How Small Businesses Can Prepare for Impending Inflation

By Adam C. Uzialko

If you watch or read the news, you’ve noticed more references to potential inflation on the horizon. Inflation means the purchasing power of a dollar has decreased; put simply, there is a general increase in prices for goods and services.

Naturally, as a small business owner, increases in prices affect you, but if you’re not a board member of the Federal Reserve, there’s not much you can do about inflation, right?

On the contrary, staying aware of inflation and anticipating its impact on your business is key to crafting a comprehensive strategy to retain customers despite rising prices across the larger economy.

Inflation isn’t inherently good or bad

The first thing to take note of is that inflation isn’t good or bad; that’s a matter of perspective. For some businesses, inflation could be a bad thing, forcing businesses to raise their prices and contributing to a loss in customers. For others, it could be a benefit, spurring activity in their industry that would otherwise occur elsewhere if prices were lower. Moreover, the level of inflation matters; a little bit might be desirable, while too much could grind consumer spending to a halt and send the economy into a tailspin.

“Inflation can hurt some small businesses while providing a boost in profitability to others,” said Jeff Miller, a realtor for AE Home Group, who used

his industry as an example. “Inflation in real estate causes an increase in home prices as new construction becomes too expensive and an increase in demand is met by a stagnant housing inventory. This is great for real estate agents who will then earn commissions on higher sale prices.”

On the other hand, Miller said, too much inflation has the opposite effect. If inflation rises too drastically and prompts the Federal Reserve to hike interest rates, it could reduce the demand for home loans, which would become more expensive as a result. If that were to happen, he said, small real estate businesses would feel the sting.

Inflation can also sometimes signal that an economy is growing, and as long as wages are rising along with inflation, it shouldn’t be a bad thing that will hamper consumer spending. In other cases, too little inflation could mean an economy is stagnating. While nobody likes rising prices, everybody likes a growing economy. Managing inflation, and our collective expectations surrounding it, is the real key.

There are things you can do before raising prices

While inflation means the purchasing power of a dollar has decreased, it doesn’t necessarily mean you have to (or should) raise prices right off the bat. Even if you have to raise prices, you can balance increases with cost reduction to keep hikes manageable over time and avoid shocking the market. Drastic increases scare your customers off, while gradual, measured increases are often expected.

“From a business perspective, what drives increased costs?” said James Cassel, founder of investment banking firm Cassel Salpeter & Co. “Labor costs are starting to go up a bit, service costs are starting to go up. If you’re a manufacturer, you’ve got your material costs [which are rising as the economy gets better.]”

While inflation is often the natural byproduct of a growing, healthy economy, it’s important to take steps to manage inflation ahead of time. You don’t want the rising costs of goods and services to eat into your profit margins, after all.

Cassel offered some tips for small businesses thinking about how they will deal with inflation.

  • Consider productivity: One way to combat inflation without hiking prices is to figure out how to maintain the same levels of productivity with less staff. This is particularly useful when labor costs are what’s driving inflation, Cassel said. “If labor is going up, is there a way to do the same amount of business with nine people, instead of 10?” Cassel said. “Assuming there’s [resistance to raising your prices,] you’ve got to figure out how to take the same amount of people and produce more goods and services.”
  • Implement new technology: In some industries, such as manufacturing, labor costs can be reduced through automation. This trend is largely underway as a means of staying competitive, Cassel said, but it can help curb rising costs. The same could be true in the fast-food industry, he added, where automated kiosks are reducing the number of in-store staff.
  • Reduce material costs: Finding efficiencies wherever you can is a good thing. If you can get necessary materials at a reduced cost from a different supplier, for example, that could offset the effects of inflation, Cassel said. However, there is a danger in “going cheaper, as opposed to less expensive,” he added. “Where you have to be careful is cutting corners,” Cassel said. “If quality starts to fail, it becomes a bigger headache than the problem you had before, because that’s how you ultimately destroy the value of a business.”

How to raise prices the right way

Unfortunately, raising prices is inevitable. You can stave off hikes for some time, or reduce the impact to your customer base all at once by using cost- cutting measures, but there will always come a time when you must adjust your pricing.

“You can only do so much. At some point you have to see if you can raise your prices,” Cassel said. “Test it, bump your price and give your customers some notice, enough so they appreciate it, but not enough that they move elsewhere.”

How can you know when it’s time to increase your prices? Cassel suggested watching your closest competitors, knowing what they’re doing and then determining whether undercutting them will force you to sell at a loss or if your profit margin can support it. He also added that staying transparent with customers goes a long way, especially if you can find a way to add value to your product or service without increasing your costs.

“Be careful, pay attention,” he said. “Know your competition, know your customers, and be sensitive to their needs.”

Click here to view the original article.

Wall Street Braces for a Rate Hike

By Tirthankar Chakraborty

Timing a Fed rate hike is no doubt tricky. But if you ask the market participants, they are almost certain that Jerome Powell led Federal Reserve will increase its benchmark rate by 0.25%, at the conclusion of the FOMC meeting on Mar 21. They further anticipate the Fed to continue their hawkish stance this year, on the back of a healthy labor market and steady rise in inflation.

With the Fed set to raise rates for the first time this year, expect financials, technology and home improvement suppliers to benefit. Home builders and utility players, on the other hand, could lose from the Fed’s rate decision.

Fed Set to Hike Rates for the First Time in 2018

At the conclusion of the FOMC meeting, the Fed will issue a rate decision. Market pundits consider a quarter-percentage point rate hike a near- certainty. The futures market is already indicating 100% chance of a rate hike, culminating into the sixth rate increase since December 2015. Market participants also widely expect the Fed to project four rate hikes this year. So far, a maximum of three rate hikes are expected for the year.

But why we are expecting a hawkish Fed? This is because the current economic backdrop paints a rosy picture, especially, when you consider steady rise in wages, record low unemployment rate and upbeat consumer confidence levels. The Trump administration, in the meantime, has decided to add extra stimulus in the form of tax cuts and deregulations.

Perhaps the even more crucial factor for the Fed to hike rates is hotter-than- expected signs of inflation. Recent signs indicate that inflation is tilting toward the central bank’s 2% annual target. Needless to say, the near-term inflation expectations have climbed this month to the highest level in three years. Thus, the Fed is likely to reiterate its January’s statement that inflation “will move up this year.”

Winners & Losers in a Rising Rate Environment

With an overwhelming majority of observers seeing an imminent rate hike with more to follow this year, certain sectors stand to gain, while some will suffer.

Winners: Asset-Sensitive Banks

Banks are definitely the go-to rate trade. As a general rule, higher interest rates will boost bank profits as they increase the spread between what banks earn by funding longer-term assets, such as loans, with shorter-term liabilities.

National banks like the Bank of America Corporation BAC are very much rate- sensitive and have consistently seen earnings jump from a quarter-point rate hike. In the year-to-date period, the SPDR S&P Bank ETF (KBE) generated steady returns of 4.2% on increasing expectations of a rate hike this month.

Winners: Insurers

Very few companies are rooting for a rate hike as much as those from the insurance industry. And why not? The relationship between interest rates and insurance companies is linear and straightforward, meaning the higher the rate, the greater the growth.

Insurers derive their investment income from investing premiums, which are received from policyholders in corporate and government bonds. Yields and coupons on these bonds rise in response to a rise in Fed fund rates and bank interest rates. This enables life insurers to invest their premiums at higher yields and earn more investment income, expanding their profit margins. Not only investment income, which is an important component of insurers’ top line, annuity sales should also benefit from a higher rate environment.

As of the last filing, the top three holdings of the SPDR S&P Insurance ETF (KIE), Validus Holdings, Ltd. VR , XL Group Ltd XL and Everest Re Group, Ltd. RE have soared 44.6%, 58.1% and 18.2%, respectively, so far this year on rate hike expectations.

Winners: Asset Managers

Brokerage firms and asset managers advantage immensely from a rising rate environment since an increase in rates generally concurs during periods of economic strength and upbeat investor sentiments.

Notably, a wealth management firm like The Charles
Schwab Corporation SCHW has said time and again that each quarter point increase in rates generally adds to interest revenue, much of which flows directly to pre-tax profits.

Winners: Technology & Home Improvement

Other than the broader financial sector, technology firms also stand to gain from a rate hike. Interest rates correlate with an economy that is getting stronger day by day. And a stronger economy could easily boost the bottom lines of smartphone makers like Apple Inc. AAPL and Samsung.

Rising rates may also compel would-be home buyers to stop searching for new houses and instead look for improving their existing ones. Sesha Dhanyamraju, CEO of Digital Risk added that “remodelers and home- improvement suppliers benefit from a rising-rate scenario.” Thus, home improvement majors Lowe’s Cos. L and Home Depot HD stand to gain the most.

Losers: Home Construction

But, with the Fed expected to hike rates, the average American will bear the brunt of higher borrowing costs. This is surely a dampener to real estate activities.

James Cassel, chairman and co-founder of the investment banking firm Cassel Salpeter in Miami added that if rate hike happens, losers might include “construction-related businesses, like homebuilders.”

Losers: Utilities

Investing in utilities won’t be a good idea in a rising interest rate scenario. Utilities are capital intensive business and the funds generated from internal sources are not always sufficient to meet their requirements. Hence, these companies have high level of debt loads. Low interest rates will help them pay off debts and book profits.

But higher interest rates along with an increase in the debt level, for that matter a steep debt/equity ratio, impact the credit ratings of these utility operators. If the credit ratings go down, a company will find it difficult to borrow funds from the markets at reasonable rates, leading to a rise in cost of operations.

The industry’s bellwether ETF, Utilities Select Sector SPDR (XLU), has yielded a negative return of 4.9% in the year-to-date period on rate hike concerns.

Will You Make a Fortune on the Shift to Electric Cars?

Here’s another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It’s not the one you think.

Click here to view the original article.

Wall Street Braces for a Rate Hike: Who Wins, Who Loses

By Tirthankar Chakraborty

Timing a Fed rate hike is no doubt tricky. But if you ask the market participants, they are almost certain that Jerome Powell led Federal Reserve will increase its benchmark rate by 0.25%, at the conclusion of the FOMC meeting on Mar 21. They further anticipate the Fed to continue their hawkish stance this year, on the back of a healthy labor market and steady rise in inflation.

With the Fed set to raise rates for the first time this year, expect financials, technology and home improvement suppliers to benefit. Home builders and utility players, on the other hand, could lose from the Fed’s rate decision.

Fed Set to Hike Rates for the First Time in 2018

At the conclusion of the FOMC meeting, the Fed will issue a rate decision. Market pundits consider a quarter-percentage point rate hike a near- certainty. The futures market is already indicating 100% chance of a rate hike, culminating into the sixth rate increase since December 2015. Market participants also widely expect the Fed to project four rate hikes this year. So far, a maximum of three rate hikes are expected for the year.

But why we are expecting a hawkish Fed? This is because the current economic backdrop paints a rosy picture, especially, when you consider steady rise in wages, record low unemployment rate and upbeat consumer confidence levels. The Trump administration, in the meantime, has decided to add extra stimulus in the form of tax cuts and deregulations.

Perhaps the even more crucial factor for the Fed to hike rates is hotter-than- expected signs of inflation. Recent signs indicate that inflation is tilting toward the central bank’s 2% annual target. Needless to say, the near-term inflation expectations have climbed this month to the highest level in three years. Thus, the Fed is likely to reiterate its January’s statement that inflation “will move up this year.”

Winners & Losers in a Rising Rate Environment

With an overwhelming majority of observers seeing an imminent rate hike with more to follow this year, certain sectors stand to gain, while some will suffer.

Winners: Asset-Sensitive Banks

Banks are definitely the go-to rate trade. As a general rule, higher interest rates will boost bank profits as they increase the spread between what banks earn by funding longer-term assets, such as loans, with shorter-term liabilities.

National banks like the Bank of America Corporation BAC are very much rate- sensitive and have consistently seen earnings jump from a quarter-point rate hike. In the year-to-date period, the SPDR S&P Bank ETF (KBE) generated steady returns of 4.2% on increasing expectations of a rate hike this month.

Winners: Insurers

Very few companies are rooting for a rate hike as much as those from the insurance industry. And why not? The relationship between interest rates and insurance companies is linear and straightforward, meaning the higher the rate, the greater the growth.

Insurers derive their investment income from investing premiums, which are received from policyholders in corporate and government bonds. Yields and coupons on these bonds rise in response to a rise in Fed fund rates and bank interest rates. This enables life insurers to invest their premiums at higher yields and earn more investment income, expanding their profit margins. Not only investment income, which is an important component of insurers’ top line, annuity sales should also benefit from a higher rate environment.

As of the last filing, the top three holdings of the SPDR S&P Insurance ETF (KIE), Validus Holdings, Ltd. VR , XL Group Ltd XL and Everest Re Group, Ltd. RE have soared 44.6%, 58.1% and 18.2%, respectively, so far this year on rate hike expectations.

Winners: Asset Managers

Brokerage firms and asset managers advantage immensely from a rising rate environment since an increase in rates generally concurs during periods of economic strength and upbeat investor sentiments.

Notably, a wealth management firm like The Charles
Schwab Corporation SCHW has said time and again that each quarter point increase in rates generally adds to interest revenue, much of which flows directly to pre-tax profits.

Winners: Technology & Home Improvement

Other than the broader financial sector, technology firms also stand to gain from a rate hike. Interest rates correlate with an economy that is getting stronger day by day. And a stronger economy could easily boost the bottom lines of smartphone makers like Apple Inc. AAPL and Samsung.

Rising rates may also compel would-be home buyers to stop searching for new houses and instead look for improving their existing ones. Sesha Dhanyamraju, CEO of Digital Risk added that “remodelers and home- improvement suppliers benefit from a rising-rate scenario.” Thus, home improvement majors Lowe’s Cos. L and Home Depot HD stand to gain the most.

Losers: Home Construction

But, with the Fed expected to hike rates, the average American will bear the brunt of higher borrowing costs. This is surely a dampener to real estate activities.

James Cassel, chairman and co-founder of the investment banking firm Cassel Salpeter in Miami added that if rate hike happens, losers might include “construction-related businesses, like homebuilders.”

Losers: Utilities

Investing in utilities won’t be a good idea in a rising interest rate scenario. Utilities are capital intensive business and the funds generated from internal sources are not always sufficient to meet their requirements. Hence, these companies have high level of debt loads. Low interest rates will help them pay off debts and book profits.

But higher interest rates along with an increase in the debt level, for that matter a steep debt/equity ratio, impact the credit ratings of these utility operators. If the credit ratings go down, a company will find it difficult to borrow funds from the markets at reasonable rates, leading to a rise in cost of operations.

The industry’s bellwether ETF, Utilities Select Sector SPDR (XLU), has yielded a negative return of 4.9% in the year-to-date period on rate hike concerns.

Will You Make a Fortune on the Shift to Electric Cars?

Here’s another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It’s not the one you think.

Click here to view the original article.

Setting Up Shop in the Sunshine State

By Laura Cooper

More private-equity firms are sprouting up in Florida as sponsors branch out on their own.

The number of firms in the state has climbed steadily over the past several years, according to Cassel Salpeter & Co., a Miami investment bank that tracks the growth of private-equity firms based in Florida.

The number of such firms rose to 56 in 2017, up from 47 in 2016 and 27 in 2010, according to a report by the bank that cited data from PitchBook Data Inc.

James Cassel, chairman and a co-founder of the bank, said private equity’s presence in the state is increasing, in part, because investment professionals from large Florida-based firms such as H.I.G. Capital and Comvest Partners are striking out on their own.

Hidden Harbor Capital Partners, for example, was launched about two years ago in Fort Lauderdale, Fla., by founders who previously held positions at H.I.G. or Comvest.

Mr. Cassel said perceptions about starting firms in Florida have changed over the years.

“There was previously a concern of how to staff these firms,” he said, adding that firms had been concerned that people would be inflexible about moving to Florida from other states with historically more robust private-equity activity.

“It [will] be interesting to see what happens this year with the tax bill impacting individuals,” he said. “I think more people are considering moving down to Florida for lower tax rates.”

In addition to H.I.G., Comvest and Sun Capital Partners, a number of homegrown firms dot the state. New entrants in the past several years include Hidden Harbor, Three20 Capital Group, Canopy Capital Partners and 777 Partners, according to data collected by Mr. Cassel.

Although time will tell whether more private-equity firms find Florida a favorable place to put down roots, there is no question that the state is experiencing more private-equity activity. Deals have been on the rise in the state in the past several years, according to PitchBook data featured in the report. In Florida, private-equity deal flow last year remained strong for the fourth year in a row, with 259 Florida deals—including add-on acquisitions— completed in 2017, up from 256 deals in 2016.

Click here to view the original article.

Plan now for the potential ‘long-term’ impacts of the tax cuts and new tariffs

By James S. Cassel

Should we make long-term plans based on the notion that the tax cuts are permanent? Although the personal tax cuts have an expiration date, currently the corporate cuts are permanent. Alternatively, should we assume that at some time we will realize the deficit is unsustainable and have to take proper measures to tame this lion? What Congress gives, Congress may take away.

At some point, Congress will have to face reality and govern by raising taxes on the richest among us, as well as cut expenditures for social programs and entitlements programs — all of which may be politically unpalatable and tough medicine. What if the projected growth assumed in connection with the tax cuts fails to materialize, generating the anticipated taxes? Are the new tariffs on steel and aluminum going to hurt us, start a trade war, and increase inflation due to higher material costs? At some point, this will keep us all up at night, if it does not already.

The following is some practical guidance based on our experience guiding middle- market business owners through all types of economic cycles:

  • Save as much money as you can now. Planning for retirement will depend more on your individual planning than on government programs. Social Security and Medicare might not be as untouchable as some would like to believe. Medicare, for example, continues to raise premiums to recipients. At some point, the age to receive Social Security will need to increase again, therefore delaying access to benefits for some. Past proposals have protected people close to retirement age.
  • Consider selling your business or a majority stake now. It is prudent to diversify. If the lower tax rates are temporary, you are probably better off selling sooner, and taking advantage of the lower tax rates and more desirable pricing. Rising interest rates, potential inflation, and potential trade issues with the recently enacted tariffs could diminish the profitability — and therefore the value — of your business.
  • Consider how you structure agreements. It is probably better to require more payments upfront where appropriate. This way, you can enjoy the lower tax rate if rates go up. From a tax standpoint, the structure of your agreements is very relevant. Seeking good counsel is always important.
  • With increased inflation as the economy strengthens, and as a result of the new tariffs and a possible trade war, you may want to secure longer-term supply agreements to ensure stable costs. Airlines have done this successfully with fuel costs. Since new tariffs have been put on steel and aluminum, you need to consider how this will affect your business and that of your suppliers. There is a lot of uncertainty around a possible trade war that might have many unintended consequences. Other countries will not sit idly by. Tariffs on steel and aluminum will hike costs of many products — for example on cars and potential steel used in the construction industry — and spur increased inflation. There are already rumblings from foreign countries to increase tariffs on products that might be exported from the U.S. If you are a target of foreign tariffs, consider whether it is prudent to move all or a portion of your production offshore.

With so much uncertainty surrounding the longevity and impact of the tax cuts and the effect of tariffs, middle-market business owners should work with qualified experts to assess their business needs and develop appropriate plans to protect their best interests.

Click here to view the original article.

Private equity deal flow up in Florida

In today’s uncertain world, just do the right thing. It’s good for business

By James S. Cassel

With so much noise and confusion surrounding the current political, business and economic climate, middle-market business owners are unsure how to protect the best interests of their businesses in the short and long term. The simple and common-sense answer: No matter what anyone else may be doing, you should continue doing the right thing, and support like-minded companies that do the right thing.

While it may be true that there are too many regulations, the fact is many are very important and necessary. The current administration has been reducing regulations (some believe  indiscriminately) without really considering the true long-term impacts of these decisions. This might be great for business in the short term, but it could hurt significantly in the long term. So, we reduce regulations but we damage the environment, consumer protection, endanger people, or curb protections — how does that help anyone? It is shortsighted.

What can you do? Continue to run your business with the highest moral and ethical standards of sustainability and social consciousness — and choose to do business with companies that do the same. In this way, beyond protecting your business, you will exert influence in very positive and powerful ways: rewarding the do-gooders by supporting them financially, while letting the negligent ones feel it in their bottom lines.

For example, our government has reduced incentives for alternative energy — including solar and wind energy — in the recent tax code, which may be good for the coal, hydrocarbons and energy industries, but may not be good for the environment and for business. Additionally, the reduction of many of these regulations is chipping away at consumer protection. Again, you can lead by example and with your wallet by only doing business with companies that do the right thing.

One positive step that you might take with the extra money you will probably receive from the recent tax breaks is to apply it to environmentally friendly, sustainable, socially responsible initiatives. Additionally, you might invest in marketing programs to promote your sustainability policies and elevate your profile as a good steward of our environment, motivating others to follow suit. Look at shoe company TOMS or eyeglass company Warby Parker, two companies that since their founding as startups have provided one pair free to someone in need for every pair purchased.

Already, a growing number of companies are leading the charge. Consider Coca-Cola’s widely promoted “World Without Waste” packaging vision, which involves gathering and recycling a bottle or can for every one sold around the world by 2030 and renewing its focus on the entire packaging life cycle.

Dunkin’ Donuts recently announced its commitment to eliminate all foam cups by 2020, a highly responsible act. These initiatives are not only good business but vital for our planet. More companies should follow their lead.

At the same time, firms like Blackstone, one of the nation’s biggest asset managers, is making it clear to companies that it wants to invest in companies that are socially responsible. Its mission is clearly articulated on its corporate website, which reads: “Protecting the environment of the communities in which we operate is critically important. Fostering growth and creating enterprises of enduring value is a vital part of Blackstone’s commitment to being responsible corporate citizens. Our commitment to corporate responsibility is embedded into every investment decision we make.”

While bigger businesses like these have endless options and resources, middle-market companies should do their part within their own spheres of influence. Additionally, being socially conscious and socially responsible increases long-term value. You do not have to pay to clean up what you do not mess up. If you are going to sell your business, building sustainability as a socially responsible company can enhance the value of a sale as more private equity firms and investors look to ensure they are dealing with quality, responsible, sustainable companies.

Like it or not, while it can be nice to get extra money and live in a bubble, we are only fooling ourselves and hurting future generations by only considering the short term.

Click here to view the original article.

How To Know If It’s The Right Time To Hire

By Bryan Borzykowski

James Cassel has hired hundreds of people to work at the various companies he has helped start and run over the past four decades. Still, after all that time, the lawyer and investment banker says knowing when to staff up remains one of the hardest parts of being an entrepreneur.

“We struggle, as do many small and medium-sized firms, in deciding when to hire that additional person,” said Cassel, chairman and co-founder of Cassel Salpeter & Co., a Miami-based investment bank.

These days, Cassel takes a slow and steady approach to hiring. Since he started his current company seven years ago, Cassel and his colleagues have brought on only eight people, in addition to the four who started the firm. With previous companies, he would hire quickly, only to have to lay those people off when work dried up during the recession.

“I’ve had the pleasure of bringing in great people and the angst of letting those good people go,” he said.

Knowing the precise time to hire a new employee is a constant headache for business owners. Challenges include not only finding the money to pay the new person’s salary and benefits, but also keeping him or her busy, motivated and contributing to overall productivity.

Hiring is like a puzzle, according to Sara Whitman, chief culture czar at Pepercomm, a New York-based communications firm. It’s a process of constantly seeking the piece that fits. “You’re always moving things around to get the picture,” Whitman said. “And once you get it right, you have to move it around again.”

It All Comes Down To ROI

Deciding when to hire comes down to one thing: profit. Can another employee help you generate more profits now or not far down the road? That’s the question all business owners should ask themselves, said Richard Allaway, general manager and division vice president at ADP National Account Services. “Get out the spreadsheet and the calculator,” he said.

The answer isn’t always a simple yes or no, though. Numerous factors play into the equation. What’s the best way to generate that profit? It might be by landing a new customer, in which case you may need a sales or business development person. Or maybe it’s by filling orders more quickly, which means you’ll need someone in operations who can speed up the production process. Maybe you’re trying to accelerate the launch of a product, so you’ll need to hire someone in product development. It depends on what kind of help the business owner needs most, Allaway said.

An Investment In Your Business

Cost is one reason companies wait too long to hire. Employees are expensive. Besides salary, companies also need to shell out money on overtime, benefits plans, potential 401(k) matches and so on. But an organization that focuses only on cost of employees would never hire. Instead, an organization should look at new hires as an investment, as long as it can afford to finance additional headcount until profits grow. “It could be months before people pay for themselves. So you have to have the capital to fund that growth,” Allaway said.

In many cases, especially for service companies, hiring depends on how many clients are coming and going. An expanding client roster largely drove Pepercomm’s growth from a dozen at launch 30 years ago to 100 people now. “A lot of times hiring is driven by the business,” Whitman said. “When you win a new piece of business you might need another body to help fulfill that work.”

In recent years Pepercomm has become more analytical when it comes to hiring. Today, it has four employees who assess the organization’s overall needs and, starting with that assessment, decide where to put existing staff and what holes they need to fill with new hires.

They analyze budgets to see how much money the organization is spending on people costs versus expenses such as rent and equipment. How many people are working on certain client accounts is another matter for inquiry. If the data indicates they need to hire, they will, Whitman said. If it indicates that they require only part-time help, they’ll look for freelancers they can employ on a temporary basis.

The Importance Of Due Diligence

Deciding when to hire is a decision organizations shouldn’t take lightly. You might feel like you need help, but hiring out of frustration or desperation isn’t a good strategy.

“If you hire the wrong person, it could introduce some risk or liability,” Allaway said. “Maybe you end up with someone not as skilled as you and they treat a customer badly or you have to let them go and give them a severance. These are things that can impact the business financially.”

When you do get it right, though, your business — and profits — can soar. “Hire a great employee and they can grow the business beyond what their expected contributions might be,” he said.

For Cassel, the key is adding new bodies only when he’s confident it might help move his business forward.

“If you’re looking to build on your business plan, then you try and match the right people who can help you execute on that plan,” he said. “Hire the right people who fit the culture and can help the company in the future.”

Click here to view the original article.

Sense of the Markets: IPOs on Ice Amid Volatility

After January 2018 racked up the most deal volume by dollar amount ever, February could see a bit of a respite as firms looking to list wait for enormous market swings to settle

By Kinsey Grant

In a market rife with volatility, going public doesn’t scream “logical” and after a January that saw almost 80% more volume than the previous year, February’s volatility may have put the IPO hot streak on ice.

The Dow, S&P 500 and Nasdaq have endured wild swings in value over the past week that have led the Cboe Volatility Index to rally 80% in the past five days. While that enormous volatility has quieted some Wednesday, Feb. 7, the market has yet to return to the ultra-low volatility nature it maintained throughout 2017 and into January.

Because of that, the IPO landscape could simmer down some as firms looking to list wait for a more even-keeled environment in which to do so. February’s quiet spell comes after January 2018 won the title of the biggest start to a year on record in terms of dollar IPO value. Last month, there were 20 IPOs in the U.S. valued at $9.266 billion total, according to data from Dealogic. There have been three IPOs in the month of February so far, valued at a total of $908 million.

IPO action was especially slow last year, Cassel noted. Deal value in January 2018 topped the same month a year earlier by 79%. In January 2017, there were about half the number of IPOs listed in the U.S. For the whole of February 2017, there were six listings total valued at $710 million.

“Obviously when people are doing IPOs volatility is not something they like, especially the underwriters,” said James Cassel of Miami-based independent investment banking firm Cassel Salpeter & Co.

“People who were probably ready to go might have held off,” Cassel said of February’s swings that have seen the Dow open lower 500 points only to nish the session in the black.

“[Volatility] is not great for IPOs because nobody knows where anything is going,” said Heidi Mayon, partner at the Silicon Valley office of Gunderson Dettmer. But if the process was by and large complete, the IPO show must go on, Mayon said.

“People will wait,” Cassel added. “And then they’ll come back out. You have a lot of pent up demand.”

Some market watchers have called for sustained volatility throughout the rest of 2018, but that likely won’t impact IPO action for the next 10 months. Cassel said IPOs won’t be held off much by 100-point swings in the market. It’s really only the 1,000-point swings like the market endured this week that are enough to delay an IPO.

As for this spate of swings, it was a long-time coming, Mayon said. “Everyone kind of expected some kind of downturn.” But all in all, the market is healthy, Mayon said. “We’re seeing really strong interest in IPOs as a whole.”

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Liquor Sector to See More Consolidation in 2018

The Patrón and Avión tequila purchases likely will not be the last deals this year for producers of tequila, whiskey and gin.

By Cathaleen Chen

So much for dry January.

So far this year, there have been two major deals in the spirits industry: Bacardi Ltd.’s acquisition of Patrón Spirits International AG, and Pernod Ricard SA’s purchase of the remainder of Avión Spirits LLC, both hip-hop- approved tequila brands.

Thanks to heightened consumer demand and the fragmentation of liquor brands now offered on the market, the industry can expect to see even more mergers ahead, industry sources said, especially among whiskey, tequila and gin producers.

“Being acquired by a major player is the dream for people who build these smaller brands,” said Ken Austin, founder of Avión. “Typically, what happens for them is they get to second base, and to bring it home, they try to get acquired.”

Part of the obstacle to scaling up for growing brands is the issue of distribution, as U.S. regulatory measures largely prohibit direct-to-consumer outreach from distillers. Instead, in a three-tier system, wineries and distilleries must go through distributors, or wholesalers, to reach retailers — stores, bars and so on — which only then access the consumer.

“It’s a really challenging space for smaller brands to build architecture because there are so many channels of distribution you must populate,” said Derek Benham, founder of Graton Distilling Co. as well as multiple wine brands. Graton, based in namesake Graton, Calif., produces D. George Benham’s Sonoma Dry Gin, Redwood Empire American Whiskey and D. George Benham’s Vodka Vodka, the latter not a typo but a “vodka-flavored vodka.”

“Each of these distribution channels requires a different type of investment and expertise, and it’s always a battle because when you get to this second tier, you’re battling the huge brands with [deep pockets] for market share,” he said. The solution, then, is to be acquired by a large player, such as Pernod or Constellation Brands Inc. (STZ).

The spirits industry, across the board, is in a sweet spot, and the stock charts say it all. Jack Daniel’s, Herradura and Finlandia producer Brown-Forman Corp. (BF.B) , for instance, has seen shares skyrocket more than 52% in the past year. Stock in Constellation, home of Casa Noble tequila and High West whiskey, not to mention Corona, Modelo and Pacifico beer, is up more than 46%, and shares in Pernod (Jameson whiskey, Beefeater gin, Absolut vodka) have jumped more than 16%.

The reason for investors’ love of spirits producers is that alcohol consumption in the U.S. is higher than ever. According to an August study published in medical journal JAMA Psychiatry, alcohol use rose from 65% of the adult population to 73% in a 12-month period.

Not every drinker, of course, toasts with the same drink — and the strongest consumer segment, according to Austin, is millennials.

“The younger consumers are looking for better products. They want to know the story behind a brand, they want to understand the taste profiles, and they don’t want alcohol with artificial ingredients,” he said. That’s why, he added, small, local distilleries are on the rise.

According to bar analytics firm BevSpot Inc., the three most ordered spirits are whiskey, vodka and tequila. Whiskey and tequila in particular are seeing a number of deals, said Jim Cassel, co-founder of investment banking firm Cassel Salpeter & Co., but gin is the up-and-comer.

“One space that hasn’t seen a lot of M&A is gin, but there are a lot of smaller gin brands out there now,” he said, pointing to The Botanist, made by Scotland’s Bruichladdich Distillery Co. Ltd., as an example of a brand that’s gaining traction. Bruichladdich, however, is owned by Rémy Cointreau Group, the French entity behind Rémy Martin cognac and Cointreau liqueur.

As for future acquisition targets, Benham pointed to the Michter’s whiskey brand of Louisville, Ky., and Sonoma, Calif.’s 3 Badge Beverage Corp., which produces a range of spirits and wines, as two of the few distilleries that remain private.

“We are a dwindling species!” he said. “The ones that haven’t been bought are tiny companies.”

As for his own company, Benham said, “If something comes along that’s a generous offer that makes sense, as a businessman I’ll look at it.” (He previously sold the Mark West wine brand to Constellation in July 2012 for $159.3 million and the Blackstone and Codera brands in October 2001 to a Constellation joint venture for $138.1 million.)

There also could be larger consolidation deals down the line, such as Constellation swallowing Brown-Forman, Benham added. Other smaller liquor companies that remain private include Jose Cuervo, Bushmills and Hangar 1 maker Proximo Spirits Inc. and Heaven Hill Distilleries Inc., producer of Evan Williams bourbon and Christian Brothers brandy.

But there is another elephant in the room: Tito’s Handmade Vodka, the Austin, Texas, distillery that makes what was recently billed as the world’s fastest-growing vodka. Founded 20 years ago, Tito’s went from producing 150,000 cases in 2006 to 2.78 million in 2015, according to Impact Databank. Between 2016 and 2017, Tito’s sales grew 44% to nearly $190 million, becoming,the top-selling spirits brand in the U.S., Wine & Spirits Daily reported last October.

The company has remained private under founder and sole owner Bert “Tito” Beveridge.

“I’m sure the guy gets calls multiple times a week. It’s grown almost logarithmically,” Benham said. “But what I’ve heard is that he’s just not willing to sell.”

Tito’s could not immediately be reached for comment.

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