Archive for category: In the News

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The size of your business, the purpose of the loan and how you operate your firm play a big part in the type of loan that’s available and right for you.

By: James Cassel

MIAMI, Florida, May 21, 2012 – Thinking about taking your business to the next level, or simply sustaining it through challenging times? You’ll need effective management, stamina and, most importantly, money. However, accessing funds for growth capital, cash-flow shortages, an acquisition, or because your lender cut you off can be a complex and daunting challenge. Let’s ignore equity for now. Loans have different risks and costs, and the size of your business, the purpose of the loan and how you operate your company play a big part in the type of loan that’s available and right for you.

Many owners “bootstrap” their businesses — looking to personal savings, credit cards and their regular income as a source of capital. But, when those options are exhausted, where can an entrepreneur turn for cash? Getting to know your options is a good first step. If you’re seeking to borrow in excess of $5 million, you can turn to an investment banker who can identify sources of capital and evaluate terms of a deal. Regardless, every business is different, and all business loans are not created equal. Remember, with money comes strings.

Friends and family: If you’ve thought about friends and family as a source of financing, you’re not alone. However, don’t assume these loans are “free.” Even when working with friends and family, the deal should be an arm’s-length transaction (although this is not always the case). Therefore, the interest rate, loan-to-value, and terms must reflect — or nearly reflect — market rates, no matter what the relationship between lender and borrower.

Pros: Since these loans are based on relationships, not necessarily credit worthiness, they can be good for business owners with less-than-perfect credit or collateral. In addition, if you are running short on time, you can often get a loan more quickly than from banks or other financial institutions. You might also be able to get lower interest rates and less-restrictive terms, even in the context of an arm’s-length transaction.

Cons: Every loan carries risk, and if your ability to pay back the loan changes, then your relationship with the friend or family member could be jeopardized. Plus, when you borrow from friends and family, there are often strings attached, including unsolicited business advice, feelings of entitlement and expectations of continued involvement after the loan is paid off.

Cash-flow loans: As the name implies, cash-flow loans are generally unsecured loans, whereby the lender looks to anticipated cash flow to repay the loan and requires certain financial and nonfinancial covenants be met. With this type of loan, you take advantage of the reliability and regularity of your company’s revenue stream. Traditional commercial banks and certain finance companies frequently make these loans. For smaller businesses, the lenders will generally require personal guarantees.

Pros: Cash-flow loans can be useful to fund an acquisition because you can use the cash flow of the company you are acquiring (in addition to your own) to repay the loan. If you have a stable credit history, as well as predictable and growing cash flow, cash-flow loans provide a fairly flexible source of funding.

Cons: Small and mid-sized companies with fewer customers, smaller contracts and less-reliable income may have more difficulty obtaining these types of loans. Similarly, companies with shorter operating histories may not be able to demonstrate the necessary consistency of cash flow to secure a loan.

Asset-based loans: Both small and large businesses can consider asset-based loans, which are based on the value of hard assets, receivables and inventory for determining borrowing limits. The amount of money available to borrow is generally based on a formula.

Pros: Asset-based lending is flexible, since you can use accounts receivable and inventory as collateral. If your company has less-than-perfect credit, asset-based lending could be for you — especially if you find a lender who specializes in your industry. You may also be able to access capital more rapidly than through a loan based on operating income and other financial measures.

Cons: One of the drawbacks to an asset-based loan is the formula. One example: If you are only allowed to borrow on accounts receivable less than 90 days old. If you are not paid by then, you will need to pay back that portion of the loan anyway. In addition, if the assets reduce in value, you may owe more than those assets are worth. Plus, lenders discount assets when determining how much they will loan your business. For example, a lender may not loan anything against foreign receivables, 50 percent of the value for work in progress and perhaps 80 percent of the value of U.S. receivables.

Factoring: Factoring, or selling your accounts receivable for cash, provides your business with working capital. However, the value of your receivables will be greatly affected by your customers’ payment history. If you have had a hard time collecting from customers, the factoring company will likely have a difficult time as well. Accordingly, the amount of money you can expect — and the cost of that money — will be reflected by this. Factoring can be with or without recourse. There may also be certain holdbacks on the purchase price.

Pros: Instead of waiting for clients to remit payment, you’ll have faster access to money owed to your business. Also, since factoring focuses on your customers’ credit worthiness and not yours, you can access capital without the lender scrutinizing your business’ credit worthiness.

Cons: Factoring can be expensive. Factoring companies charge fees and buy the receivables at a discount (the equivalent of interest). They charge a premium for the risk of nonpayment by your customers.

Other Options for Small Businesses: Even in today’s post-credit-crunch environment, business owners might perceive that lending options are scarce. In addition to what I have mentioned, other available types of loans include purchase-order financing, international accounts receivable financing, and mezzanine financing, as well as hard-money lenders.

The fact is, commercial lending is more plentiful than it has been in several years. Banks and other financiers have lots of cash to lend. So, always consider your primary banking relationship as a viable source of capital.

In addition, companies have access to resources, including the U.S. Small Business Administration (SBA). The SBA guarantees loans issued by commercial banks and has a variety of programs based on your company’s size, industry and stage of development. This can enhance your credit worthiness. And, don’t let the word “small” fool you. The SBA defines small businesses differently from what you may think.

Today’s entrepreneurs can also use the Internet to find loans. There are a growing number of sites trying to assist with both debt and equity. Try Boefly.com for loans or examine “crowd-funding” sources. Microloan financing destinations like Kiva.org may be able to provide businesses with the financial boost they need.

Aside from evaluating loans, you should also compare lenders. Look beyond interest rates at terms, fees and costs. Also, consider how much experience your lender has in your industry and its willingness to stick with you over time. When you think you have found the right lender, examine how it addressed past crises and current media attention. And, no matter what you decide, never finance a long-term asset with a short-term loan.

With an honest evaluation of your borrowing potential, you will be set for the next stage in your business, whatever that may be.

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By: James Cassel jcassel@casselsalpeter.com

MIAMI, Florida, February 19, 2012 – As an investment banker who represents clients during the sale, merger and acquisition process, I frequently hear comments from those who regret not planning more carefully — or not planning early enough — for the sale of their businesses.

A common mistake is to wait until the day you decide to sell your business to begin preparing, and by then, you may have lost a great planning opportunity. So, if you plan on selling today or any time in the foreseeable future, here are a few tips.

1. Hire a professional team. Assemble a team of advisors to navigate the sale process from personal tax planning to valuation and marketing, through negotiations and closing. Your team should include an investment banker or business broker (depending on the value of the business), a financial planner, a lawyer (perhaps a team of lawyers), and an accountant.

Tip: Remember, the advice you get before you go to market with your business can be just as valuable as the advice you get during negotiations. So engage your advisors early.

2. In connection with family, talk to yours early on in the process.Failing to involve your family at the front end can spoil a deal on the back end, especially when a second or third generation is involved, and they expect to take over or profit from the family business. I frequently advise potential sellers who haven’t discussed the situation with their family members to come back after they have the conversation. And, not surprisingly, family members have strong feelings that may affect the owners’ decision to sell.

Tip: When selling a family business, determine who will have a say in the deal and who will not. Even minority owners should be consulted to avoid acrimony.

3. Consider if you want to work after a sale and for how long. Do you want to exit immediately, or do you want to keep working for a few years? For many, age and lifestyle dictate this decision. For instance, a 75-year-old business owner may be ready to retire, but a younger owner might need a regular income to augment revenue from the sale. Many times it is more than age: The business owner’s personality helps shape the company, so selling is difficult. Sometimes the personality of the business and the owner’s personality are alike. Your desires will affect how you position yourself.

Tip: In the event of a successful sale, be prepared to continue working in some capacity during the transitional period.

4. Consider the best ownership structure. Each of the business ownership structures, such as C-corps, S-corps, limited partnerships, and limited liability companies, offer various advantages and raise different considerations during the sale process. Be cognizant of the potential for lower overall tax rates and the state-level tax implications.

Tip: Ownership structures have long-term implications that can dramatically affect the net amount of money you realize from selling your business. Planning well in advance of the sale may permit you to modify the structure to be the most tax-advantaged.

5. Organize corporate documents, including financial records. Organized record keeping makes good business sense in any circumstance. Getting the books and records in order now will keep you from scrambling for documents when potential buyers conduct their due diligence. Having an up-to-date corporate book is important; making sure your financial records and tax returns are available is a must.

Tip: Ensure easy access to financials, vendor contracts, and customer contracts. What you owe and what is owed to you will have a direct bearing on the value of your business.

6. Decide how you will keep the process confidential. You don’t want to scare away important customers who may be afraid that a change in ownership will threaten their level of service. You do not want to give your competitors something to use against you. There is always concern with how and when your employees will be informed of a possible sale. Likewise, you may want to present the company to the largest number of prospective buyers.

Tip: Your employees are an asset, so the loss of key personnel can hurt a sale. In this regard, carefully consider whether to disclose the possibility of a sale to your most important team members (and the timing of when you will do that).

7. Determine whether you want a partial or total exit. Financial buyers such as private equity firms are both control and minority buyers. Your intended exit strategy will impact transfer of ownership differently. For a total exit, you will maximize the consideration you receive. For a partial exit, there are many social issues to consider that might be equal to or more important than what you receive.

Tip: Your financial advisor can help you determine your necessity for ongoing income in the context of your overall wealth, including sale proceeds.

8. Be realistic with your expectations of value and understand how a buyer will calculate it. In our current economic climate, a multiple of earnings or EBITDA (earnings before interest, taxes, depreciation and amortization) are typically the most accurate measures of a company’s value. The higher your earnings, the more you can expect a buyer to pay for your business. What multiple a buyer will pay will vary greatly depending on numerous items, such as size, industry, capital and working capital needs, and future projections.

Tip: In addition to earnings, look at the diversity of your customer base. If your revenue is concentrated with one or two clients, this will hurt your valuation. While the seller wants to be compensated for the future, the buyer wants to pay for past results.

9. Identify your company’s most attractive feature. Figure out what characteristic or asset will help you best sell your business. Perhaps you have a steady stream of recurring revenue, a sought-after client, real estate assets, or valuable intellectual property or processes.

Tip: Work with an investment banker to put together a sales memorandum and management presentation. This is the sales document that will tell your story and put your best foot forward.

10. Be prepared for newfound liquidity. Most sales of businesses include purchase considerations such as cash, stock, or both. They can also include additional consideration in the form of earn-outs and non-compete agreements. Make sure you have an investment plan to address the investment of your new wealth. Likewise, contemplate the tax liabilities before transacting a sale.

Tip: Seek the advice of an estate planning attorney to ensure that your assets remain protected from generation to generation. Remember that you generally will not replace your current income with the proceeds of a sale.

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

Small businesses are the lifeblood of the nation, however, they face innumerable roadblocks that stifle growth, and in turn, stifle the overall economy.

By: James Cassel

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MIAMI, Florida, December 18, 2011 – Turn on cable news, and it’s not long before a political candidate or a pundit tells us how small business growth is the key to a healthier economy. Well, they’re right. That’s because more Americans work for small businesses than large companies, and small businesses create 65 percent of new jobs in the United States.

But what is a small business? The term itself means a lot of different things to different people. When we hear the term “small business,” most of us probably think of a single-location boutique, a mom-and-pop restaurant or an auto repair shop. However, check with the Small Business Administration (SBA), and you’ll find that companies in certain industries have hundreds of employees, earn tens of millions of dollars in revenue, and are still considered small businesses.

It’s this amorphous definition that causes so much confusion. Let’s keep it simple. For the purpose of this column, we can consider small businesses any company with less than a few hundred employees.

These firms are truly the lifeblood of our nation, however they face innumerable roadblocks that stifle growth, and in turn, stifle the overall economy. In order for small businesses to thrive in a more sustainable way, they require streamlined regulations at the local, state and federal levels, as well as a little TLC. More specifically, I’ve put together the beginnings of a “wish list” on behalf of America’s small businesses that would position them for real, achievable growth, because I believe this is who will solve America’s employment problem.

• Continue health insurance reform, but ensure small businesses can more easily benefit from the intended advantages.

The Patient Protection and Affordable Care Act includes a number of elements designed to encourage small businesses to offer health insurance to their employees. However, notwithstanding the availability of tax credits for these businesses, only one-third of companies with less than 50 employees even considered whether they were eligible for these new tax credits, according to a 2011 Kaiser Family Foundation survey.

But why? The new rules haven’t been adequately explained to these business owners. Or, despite the intent, the rules exclude many of the companies the Act intended to help.

In addition, health insurance pricing continues to favor larger companies where risk can be spread across more people. We need to pool risk so small businesses can obtain affordable health insurance with acceptable benefits. Raising premiums and lowering benefits won’t work. Neither businesses nor their employees can afford it. We need to find a way to control the increasing costs.

• Revise rules and regulations to level the playing field.

Government regulation — while sometimes quite necessary — is disproportionately burdensome to small businesses, especially when it comes to licensing fees, permitting fees and the like. Both small and large businesses require the same time and resources to address these regulations, but the opportunity costs to small businesses are much greater when we consider their size. Therefore, regulations need to be streamlined and the process expedited.

Moreover, the very threat of additional regulation creates uncertainty for small businesses. Will a permit be too costly to obtain? How many inspections will be required? The unknown nature of impending regulation diminishes small businesses’ willingness to invest, to hire, and to grow.

• Provide hiring incentives for small businesses.

Given the fact that small businesses are so plentiful, incentives that specifically target small business hiring would serve to kick start overall job growth. Large companies have benefited from stimulus and incentives, but they have failed to put their profits into job creation here in the U.S. Sure, they’re hiring, but the job creation is outside our borders.

Many states dangle large amounts of money and tax breaks to have businesses move from one state to another. This tactic helps one area while hurting another, and states should better use these incentives to encourage existing businesses to hire and grow.

Look at economic policy enacted to repair the job market – the vast majority is really only relevant to big businesses. Perhaps that’s why large corporations are sitting on more cash now than at any time in recent history.

Help for small businesses doesn’t have to come in the form of stimulus, although meaningful tax credits would help. Why not more strenuously encourage lending from our recently fortified banking community? In this regard, banking regulators should stop penalizing community banks for lending to small businesses. Instead, why not expand the scope of the SBA to educate and advise businesses about their capital options? Easier access to credit for small businesses would bolster confidence and provide the necessary capital for these companies to expand their workforce.

• Recognize the growing impact of international economic turmoil.

Whether you’re selling hotel rooms or hair care, circumstances on the international stage may have an effect on your business. But, we are frequently far more focused on the weather. The fact is, our world is growing increasingly flat, and the uncertainties in Europe, Asia, and Latin America have immediate and physiological impact on all businesses, regardless of size.

• What small business owners can do.

Nice wish list, but how can we make these wishes a reality? Start with these simple tips:

Use HR consulting firms. Any additional expense can seem like a waste, but HR consulting firms not only carry the burden of your human resources tasks, but reduce your liability, streamline staffing, and most importantly, capitalize on regulations designed to help small businesses. If your company doesn’t qualify for these incentives, professional employment organizations can dramatically reduce the cost of providing benefits through outsourcing models.

Budget for regulatory compliance, and be prepared for regulatory delays.For the moment, bureaucracies are not going away — so accept the reality that compliance with various local, state, and federal regulations will require time and money — and plan for it.

Take advantage of the availability of capital. Money is available for all sorts of companies. As a small business owner, you may need to tap into the resources of investment banking firms to raise significant amounts of money. This may start by establishing a solid relationship with your current bank — and if you’re not getting the results you want, look for another bank. You can also seek the assistance of the Small Business Association.

Diversify your customer base. Whether your business is local or international, the global markets will affect your bottom line. Therefore, take advantage of new markets, seek variety among your customers and explore new revenue streams.

For this country to begin fixing the unemployment problem, we need to encourage, nurture, and support small business growth. We barely know the rules as they stand today, and the disagreements over future legislation and tax policy only amplifies this uncertainty. Lack of clarity and lack of compromise lead to lack of confidence — it’s time Washington got its act together and worked together to provide real solutions.

I’m looking at this issue from an investment banking perspective. What changes do you recommend to stimulate small business?

James Cassel is co-founder and chairman of Cassel Salpeter & Co. The investment banker’s specialties include mergers, acquisitions and divestitures; corporate finance; and public offerings. 

Read more here: http://www.miamiherald.com/2011/12/18/v-fullstory/2548374/a-wish-list-to-spur-growth-of.html#storylink=cpy

Now may be as good a time as any to sell a company. But know what buyers want — and why you’re selling.

By: James Cassel

To view original article click here.

MIAMI, Florida, October 16, 2011 – With talk of a double-dip recession, continued high unemployment, and a schizophrenic stock market, business owners contemplating selling their businesses might think they would be better off closing the doors and throwing away the key. However, now is as good a time as any to take a serious look at selling your business. By waiting, you may not get a better price. Or worse, you may not be able to sell at all.

Right now, money is out there. Companies have squeezed more productivity from workers and refrained from hiring (unfortunately keeping job numbers dismal). In the process, they have accumulated lots of cash. As a result, many companies are sitting on capital, and they’re ready to invest in acquiring other businesses.

Debt is available for quality opportunities, too. Despite what the U.S. Congress and the White House have been saying, debt is not always a bad thing; and the Federal Reserve agrees. The Fed’s policies have dramatically increased the availability of money for banks to lend, at least through the middle of 2013. In addition, banks have spent the past two years cleaning up their balance sheets, and now they’re poised and ready to lend. That means buyers can obtain the financing to acquire your company.

What’s Hot

How can business owners know if their company will sell? Buyers are attracted to profitability, opportunities for growth, a diverse customer base, and the potential for a competitive advantage among others. In terms of specific industries, at the moment buyers are paying lots of attention to health care, manufacturing, social media and technology companies. However, any business that has successfully weathered the recession can be an attractive target to buyers. These companies have proven their stability.

Know your circumstances

Before a business hangs a “for sale” sign, though, owners should take a good look at their circumstances to clearly understand their reason for selling. That will help you and your advisors determine the best deal structure, identify the right buyer, and command the highest price.

Sometimes life circumstances beyond the business owner’s control force a sale. Illness and death are two common examples. Likewise, divorce can lead to a sale. (Just ask the owner of the L.A. Dodgers.) Often in these situations, selling is not “optional,” so you may have to make certain concessions on price and deal structure.

When divestiture is less urgent, there are more options to consider. For instance, when business owners want to cash out of their company — either to gain liquidity or to minimize risk — they may opt for a sale or partial sale.

Keep in mind, a partial sale brings outsiders into the business, and that comes with risk as well as strings. Owners may want a buyer with in-depth knowledge of their business, someone who can carry on the legacy of the company and grow the brand. Also, recognize that the new owners may change the status quo, especially as it relates to employees and customers.

Negotiating Price

Buyouts in the middle market typically don’t produce enough proceeds for the seller to replace the income generated by the business, unless it happens to be something like Facebook. If the business produces $1 million a year in cash flow, an owner would need to receive a net sale price of approximately $20 million to replace this annual profit (assuming your financial advisors can earn annual investment income of 5 percent). However, a business generating $1 million is rarely sold for such a large sum. Companies in today’s economic climate usually sell for four to eight times earnings.

If the seller of a business expects a higher price than the buyer is willing to pay, then an earn-out can provide additional funds if (and only if) the business achieves a certain level of earnings or revenues. The valuation gap between the seller and buyer can also be addressed if the seller retains a small stake in the business to generate future income — and maintain some control.

Owners can also negotiate an employment agreement where they stay around to lend expertise and experience to the new owners. Just be prepared to adjust to a different management style and no longer sit in the boss’ chair.

What Next?

If you decide a sale is right for you, you will need to have several documents readily available in preparation of the sale. Sellers will be asked to provide interested buyers with accurate financial reports in a timely manner — such as profit-and-loss statements as well as customer contracts, inventories information and lease agreements. Don’t even begin marketing your business until you can produce the necessary documentation.

Many owners have no idea what their business is worth, and finding the right price is essential. Unlike the sale of a home, the seller typically doesn’t have a true asking price, so hire financial advisors with specific experience in mergers and acquisitions. The right team can help market a company confidentially and structure a favorable deal that helps you achieve your goals.

Today is the debut of Minding Your Business/Inside the Deal from J ames Cassel, who is co-founder and chairman of Cassel Salpeter & Co. A veteran investment banker, Cassel’s specialties include mergers, acquisitions and divestitures; corporate finance; and public offerings. The column will appear once a month.

Read more: http://www.miamiherald.com/2011/10/16/v-fullstory/2455322/is-it-the-right-time-to-sell-your.html#ixzz1c740npOv

When James Cassel and Scott E. Salpeterstarted Capital Link LC a dozen years ago, local businesses were reluctant to engage a South Florida-based investment banking firm, Salpeter said. A big New York name was more comfortable.

“Back in 1998, 1999, we had to get business outside of Florida to get business in Florida,” he said.

Now, they not only have their track record at Capital Link to rely on, but also a stint at billionaire Phillip Frost’s Ladenburg Thalmann Financial Services (AMEX: LTS) in Miami. Cassel was previously vice chairman and head of investment bank at Ladenburg, while Salpeter was a managing director. Frost acquired the 14-member Capital Link in what was valued as a $5 million deal after moving Ladenburg’s headquarters from New York to Miami.

Cassel Salpeter works in mergers and acquisitions, raising capital, restructuring, fairness opinions, valuations and financial advice, fulfilling a need that dates back to Capital Link’s 1998 founding.

The economic downturn threw a monkey wrench into the investment banking business.

“Unfortunately, things didn’t work out as we hoped,” Cassel said. “If we could have eliminated 2008 and 2009, it could have been a love fest forever.”

Still, their investment banking operation at Ladenburg ranked in the top 10 of middle market activity, Salpeter said.

Cassel decided to leave Ladenburg at the end of 2009, and Salpeter left in May 2010.

They’ve brought along some former co-workers: VP Marcus Wai, who was a VP at Ladenburg and Capital Link; Christopher Mansueto, a chartered financial analyst who was a senior valuation analyst at Ladenburg; and associate Lindsey Smith, who was an associate at Ladenburg.

Before becoming an investment banker, Cassel was managing partner in the Miami office of law firm Broad and Cassel, which was founded by Alvin Cassel – the cousin of James Cassel’s father, Marwin.

Martin Press, a shareholder at Gunster who was previously managing partner for Broad and Cassel in Fort Lauderdale, saidMarwin Cassel told him before he died: “Jimmy was selling things to other people in the sixth grade. He was an entrepreneur from the age of 11, and only got better over the years.”

Press called the duo inseparable, but eventually the younger Cassel went on to do what he always wanted to do by entering investment banking.

Asked to describe James Cassel, Press said: “He’s tenacious. He is the type of guy who won’t give up and he will do everything in his power to make a deal work.”

A financial industry consultant, who asked not to be named, said he thought Cassel’s background as an attorney was a confidence-boosting advantage in giving fairness opinions on potential deals.

Cassel said he has 15 years of experience as a corporate and securities lawyer, and is a member of the New York and Florida Bars, despite not having a current practice.

“I think having that experience is helpful in doing fairness opinions and restructurings,” which often happen in bankruptcy court, he said.

In one high-profile case, Cassel Salpeter has done work for the secured creditors of Gulfstream International Airlines. Cassel said Jan. 3 that he was trying to help facilitate a sale of the business.

CASSEL SALPETER & CO., LLC

Website: www.casselsalpeter.com
Chairman: James Cassel
President: Scott E. Salpeter
Address: 801 Brickell Ave., Suite 650, Miami 33131
E-mails: jcassel@cs-ib.com and ssalpeter@cs-ib.com
Phones: (305) 438-7701 and (305) 438-7702