Broward Attorney Accused of Helping Company Defraud Investors

September 18, 2019

By Brian Bandell

Federal prosecutors have accused Fort Lauderdale attorney Jan Douglas Atlas of helping 1 Global Capital LLC defraud more than 3,600 investors.

The Securities and Exchange Commission also filed a civil lawsuit against Atlas over securities law violations involving 1 Global Capital.

The Hallandale Beach-based financial company, which provided loans to small businesses, filed Chapter 11 in U.S. Bankruptcy Court in 2018. Soon after, the SEC filed civil fraud charges against 1 Global Capital and former CEO Carl Ruderman, alleging they fraudulently raised $322 million from investors.

In August, former 1 Global Capital CFO Alan G. Heide pleaded guilty to criminal fraud charges for authorizing false financial documents for company. He will be sentenced Dec. 12.

In the latest development, Atlas was charged with securities fraud in federal court in Miami on Tuesday. As outside counsel for 1 Global Capital, Atlas authored a legal opinion he allegedly knew was false: that the company’s investment products were not a securities offering as regulated by the SEC, according to court documents.

“Jan is a good man who had a wonderful, successful career. But like all of us, he wasn’t perfect,” said Anita Margot Moss, his attorney in the criminal case. “He has quickly accepted responsibility for his actions in this case and shown genuine remorse. He will do everything he can to make this right.”

Atlas and his attorney, Anita Margot Moss, couldn’t be reached for comment.

Prosecutors said Atlas was paid $627,000 for his services to 1 Global. They asked that any funds Atlas received from fraudulent activity be forfeited, court documents said.

If found guilty, Atlas could face up to five years in prison.

According to the SEC lawsuit, 1 Global overstated the value of investors’ accounts and their rate of returns, and misappropriated at least $32 million to personally benefit Ruderman. Because the company allegedly relied on Atlas’ false opinion letters when attracting investors, the SEC charged Atlas with aiding and abetting securities law violations. He could face civil penalties.

“Atlas disregarded his position as a gatekeeper and instead issued opinion letters containing false information, enabling 1 Global to continue its illegal offer and sale of notes to retail investors,” said Eric I. Bustillo, director of the SEC’s Miami office. “We allege that Atlas was able to profit handsomely for his role, wrongly receiving hundreds of thousands of dollars of investor money.”

To settle the SEC lawsuit, Ruderman agreed to disgorge $32 million in ill-gotten gains, pay a $15 million civil penalty, turn over $750,000 in cash and give the SEC a 50% interest in his condominium. He was also barred from working in the securities industry.

Cassel Salpeter Chairman James Cassel, who was appointed director of 1 Global’s estate in bankruptcy court, said about $100 million will be recovered to repay investors and settle lawsuits. Investors will receive about 30 cents on the dollar, he said. Any money the SEC recovers from Ruderman as part of its settlement with him would be paid to investors on top of that amount, Cassel added.

Going forward, 1 Global will pursue more litigation claims and continue to collect on its loans from businesses, said Greenberg Traurig attorney Paul Kreen, who represents the debtor.

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Investors in Securities Fraud Scheme to Get Millions Back

September 17, 2019
By David Lyons & Marcia Heroux Pounds

More than 3,600 investors who lost savings to an alleged securities fraud involving a South Florida cash-advance company stand to recover $100 million from a bankruptcy court liquidation, lawyers said Tuesday.

In a related development, federal authorities in civil and criminal actions announced they charged a Fort Lauderdale lawyer and former outside counsel for 1 Global Capital with aiding a securities fraud scheme that the government alleges defrauded investors in 42 states out of $332 million.

1 Global Capital promised investors a profit from loans it made to small and midsize companies. But much of the money went to CEO Carl Ruderman’s personal spending and his consumer-loan companies, the Securities and Exchange Commission alleged in a civil complaint filed last year. The commission alleged Ruderman misappropriated $35 million on spending that included a vacation to Greece, a Mercedes-Benz and a personal chef.

Headquartered in Hallandale Beach, 1 Global Capital operated from early 2014 until July 27, 2018, when it filed for bankruptcy. As of that time, Global had raised more than $330 million. Internal documents showed a $50 million cash deficit, the SEC alleged. A federal judge granted an SEC request for an asset freeze against Ruderman, 1 Global Capital and several affiliated companies.

“The SEC’s investigation effectively stopped 1 Global’s offering and prevented further harm to investors and retirement funds,” Eric Bustillo, head of the SEC’s regional office in Miami, said at the time.

At a hearing Tuesday, U.S. Bankruptcy Judge Raymond B. Ray in Fort Lauderdale approved a plan that would return a sizable portion of the millions raised by 1 Global Capital.

“Everybody worked together to be able to return as much money as possible to these individuals who had their net worth put into this,” said James Cassel of the Miami investment banking firm Cassel Salpeter, independent manager of 1 Global during its bankruptcy. “It was a sad scenario. We made a lot of progress and collected a lot of money.”

Paul Keenan, a Greenberg Traurig attorney who represents the company in the bankruptcy, said the plan had widespread support. “Everyone is supporting the plan,” he said. That includes investors and the SEC.

Out of the 3,600 people affected, 2,425 investors returned ballots approving the repayment plan, Keenan said. He predicted cash distributions wold take place in early November.

Criminal, civil charges against lawyer

Jan Douglas Atlas, 74, of Fort Lauderdale, is accused in a criminal information of one count of securities fraud, according to a news release from the U.S. Attorney’s Office. He faces a potential maximum statutory sentence of up to five years in prison and a fine of up to $10,000.

Atlas, a long-time South Florida securities lawyer, wrote two opinion letters in 2016 that allegedly contained false information describing how 1 Global Capital investment actually worked and the duration of the investment, which omitted information about its automatic renewal, the U.S. Attorney’s Office said.

In a statement, Miami attorney Margot Moss, who represents Atlas in the criminal case, said her client “is a good man who had a wonderful, successful career.”

“But like all of us, he wasn’t perfect,” Moss said in a statement. “He has quickly accepted responsibility for his actions in his case and shown genuine remorse. He will do everything he can to make this right.”

Atlas also faces a parallel civil action filed by the SEC, which charged him Tuesday with aiding and abetting through the issuance of fraudulent opinion letters. The commission’s complaint alleges 1 Global used the letters to falsely represent to a network of external sales agents that its notes were not securities and that its offering did not have to be registered with the SEC.

Altas, the SEC alleges, received more than $600,000, a figure which represented a percentage of the commissions generated from the sale of 1 Global notes. “Atlas disregarded his position as a gatekeeper and instead issued opinion letters containing false information,” said Bustillo, the SEC regional director.

The charges against Atlas come less than a month after 1 Global Capital’s chief financial officer, Alan Heide, entered a guilty plea to one count of conspiracy to commit securities fraud.

The SEC previously charged 1 Global and Ruderman, the CEO, with fraud, and charged Henry J. “Trae Wieniewitz, III, an external sales agent, for his allegedly unlawful sales of 1 Global securities.

In a statement last month, the commission said Ruderman consented to a final court judgment in which he was permanently barred from violating federal securities laws, and held liable for turning over nearly $32 million in “ill-gotten gains” and paying a $15 million civil penalty. Ruderman also agreed to turn over $750,000 in cash and 50 percent equity in a multi-million dollar condominium.

The commission also said it settled with Wieniewitz in July. According to the same statement, he agreed to a final court judgment holding him and his former company jointly liable for turning over $3.5 million and paying a $150,000 civil penalty.

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4 Ways To Prepare Your Cash Flow for Changing Business Cycles

By Mark Henricks

Having a healthy cash flow is a part of having a healthy business. Here are a few ways you can stay on top of your cash flow to ensure smooth transitions between business cycles.

Healthy cash flow is always critical, but it assumes even more importance when the economy is in flux.

After a decade of steady economic expansion, the possibility of a downturn should be considered in your business’ cash-flow plans, says James Cassel, co- founder and CEO of Miami investment banking firm Cassel Salpeter.

Questions about how long the expansion will continue, uncertainty as national elections loom and the effects of tariff wars are all affecting business owners’ moods, says Sonya Smith-Valentine, owner of financial consulting and training firm Financially Fierce in National Harbor, Maryland.

“I’ve noticed there’s a lot of unease, in general,” Smith-Valentine says.

“Everybody’s wondering what’s going to happen after the election. It’s making people hesitant.”

Not only should business owners start planning for a shift in the economic winds, they should start now, says Andy Cagnetta, CEO of Transworld Business Advisors, a Fort Lauderdale-based business broker.

“The speed at which things happen these days is much faster than it used to be,” he explains.

With that in mind, here are four ways to manage your business cash flow through the ups and downs.

  1. Watch your customers

From her experience riding out the last recession as head of a small law firm, Smith-Valentine suggests business owners worried about future business cycle shifts focus closely on their customers. As the 2008-2009 downturn built, she had to switch from mainly representing consumers suing credit bureaus to defending individuals against lawsuits filed by lenders.

“Luckily I saw the change coming,” she says.

By being sensitive to trends in her practice, she was able to switch emphasis to the part that was growing. And that let her maintain and even grow cash flow despite the downturn.

  1. Reduce your business

In addition to seeking new markets, Smith-Valentine worked to cut costs. She used an automated phone system instead of a human receptionist, reduced office supply orders and combed her spending for inefficiencies.

Having good timely data is crucial. One mistake we see is businesses letting that slip so they’re getting information 60 to 90 days old. That’s too late.

James Cassel, co-founder and CEO, Cassel Salpeter

“I was paying for access to two different programs when I only needed one,” she says. “I got rid of one of them.”

  1. Refine credit terms

Customer credit is another area cash flow managers examine to prepare for economic uncertainty.

Cassel stresses the importance of watching customers’ performance carefully, and taking action swiftly if a fast payer starts paying late. However, he says that rather than cutting off customers and driving them to rivals, it may be wiser to help customers through a rough patch so they remain with you.

  1. Keep cash and credit

It’s also important to maintain healthy cash reserves and, while business is good, consider obtaining a business credit card or expanding an existing credit line. It’s obviously easier to get credit approval when cash flow is strong than when a business is struggling to pay its bills.

Cagnetta’s firm maintains its line of credit even when cash flow and reserves are ample.

“We don’t have any money against it right now,” Cagnetta says. “But we keep it for a couple of reasons: To be strategic if we decide to buy something and in case of a rainy day so we have reserves.”

Other Cash-Flow Concerns

As Cagnetta noted, opportunity can arise in any economic environment. If a competitor struggles, it may offer the chance to acquire a rival at a bargain price. When competitors go under, surviving firms may be able to hire sought- after talent without buying the whole company, Cassel adds.

And in addition to scrutinizing receivables for slow payers, pre-recession may be an ideal time to encourage faster turnaround on invoices from healthy customers. Cassel suggests companies consider offering a discount for paying in 30 days instead of 60 days or otherwise accelerating payment.

“You have to be careful,” he says. “Some customers may get the discount and then slip back and still want the discount. So you have to stay on top of collections.”

Being careful is a central theme of how to manage cash flow during uncertain economic times. Growing too fast or taking on too much debt before a recession can hamstring a business. But being overly conservative and reining in growth when competitors are exploiting a continuing expansion can push a business to the back of the pack.

“It’s a balancing act,” Cassel says. “But you cannot bury your head in the sand like nothing’s going on.”

All told, information may be the most valuable commodity when preparing for a shift in economic fortunes. Even more than cash or credit, what distinguishes winners from also-rans when business cycles evolve could be having the data that will identify trends and suggest the optimal course of action, Cassel says.

“Having good timely data is crucial,” Cassel stresses. “One mistake we see is businesses letting that slip so they’re getting information 60 to 90 days old. That’s too late. You need to be managing your business daily, weekly and monthly, not quarterly.”

Read more articles on managing money.

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WeWork’s Options for Raising Cash Are Narrowing Fast Ahead of Its IPO

September 11, 2019
By Erik Sherman

What if they threw an IPO and nobody came?

In a week marked by “will they are won’t they” speculation about an upcoming IPO, and leaks that the We Company is considering slashing its once $47 billion valuation to some $20 billion—or maybe less—questions surround the high flying company’s future prospects.

But what might be the more pressing issue is how the company plans to solve its ravenous cash flow needs—now.

WeWork needs cash

The need for an IPO or some alternative all comes down to WeWork’s need for cash. Money has been flying out the door. In the company’s amended S-1 filing with the Securities and Exchange Commission, We saw in the first six months of 2018 a loss from operations of $678 million on $774 million in revenue. By the same period in 2019, it was a $1.4 billion operations loss on $1.5 billion in revenue.

In theory, WeWork could make money, according to Barry Oxford, who covers real estate for D.A. Davidson. “WeWork’s office space in and of itself is cash flow positive,” he said, comparing the revenue and operating expenses of the spaces. Oxford does worry about how well the business model would work in a recession. “Can WeWork get to cash flow positive and have enough of these spaces up online and stabilized before a recession or does the recession hit them before they’re stabilized, causing a lot of disruption to their business model,” he said.

The company has aggressively tried to build out its presence and secure more regular revenue, gobbling up cash in the process.

“This company right now probably needs to raise money to be around in five years … based on what they disclosed in their registration statement,” said James Cassel, chairman and co-founder of investment bank Cassel Salpeter & Co. “Their business model is to lock into these 10-, 15-, 20-year [building] leases.” Doing so allows the company to spread expenses for building out its co-working spaces over time, making the expense manageable. But the constant expansion means a need for ready cash.

We’s cash flow isn’t enough to keep things going. In the first six months of 2019, the company showed a net positive cash flow increase of $844.7 million, but only because it received $3.4 billion in cash from financing. Without the infusion, the company would have seen a decrease of more than $2.5 billion.

As of June 30, 2019, We had cash and cash equivalents of just under $2.5 billion. In other words, without an infusion from financing of that size, We would have been out of money and, potentially, out of business.

We is spending so much on marketing, overhead, and capital expenses for new locations, it doesn’t have enough operating profits to cover the bills. To keep on its current course, the company absolutely needs enough extra money to see it through the next few years until—hopefully—business dynamics turn around in its favor.

How much is WeWork worth?

An IPO was an obvious choice, especially at the $47 billion valuation the company sought. Additionally the company had lined up a $6 billion credit line from a group of banks, contingent on a successful IPO, Bloomberg reported.

But WeWork’s image has taken a beating with guaranteed control and sweetheart deals for CEO Adam Neumann. Many investors and market watchers pored over the S-1 and balked.

There were reported talks of at least two valuation downgrades in an attempt to make the deal more palatable, possibly bringing the IPO down to as little as a third of its original size. However, major investor SoftBank Group would have had to take a $4 billion write down and a $5 billion loss on its Vision Fund investment vehicle, according to Bloomberg. That would be particularly problematic as SoftBank is trying to raise money for a second fund.

“The fact that [We is] even considering going out with a valuation of a third of the last round suggests that the additional infusion is important to them,” said Chester Spatt, a professor of finance at Carnegie Mellon University. “These losses are clearly putting pressure on them to find some sort of funding solution.”

WeWork’s Strategy

The circumstances raise the question of what else We can do to bring in the money it needs. One approach could be to change the business model and stop the current drive for growth. “Then they have the ability to [plan] and see what they need to do to be able to get their existing operations cash flow profitable,” Cassel said. But Neumann doesn’t seem likely to scale back.

Another possibility is going to debt markets to sell bonds, which may be harder than it sounds. Data from Bloomberg shows that a bond that WeWork had issued in 2018 with a date of 2025 had been trading a few percent above its face value since the company released its IPO filing. News of the potential IPO postponement caused the value to drop below face value by 2.5% before returning to face value at the end of Tuesday trading. As of midday Wednesday, the bond was down an additional 3.4%

“It means they won’t be able to borrow money [easily or cheaply] as a private company,” said Barrett Cohn, CEO of private market investment bank Scenic Advisement.

Or there could be a rescue, possibly by SoftBank, either through financing for a bridge period so the company could stay afloat or an outright takeover. That would take billions and would seem unlikely to appeal to SoftBank, which would rather start its new fund than prop up the existing one.

The other options don’t look good. Or, as Cohn said, “They need to IPO.” Whether investors will show up is another matter entirely.

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5 things you should never cut corners on when growing a successful business

By James S. Cassel

When Wendy’s founder Dave Thomas was asked why his company’s burgers were square, he replied, “Because we never cut corners.” Thomas’ grandmother Minnie reportedly instilled this value in him, and his reply is a reminder that with some aspects of your business, you can’t afford to cut corners. Reducing effective marketing, customer service, employee benefits, and cybersecurity, or not nurturing your company’s core DNA, will cost you.

A study by marketing service OutboundEngine found that a staggering 50 percent of business owners admit to not having a marketing plan. It reports 55 percent of owners of small and medium-sized businesses (SMBs) spend less than 5 percent of annual revenue on marketing, and over 58 percent of SMB owners spent just five hours a week or less on marketing.

If the study is accurate, these companies are heading down a slippery slope. Keeping your company top-of-mind is fundamental to success and growth. Resources spent on strategic marketing is money you should get back with a healthy return.

Too often when times get tough, owners make ill-advised cuts to marketing/PR/ad budgets because they don’t understand the importance of these fundamental tools for stabilizing or growing a company. A business’ future viability requires not just cost controls, but revenue enhancement. Ill- advised slashing, or not putting in the time, effort or resources to successfully market your company will slowly deplete your business.

Remember not to under- or overspend, but work with your team to get your message out effectively.

Now, take a moment to consider the last time you reached out to a company and think about that customer service experience. Was it easy to find someone to handle your problem? Did the company resolve the matter quickly? If you’re a smart consumer and the answer was “no,” you likely moved on to another company to get that product/service.

Companies like Amazon and Lexus consistently rank as top customer service providers. Look to their efficiencies and strategies as a road map to your company’s customer service success. This is your front line of defense against bad-word-of-mouth and negative reviews online. Whether you’re building a culture of customer service, choosing the right vendor to handle inbound calls, or selecting digital customer service providers, in today’s era, with a negative review just a few clicks away, customer service is more important than ever.

Another area to support is your team, maybe your most important asset. If you hope to recruit and retain the top talent, potential and current employees need to know you’re willing to invest in them. Everything from company retreats, education, vacation time, and other benefits, matter.

Securing employee buy-in is directly correlated to how much you value your team, and how you treat your employees may ultimately affect how they deal with your clients and customers. If you have underappreciated employees, you’ll be faced with costly turnovers, problematic recruiting, or discover your employees are unwilling to deliver the level of service essential to your success. Little things matter when it comes to building esprit de corps. Don’t skimp here.

Underneath everything your company does, there should be a recognizable identity. Remember your mission and never forget your principles. You must know what your core DNA is, then you need to build and nurture that. And, if your company is growing, but its identity is being diluted, you have a problem. It’s time to regroup to ensure that the one good thing you are known for, is the one thing that never changes.

Finally, highly publicized trade secrets thefts and the Equifax and Capital One data breaches show there are malicious actors out there looking to target you next. Skimping on adequate cybersecurity measures to safeguard your customer data, trade secrets and intellectual property will end up costing you customers, while saddling your outfit with financial liability and huge image problems. All this can mean the death of your business.

Every company owner is faced with the task that only ends when the business ends: Ensuring that your operation is lean and efficient. But as you’re trimming costs, remember not to be pennywise and pound-foolish. There are certain things your business just can’t afford to do without.

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co.

Is It Too Late to Change Your Business Structure?

By Kiely Kuligowski

Your business structure is the cornerstone of your company. It is likely one of the first things you decided on when you created your business and, since then, has guided many of your business decisions.

  • It is possible to change your business structure at any point.
  • A change in structure requires careful consideration, planning and
    consultation from professionals and colleagues.
  • Make sure you are aware of all the ramifications of switching and not switching before finalizing your decision.

Your business structure (LLC, S-Corp, C-Corp, etc.) determines the level of control you have over your company, the taxes you pay and how your business operates day-to-day. When you are in the early stages of launching your business, choosing a business structure can feel like a permanent decision, considering everything it determines. However, just like life, things change. Industries grow and shrink, perhaps you want to minimize your tax liabilities, or you may even want to reduce your exposure to potential liability. It is possible to change your business structure to better suit your changing business needs.

Types of business structures

To change your business structure, you must first know what type of business you are changing to. There are four main business structure options:

  • Sole proprietorship
  • Partnership
  • Limited liability company (LLC)
  • Corporation

Many small companies start as a sole proprietorship, which is the simplest and most common way to start a business, according to the U.S. Small Business Association. A sole proprietorship is an unincorporated business owned and run by one individual who is entitled to all profits and responsible for all business debts, losses, and liabilities.

Another structure is a partnership, which can be as simple or as complex as the business owners make it. You may have an oral “handshake deal” or a written partnership agreement that outlines the basis for the partnership, business expectations, liabilities, etc. A business partnership can have two or more business partners; however, more partners can mean more complications in making business decisions.

A Limited Liability Company (LLC) allows you to take advantage of the benefits of both a corporation and a partnership. LLCs offer greater protection from personal liability in most cases by sheltering your personal assets, such as your vehicle, house, or savings accounts, if your LLC runs into bankruptcy or lawsuits. Profits and losses flow through to your personal income without facing corporate taxes, though, but LLC members are considered self- employed and must pay self-employment taxes.

A corporation is a company or group of people that are authorized to act and legally recognized as a single entity that is separate from its owners. Corporations come in two types: C-Corps and S-Corps. C corporations are subject to double taxation, where the company is taxed before and after the distribution of dividends. S corporations are the most common corporate structure for small businesses largely due to the exemption from double taxation. Corporations also offer the largest degree of protection from personal liability but are costly to form and require extensive record-keeping.

When to change your business structure

“It is 100% possible and [often] a good idea for some business owners to change the business structure,” said Matthew Meehan, CEO of Shield Advisory Group. But be sure that you are doing so for the right reasons.

A common motivation for changing business structure is taxes, whether that’s saving or simplifying tax filing, or to increase your legal protections as a business owner. Many businesses also change their structure when undergoing significant changes, like hiring, or seeking outside investment or financing.

“More often than not, a business will decide to change its structure because the needs of the business are changing and you are beginning to outgrow your existing structure,” said Deborah Sweeney, CEO of MyCorporation and community member. [Are you writing a business plan? You may find business plan software helpful. Check out our reviews and best picks.]

Consider a change when you see clear evidence of opportunities that you cannot capitalize on due to your current structure, said Martin Calvert, marketing director at GreyClaw Marketing. “Changing the structure of a business can be highly effective, but there will be inevitable disruption, so knowing why this change is required is key,” he added.

Another reason for a change in structure, particularly for sole proprietors, is greater business credibility. Many customers will take a business more seriously if it has a strong, flexible legal structure.

If you are questioning if a change is necessary, sit down and review your reasons for wanting the change, how it benefits the company, potential drawbacks to making the change, and what is required of you (and the business) to make it happen.

Consult a professional during this process – most experts agree it is not something that should be done on your own.

“When changing your company structure, you must talk to your tax advisors, because you want to avoid unnecessarily triggering a tax event,” said James Cassel, chairman and co-founder of Cassel Salpeter & Co. “You have to talk to both your tax lawyers and your accountants so you fully understand what the ramifications of the change might be.”

How to change your business structure

The first thing you should do is check with your secretary of state and a tax advisor about regulations regarding businesses to see what steps and paperwork is required. Make sure that that you know what new licenses, insurance or registration the new structure will need, if any. Your tax advisors can guide you through this process.

Then inform all of your employees – if any – what the change will be, how it will be implemented, and what the short- and long-term effects will be.

Charles Floate, founder and CEO of DFY Links, advised that any structural changes be implemented slowly.

“The change should be staggered,” he said. “Otherwise, flipping the business structure upside down in one fell swoop can make things twice as bad.” Floate encouraged making the most important changes first and allowing them to settle before moving on to secondary changes to ensure a smooth transition for everyone. [See related article: How to Change Your Business Structure]

What not to do

There are many things to be aware of when changing your business structure. And because it is your own business, you have a strong personal stake in ensuring that you steer clear of legal and/or financial trouble. As such, do not change your business structure on your own. Consult experts outside of your company, as well as partners and/or employees.

“A structural change to a company should never be done a whim,” said Calvert. “Or due to ego or the personal opinion of one individual, even if that individual is the CEO.”

By consulting numerous individuals both within and outside of your company, added Calvert, you are more likely to understand the implications of inaction and the outcomes you realistically hope to achieve by changing your structure.

Cassel said that the most common mistake he sees with businesses altering their structure is choosing the wrong type of entity for tax purposes.

“You [also] have to be very careful when you are restructuring for tax purposes. Sometimes if you change the entity but later want to change it back, you may encounter limiting factors and even potential penalties,” he said.

Be confident in your change and why you are making it, and have evidence that it will push the company forward.

Here are key business issues that presidential candidates must address

By James S. Cassel

With the 2020 election fast approaching, presidential hopefuls set on wooing business owners need to devise a courtship strategy based on more than platitudes. Given that many entrepreneurs are supportive of various Trump economic policies, and according to some polls, from a financial standpoint, feel he has their “best interests at heart,” candidates must address foundational issues — including taxes, regulation, labor, tariffs, the environment, healthcare, and income inequality — while remembering that this is still a capitalist democracy, not a socialist country.

First, although many business owners cheered President Donald Trump’s tax reform, there remains a sense that middle-market businesses benefited little, while big business and the wealthy were its main beneficiaries.

Candidates should define their plan for equitable taxes and which temporary breaks they would make permanent. It’s also important to remember the economic effect of both tax increases and tax breaks on the deficit, which recently hit a record $22 trillion and is still growing. This also needs to be balanced against social needs.

Regulation is another important issue. Under this administration, deregulation is driven by the requirement to eliminate two regulations for every new one added.

Business owners are generally supportive of deregulation as it can substantially impact their bottom line. Candidates should reassure business owners that under their leadership, government would be responsive, reasonable, and committed to eliminating red tape, while keeping in mind that many regulations are in the public’s best interest and end up saving money in the long term. For example, many states and companies do not want a rollback of auto emission standards due to the negative effects on climate, and ultimately, the economy.

Another key issue involves labor. Trump’s anti-immigration policies worry many business sectors, including agriculture, construction, and restaurant and hospitality, which rely on this labor.

Candidates should adopt level-headed approaches to this sensitive issue, neither avoiding it, nor demonizing immigrants — who are part of the ever- changing tapestry of this country and grow our economy. Without immigration, we would not have the same GDP growth.

Also, burdensome tariffs (ultimately a tax paid by consumers); a current, if fragile, truce in the U.S.-China trade war; and the looming threat of more tariffs, are part of the new reality for entrepreneurs, manufacturers, and farmers. Given how tariffs affect the supply chain, impacting the U.S. and global economies, candidates must develop a clearly articulated policy aimed at defusing tensions with China and other nations, while not ignoring trade problems and the transfer/theft of intellectual property.

Another issue, the environment, is a sore spot for green-minded business owners who decry Trump’s environmental record — including pulling out of the Paris Climate Accord and undermining the Clean Power Plan.

The environment has economic and global repercussions: It impacts insurance rates for businesses, can shut down supply chains, increases food costs, drives mass migration, and is not a matter that can be kicked down the road anymore. With the environment, a stalemate that continues to stagnate results in disaster for generations to come.

A sixth area is healthcare. While the administration has made clear its intention to repeal Obamacare, its proposed solution remains elusive, and we have yet to see what the courts will do. Uncertainty is a death knell for business owners.

Finally, presidential hopefuls should consider that increasing income for lower earners translates into more buying power and a stimulated economy. The current federal minimum wage is $7.25. Despite Trump’s campaign promises, it has not been increased in 10 years, although many companies have raised wages out of necessity to secure employees.

It is not sustainable to have to provide taxpayer-funded assistance in the form of food stamps and other benefits to those who are working 40-hour weeks, but still can’t make ends meet.

Thoughtfully fleshing out issues that matter to business owners will enable presidential hopefuls to stand out and gain support. These are tough issues, but they cannot be ignored by either the administration or candidates. In the political arena, where blustering, posturing, and unbridled contention are the modus operandi, a moderate, cool and balanced voice of reason could be an irresistible magnet around which America rallies.

James S. Cassel is a monthly contributor to Business Monday of the Miami Herald who writes about issues affecting the middle market; the views expressed are his and not necessarily those of the newspaper. Cassel is co- founder and chairman of Cassel Salpeter & Co., an investment-banking firm based in Miami.

How Might Rising Gas Prices Affect Your Business?

Elevated fuel costs are affecting everything from manufacturing to employee commutes. Learn how these business owners are offsetting rising gas prices.

By Julie Bawden-Davis

With rising gas prices currently sweeping across much of the U.S., there’s a good chance that your company will experience the effects in one way or another. Rising gas prices have a trickle-down effect on the price of many goods and services in a wide variety of industries.

“When fuel costs rise, producers tend to increase their sale prices,” says Brian McHugh, owner of McHugh Construction. He and his crew use half-ton or larger trucks that burn a significant amount of fuel.

“Our margins are better than businesses like retail, so we don’t currently have to raise our prices. If the increase gets dramatic enough, we would consider wrapping those expenses into the final sale price,” says McHugh. “In order to stay profitable, businesses with lower margins and price points are finding it necessary to increase prices or establish better purchasing terms.”

Effect of Rising Gas Prices

Michael Black is president of Goliath Trucking, a long-haul trucking company. Rising gas prices have had a profound effect on his business.

“Since our company is a direct consumer of high volumes of fuel, rising gas prices have caused a need for increased operating capital,” says Black. “The additional cash required to operate adds up quickly.”

It’s hard for businesses to escape the effects of rising gas prices, adds James Cassel, chairman and co-founder of investment banking firm Cassel Salpeter & Co.

“If your company produces or uses petroleum-based products, such as plastic, costs will increase,” Cassel says. “Freight costs will also rise as many carriers add a fuel surcharge.”

Rising gas prices also make it more difficult for employees to commute to work, believes Robert Sadow, co-founder and CEO of Scoop. (The company works with businesses to create managed carpool programs.)

“Your employees have the onus of finding alternative, more affordable methods of transportation,” Sadow says.

Kamil Faizi, owner of Challenge Coins 4 U, which creates custom military challenge coins, agrees.

“Commuting eats into employee paychecks, which can affect your company’s bottom line,” says Faizi. “You may need to pay employees more to offset rising fuel costs.”

Rising Gas Prices Lead to Increased Operational Costs

As fuel prices increase, it’s likely your business will have to absorb the added costs.

“Many companies will need to compensate for rising fuel costs by raising prices, especially if the increased gas prices continue,” says Hanna.

Increasing costs to the consumer will be necessary for Black.

“The margins in the trucking industry are too tight and competitive to take on the added fuel cost,” he says. “Increases must be passed along on the freight bill, which ultimately leads to the consumer paying more for products.”

To minimize the cost of rising gas prices, here are several countermeasures you may want to use at your company.

Adopt a work-from-home program.

At Challenge Coins 4 U, rather than spend more on employee compensation to offset rising gas prices, the company implemented a work-from-home program two days a week.

“As a way of handling rising gas prices and employee commutes, we allow employees to complete their work at home,” says Faizi. “As long as their work is being completed in a timely manner, there is no problem. I have found this to be an effective strategy that has never let me down.”

Start a managed carpool program.

“Managed carpool programs help consumers save on gas costs and offer the added benefit of improving employee-to-employee relationships and limiting employee attrition,” says Sadow of Scoop. “For instance, carpools can introduce people who ordinarily might not interact at work, which creates an increased sense of community in the office.”

Sadow suggests implementing an employee carpool system to offset rising gas prices sooner than later.

“Get something going as soon as possible so that the program can grow and scale,” he says. “It’s much better to add people to an existing program than to build one from scratch when you have hundreds of employees.”

If you don’t have many employees interested in carpooling, Sadow suggests pairing up with companies in your area.

“If a handful of companies get together and implement a solution across their organizations versus simply their own, they’ll better use existing resources and won’t compete for parking,” he says.

Examine fuel efficiency.

If your business involves transportation, you can help minimize the effects of rising gas prices by taking a close look at the various elements that affect fuel efficiency.

For instance, consider streamlining routing and dispatch. The shorter the routes and better informed the drivers, the less fuel your company vehicles will use. Dispatchers that track traffic in real-time can reroute drivers for better fuel efficiency.

“Ensure that the route is planned in the most efficient way possible and that the trucks are packed full for shipping,” says David Lecko, CEO of DealMachine, an app for real estate investors interested in off-market properties. His company uses drivers who report potential properties.

Other factors that affect fuel efficiency include vehicle speed, how often and for how long a vehicle idles and how well-maintained the vehicle is. Regular maintenance can improve fuel efficiency.

Plan ahead.

“Proactively manage the risk of rising gas prices by taking into consideration the effect of price changes during the budgeting process,” says Hanna. “When developing budgets, complete sensitivity analyses to identify how changes in key inputs or outputs impact the bottom line.

“Use these analyses to develop action plans,” continues Hanna. “By proactively developing a plan, business owners will be better equipped to manage fuel increases and other changes that might impact their bottom lines.”

It’s also possible to offset rising prices by increasing the purchase of products or raw materials now that are used by your company, believes Cassel.

“Try to hedge or buy futures, if available,” he says.

How to protect your company from the trade wars whack-a-mole game

By James S. Cassel

Are the trade wars a game of whack-a-mole? It certainly seems like it. You knock one down and another unpredictably pops up. What’s next? The EU? Japan? Australia?

It’s anyone’s guess, but just because farmers were partially bailed out of a multibillion-dollar problem caused by the current trade war with China, doesn’t mean you or your business will be so lucky.

The time has come to evaluate how your company will be affected by the escalation of disputes with two of our biggest trading partners, China and possibly Mexico. As it pertains to Mexico, we have a reprieve for now, but in the game of whack-a-mole you never know what’s going to pop up next.

So, here’s what you should be doing to ride out the disputes:

First, take a hard look at your business to determine where you are exposed. Ask yourself tough questions. Will these trade wars affect your supply chain or customer base? Do your company’s products use technology developed by Chinese companies, and if so, can that technology be used against your company to steal trade secrets or surveil your customers? Do you own or control a factory in China or Mexico and what will these trade disputes mean for those operations?

If you’re selling to China or other countries, this is a good time to determine if tariffs will mean your prices will increase to the point that you are no longer competitive. Will increasing prices affect your volume and margins?
You should monitor the changes to learn what your company can endure and what it can’t.

You must drill down and evaluate what issues might arise for your business. If you depend on Chinese business partners, or even employees, it’s time to reconsider how dependent you are on them, and whether there are any viable alternatives in the short term, and maybe even for the long term. If you are primarily doing business with Mexican partners and a tariff is instated, alternatives may prove scarce.

Another issue to consider is one that so many U.S. companies already know. The price of doing business in China will many times mean giving up or compromising your intellectual property. So, in deciding if and how to cut ties with China, you must be careful to ensure you are not creating your own competitor in the process by figuring out how best to protect your intellectual property.

Mexico presents a different challenge. Its proximity to the U.S. and lower labor costs will be hard to replicate elsewhere. It might only be possible to move manufacturing back to the U.S. and suffer increased costs and capacity issues in the short term. Though some of those expenses may be partially offset by lower shipping costs.

If you do have a factory in China, now may be the time to consider moving it to Vietnam or another part of the region. You will have to calculate the viability of moving that factory, as well as the time it will take to move your operation. You may even wish to take it a step further and consider that now might be the right time to replace your workforce altogether by investing in robotics to streamline operations and reduce the number of employees.

You may also want to renegotiate existing relationships to lower costs, modify your business model by increasing your prices, or get suppliers to absorb the added costs that come with tariff increases. Do some research to find out if there are any suitable substitute suppliers. Try and find businesses that offer similar costs and capabilities that you can work with.

Some say the trade wars will go on until the next election; some predict it will last even longer. Whatever the outcome, your work begins now. Those who get caught in the crossfire later may find themselves with surprise competitors built on stolen intellectual property, sagging sales or increased costs that will simply price you out of competition.

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies.

When It’s Time to Fire a Customer

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.”