burn Rate Low
David Waring, Co-Founder, Fit Small Business

One reason most people don’t start a business that they are passionate about or end up failing is that they cannot afford to survive long enough for their business to be successful. With this in mind, a piece of good advice is to keep your personal burn rate low. This will allow aspiring entrepreneurs to save enough money to focus full time on their passion and provide existing entrepreneurs with a longer runway to be successful.

23. Make a Conservative Budget
Bill Baumel, Managing Director, Ohio Innovation Fund

An important tip is to budget wisely – assume expense ranges come in on the higher side and revenue ranges come in on the lower side. By doing so, the worst case scenario is you have enough money to operate your business as planned, and the best case is your revenues will be higher and/or your expenses lower. This means you’ll have cash left over to invest even more in your business’s expansion. You want to really map out your entire business – from the supplies you need to buy, who to hire, the space you need, your marketing costs, IT, legal, taxes and other costs – so there are no unpleasant surprises.

24. Operate in Survival Mode
Daniel Joelson, Founder, Car Loans of America

Some believe the workday starts at 9 AM and ends at 5 PM, Monday through Friday. These are the same people who often never realize their goals. Why? Because if you prefer to leave your work at the office, you probably do not want to be a successful entrepreneur. Here’s one need-to- know tip if you want to be a successful entrepreneur: operate in survival mode. Meaning, work as if every day is the day your business could go under. Earn more, spend less, and always push yourself harder, motivating your team to do the same. Encourage others to show up early and stay late and do so as well. A successful entrepreneur is not made overnight but if you follow this tip, you are guaranteed results.

25. Invest in Financial Education
Tod Colbert, President & Founder, Weather Tight Corporation

When you are first starting out and trying to build a business from nothing, time is your most valuable resource. Your responsibilities include sales, marketing, accounting, maintenance, customer service, technical support, and more. You put in countless hours and work long nights to try to get everything done. Forward thinking and planning are low priorities which means that learning about how to make money work for your business is overlooked. Experienced entrepreneurs understand money concepts such as pricing, time value of money, tax planning, and investment in their businesses.

26. Hire Competent People & Establish Good Relationships with Them
Dewayne Hamilton, Director, Web Cosmo Forums

Less is more and it rings true while doing business. Entrepreneurs should take a step back and simplify their goals and strategies. You should have faith in your abilities, but also include checks and balances by introducing a diverse group of colleagues that will support and challenge one another. Listen to your employees and try to establish good professional relationships while at work.

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Buying a company? Due diligence is needed — and it’s a balancing act

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By James Cassel

In 2011, Hewlett-Packard acquired a company called Autonomy for over $11 billion. Unfortunately, after the acquisition, HP found out that Autonomy’s management had committed fraud. For years, prosecutors alleged, Autonomy had been cooking the books ultimately resulting in HP being swindled and lots of litigation. It’s a great, albeit costly, lesson on the importance of proper due diligence.

The amount of due diligence needed when purchasing a company is a balancing act. One has to take into consideration the available resources. You often have to decide whether to drill deeper when a red flag arises, even as you try to determine if it’s feasible or not to proceed with the deal. But you shouldn’t be penny-wise and pound-foolish. There are areas you must target and costly services you must use. That’s just part of the cost of any deal.

Company finances are a good place to start. It’s costly, but hiring an experienced accounting or consulting firm is essential. You are looking for the true financial picture of the company. You need to know whether the company is growing or shrinking, its profitability and cash flow, its capital needs, its customer concentration, and its relationship with its suppliers.

To get this information, a financial audit may be necessary, as well as obtaining a quality of earnings report. Beyond looking at the balance sheet, a quality of earnings report provides a true financial picture by looking at the financials, books and records of a company, including its EBITDA, earning power, cash flow, financial systems and its accounting principles and policies.

You should also conduct operational due diligence, looking at the company’s main operations to try and determine whether its current facilities and capital expenditures are in line with its present and future operations and that everything is in good condition. You might also want to conduct some commercial due diligence to review the market position of the company’s products or services. If you’re concerned about the company’s exposure to reputational issues, you may want to conduct IDD, an integrity due diligence. And of course, legal and regulatory due diligence is required to be performed by lawyers.

There’s a due-diligence provider for almost every aspect of a company, from its IT to its IP, but before you begin any of them, you’ll want to research the company’s leaders. You might be surprised what a simple Google search can yield. Compromising reputational matters, strained relationships with clients or suppliers, even fraudulent activity, can often be discovered with a few clicks of a mouse.

When you find something amiss, take a step back and review what can be fixed and what can’t. Sometimes a price adjustment works. Sometimes it’s best to walk away. But sometimes, you may find that the issues can be resolved or overcome, and the deal can move forward.

If the issue is something like sloppy bookkeeping, perhaps a good financial professional can clean it up. Maybe it’s just that the company isn’t running efficiently. In that case, you can hire a process improvement expert.

Even if it comes to pass that you do all your due diligence and everything checks out, remember that even with the best due diligence, you can’t always find fraud until it’s too late. For that reason, you might consider insurance in case everything isn’t on the up and up. Representation and warranty insurance may cover certain losses resulting from a violation of the representations and warranties that were made to you by the seller, whether intentional or not. It can be a useful tool to protect you from potential exposure should it arise.

But some problems can’t be fixed or are just too costly to fix. If that’s the case, you must walk away. And if you didn’t, and find yourself in a situation similar to HP’s, then it’s time to take a step back and see where your due diligence might have failed. Don’t look for another deal until you understand what you did wrong and how you missed the problem. A costly mistake can still have value if it teaches you how not to repeat it.

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., an investment-banking firm based in Miami. jcassel@casselsalpeter.com.
At LinkedIn: https://www.linkedin.com/in/jamesscassel

Florida’s private equity deals were strong in 2018

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By Kevin Gale

James Cassel

Chairman & Co-Founder

Private equity deals in Florida for 2018 were nearly double the total of 10 years ago, showing a recovery from the Great Recession.

An analysis by Cassel Salpeter & Co., a Miami investment banking firm, counted 293 PE deals in 2018. In 2008 there were only 154 deals while the total reached a low of 131 in 2009.

Cassel Salpeter says the total for 2018 will likely rise since reporting often lags the actual activity. South Florida accounted for 39 percent of the PE deals statewide in 2018. “Despite the nebulous economic times we live in today, deal activity in 2019 is showing no signs of slowing down. As economists start to talk about a possible slowdown or recession in 2020, PE firms and family-owned businesses are giving thought to going to market now so as not to miss this opportunity before the next cycle. Still, whether it happens in 2019, or in the years that follow, as each day passes, we are one day closer to a possible slowdown or even a recession,” says James Cassel, co-founder of Cassel Salpeter.

Add-on deals accounted for approximately 57 percent of the state’s PE deals, topping platform creation, growth/expansion, recap, add-on and buyout/LBO, Cassel Salpeter found in its analysis of data from Pitchbook. Click here to take a deeper dive into Florida’s private equity deal activity for all of 2018 and get more of the firm’s insight for 2019.