James Cassel: Seeking VC funds? Get creative

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By: James Cassel
May 13, 2013

At a cocktail party earlier this year, my friend’s daughter took the initiative to tell me about her new startup venture. Her story piqued my interest, so I did some homework and later decided to throw a little angel money into her San Francisco-based company, “FunLoop.”

Welcome to the world of “venture capital and angel investment” in South Florida.
Although we can credit the region for its progress in cultivating a venture capital (VC) community and nurturing startups, there’s no doubt the region continues to lag behind places like California, Massachusetts and New York City in terms of access to venture capital.

Think about it: Florida is the third-largest state in the country, and South Florida is the fifth-largest Designated Market Area (DMA), but we don’t have the third-largest or even the fifth-largest number of VC’s or VC-funded companies. The area has a huge gap in seed-stage capital, which happens to be the most important stage where business concepts are proved and growth strategies are developed. Although there are a significant number of angel investors in the region, they aren’t easily found unless you know what rocks to search under.

According to a recent MoneyTree Report published by PricewaterhouseCoopers and the National Venture Capital Association, the Sunshine State dropped from No. 13 to No. 18 for VC dollars invested in 2012. Investment in Florida companies dropped $141 million, or 42 percent, from 2011.

There’s no doubt that institutions like The Knight Foundation, The Launch Pad at the University of Miami, the FIU Pino Entrepreneurship Center, the Venture Hive, among others, are making tremendous strides in promoting entrepreneurship and innovation. They must continue moving forward with their fine work, which is critical to our region’s success and future. The VC’s (not to be confused with angel investors) are a growing but still small group that includes Antares Capital, Medina Capital, HIG Ventures and Florida Growth Fund, to name a few. Angel groups and networks include New World Angels and Venture Architects Investor Network.

But the undeniable truth remains that we will not be able to reach California, Massachusetts or New York City status until we have access to more capital — or the reputation for being a prime venue for this sort of entrepreneurial activity. South Florida still simply lacks the big-name, high-quality VC funds that are commonly found in other regions.

So, how do you access venture capital? Unfortunately, there’s no magic pill. Success here will require a lot of research, networking, relationship-building and luck.

There are plenty of angel investors out there, but unfortunately there isn’t one clearinghouse to find them. More often than not, entrepreneurs are finding their angels the way my friend’s daughter found me — by luck at a cocktail party or networking event.

A good way to begin: Identify and attend the right networking events and conferences that have the most fertile ground. Let your contacts know what you’re trying to do, and ask if they know any potential investors who may be interested. Some websites might be of help. Investment bankers can always help too, but few work with startup or very early stage companies. We have posted a list of venture capital resources at http://casselsalpeter.wpengine.com/knowledge/resources/

Reach out to the universities and determine what opportunities may exist for you. Florida International University, Florida Atlantic University, Nova Southeastern University and the University of Miami, for example, offer a broad range of opportunities, including everything from business plan competitions to access to funding.

Keep in mind that you may have to go find your money in other markets as well, which means you will have to travel and do lots of networking. Like it or not, you also may have to move to another city.
While we can’t ignore that VC-backed companies based in Florida, such as Citrix Systems, CBS Sportsline and Mako Surgical, have been acquired or gone public, we are still seeing many angel and VC’s investors requiring that entrepreneurs relocate to other areas before they will invest. Time and again, I’m seeing California VC’s saying: “You have to move to the valley.”

South Florida has come a very long way during the past decade. While the future looks bright, the promised land is still at least another decade away at the rate we’re going, and it will take a lot of hard work and joint effort to get there.

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.www.casselsalpeter.com

Brazilian bank set to samba with City National?

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By Lindsey White
May 16, 2013

The rumor mill keeps churning about the looming sale of City National Bank of Florida. Recent reports suggest that Banco do Brasil SA is closing in on a purchase of Valencia, Spain-based Bankia’s Florida franchise.

On May 9, Bloomberg Television reported that Banco do Brasil is near a $900 million deal. Bloomberg originally identified Banco do Brasil as a bidder in April. On May 15, Dow Jones Newswires cited an unnamed banker as saying that the 1.18 trillion-Brazilian-real bank is in the “final stages” of acquiring Miami-based City National, in a transaction expected to close at the end of the month.

When contacted by SNL, Banco do Brasil declined to comment on its interest in growing in the Miami market — but some say the City National acquisition would make sense, given the Brazilian bank’s existing footprint in Florida.

Banco do Brasil acquired Coral Gables, Fla.-based EuroBank in early 2012. The acquisition is expected to contribute to Banco do Brasil’s expansion of business in the U.S., focusing on Brazilian and Hispanic customers, the Brazilian bank said in a first-quarter presentation.

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EuroBank, renamed Banco do Brasil Americas, had $82.1 million in assets at March 31. The bank has three branches, including a recently opened location on Miami’s Brickell Avenue.

“I just couldn’t imagine them going into the Miami market and staying at less than $100 million in assets,” said Paula Johannsen, a managing director at Monroe Securities. “They didn’t come there just to buy two or three branches of a small community bank.”

James Cassel, chairman and co-founder of Miami-based investment banking firm Cassel Salpeter & Co., said it can be a wise strategy to dip a toe into the U.S. market before diving in fully. A bank that does so can put the regulatory approval process behind it before going after larger deals. If Banco do Brasil were to bid on City National, the fact that the Brazilian bank already has a charter in the U.S. could make the seller’s board more comfortable, he said.

Cassel pointed to the example of Spanish Banco de Sabadell SA, which bought Miami-based Transatlantic Holding Corp. in 2007, before further expanding with the purchase of Miami-based Mellon United National Bank. Sabadell is also among those rumored to be interested in buying City National, along with a number of other banks.

Benjamin Bishop Jr., chairman of Southeast-focused investment bank Allen C. Ewing & Co., said the Miami market is “one of the most dynamic in the country” and “very attractive” to foreign banks looking for a foothold in the U.S. “Miami had a huge number of unsold condominiums a couple years ago on Brickell Avenue,” he noted. Today, he said, many of those condos have sold as foreign nationals scooped up properties.

“A lot of the wealth in Central and South America is going to Miami, and if anything will probably be accelerating,” Bishop said.

Observers agree that if Banco do Brasil is looking to buy, City National is an attractive target. Cassel called City National a “wonderful franchise.” The bank has a long history, a network of 26 branches with good locations, a solid core group of employees and a loyal customer base that stuck with it when City National was last sold, he said. In 2008, Bankia’s Caja Madrid bought an 83% stake in City National Banc shares Inc. in a $927.0 million deal.

Observers noted that there are several banks in South Florida, but few of City National’s size and quality. The bank had $4.74 billion in assets as of March 31, and nonperforming assets totaled just 0.97% of total assets.

This could help City National fetch a good price. According to SNL data, live bank deals announced since Jan. 1, 2012, with Florida-based targets have had a median tangible book value of 100.7% and a mean value of 102.3%. Johannsen characterized pricing for recent Florida bank deals as “all over the board,” but said that many people expect City National will generate more of a premium.

“For the international-type banks that want to get in there, it’s the best quality right now,” Johannsen said.

 

James Cassel: Plan now to get the most value from selling your business

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By: James Cassel
April 14, 2013

When selling your business, advance planning and strategic action can make a big difference toward helping you obtain the maximum value for your firm. The sooner you begin your preparation, the better.

Here is some practical advice that I have learned throughout my career leading the purchases and sales of middle-market businesses in South Florida and around the country. These tips are not only helpful if you’re planning to sell — they’re also generally good business practice.

•  Hire an effective public relations firm. Positive news coverage in credible, top-tier media outlets that reach current and potential customers as well as buyers can be invaluable in terms of elevating firm and brand awareness, securing credibility for your business and even piquing interest from potential buyers. Although directed to enhance the business, raising visibility is important. These days, depending on the nature of your business, social media might be an appropriate tool to leverage as well.

•  Get your financial and accounting records in order. It is imperative for you to be able to give potential buyers a clear, accurate snapshot of your historical financial results and condition. Without this, you won’t be able to get as much for your business. You’ll have to do all this paperwork anyway, so the sooner you get your financial house in order, the better. Preparing a budget is helpful too.

•  Review agreements with your customers. Do you have long-term contracts that will bring recurring revenues to the purchaser of your business? Do your contracts with customers have special terms, such as requirements that you personally provide service to the accounts or change of control provisions, which may have an impact on the longevity of the contracts when you’re no longer involved with the business? Make sure you review and structure agreements in advance so they will enhance the value of your business and appeal to potential buyers.

•  Review your leases. Do you have a long-term lease that new buyers will have to continue, or do you have a short-term lease giving buyers maximum flexibility? This can enhance or decrease the value of the business. I recently worked on a deal in which a long-term lease for excessive space became a roadblock to completing the deal. Sometimes, a long-term lease at favorable rates can enhance the value of a business.

•  Review agreements with your suppliers. Again, like in No. 4 above, you need to understand whether you’re locked into agreements with suppliers with which the new owner(s) of your business will be required to comply. Depending on price and terms, a long-term supply agreement can be an asset or a liability. If there are any agreements that you don’t consider beneficial to your business, then now would be a good time to try to terminate them or address the issues to avoid turning off potential buyers.

•  Review your insurance coverage. Depending on your business, liability coverage and tail coverage might be very important. Consult a good insurance agent to evaluate your existing coverage and file any gaps that might exist.

•  Do tax and estate planning. Work with qualified lawyers and accountants who can help ensure you have structured your ownership in the most tax- advantaged way in the event of a sale. Again, the sooner you do this, the better off you’ll be.

•  Discuss the possibilities with your family. As in most everything in life, it’s important to have an understanding with your family members – especially if they are part owners of your business or work in the business. Make sure your family members and other key stakeholders fully understand the possible impacts of the business sale on everyone involved.

•  Evaluate your intellectual property. Make sure it is protected and owned or licensed by the right entity. This can be a great asset or, in some cases, a great liability. Work with a knowledgeable lawyer to get your house in order. Make sure you have proper licenses for all the software you use.

•  Evaluate management. Do you have appropriate management in place or are there gaps that you should fill prior to putting your business on the market? Examine your employment agreements to ensure you have important non-compete, confidentiality and other provisions that can significantly enhance the value of your business.

•  Determine if there are environmental issues. Commissioning a study to identify all environmental issues can be a good idea. Then, you should either remediate them or at least have an accurate understanding of what will be required to clean them up.

•  Get organized. An organized business owner who comes to the table with his or her house in order gives a good impression and strong comfort level to potential buyers.

The key here is to work with qualified advisors, including attorneys, accountants and investment bankers, to put your business in the best-possible position for sale. By addressing the weaknesses and playing up your strengths now, you can help ensure you get the best value for your business. 

James 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. www.casselsalpeter.com

 

 

People on the move

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Cassel Salpeter & Co. Named Winner of 7TH Annual M&A Advisor Turnaround Award for the Firm’s Work on Airline Restructuring Deal

James Cassel and Scott Salpeter, co-founders of Cassel Salpeter & Co., an independent investment banking firm that provides advice to middle-market and emerging growth companies in the U.S. and worldwide, were named winners in the “Sector Deal of the Year: Consumer Services” category in the 7th Annual M&A Advisor Turnaround Awards for their work in the restructuring and sale of Silver Airways (formerly Gulfstream International Airlines) to Victory Park Capital. When Gulfstream International Airlines filed for bankruptcy, Cassel, CEO, and his colleague Salpeter, the firm’s president, assisted in the $30 million sale to Victory Park Capital. The award ceremony took place at the Colony Hotel in Palm Beach, FL. Please visit: http://casselsalpeter.wpengine.com/

Financial salaries on rise as sector bounces back amid a slow recovery

By: Meisha Perrin
Week of Thursday, March 21st, 2013

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CS - Media Clip - Miami Today - 3.21.13

Thinking of selling your business? Better get started

By: James S Cassel
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To sell or not to sell? That is the question on the minds of business owners who didn’t sell their businesses in 2012 and are concerned about the possible impacts of rising taxes and other economic issues this year. Middle-market mergers and acquisitions activity seems to be picking up in 2013.

Fact is, if you’ve been thinking of selling, the time to begin the process was, frankly, “Yesterday.” Starting the process does not necessarily mean that you will pull the trigger and sell.

If your business is likely to be affected by any of the following factors, then it would be a wise move now to consult your trusted advisors, weigh your options, and begin taking the necessary steps to protect the best interests of your business. Timing is key to ensuring you maximize the value for your business.

Higher taxes and rising prices. Some economists are saying that the recent expiration of payroll tax cuts and spikes in food prices could subtract 0.8 percentage points from U.S. economic growth this year. According to a Reuters poll, the economy is expected to expand 2 percent this year, down from 2.1 percent last year. In light of this, households are more cautious about spending and acquiring new debt, are worried about having enough retirement savings, and are concerned about the rising prices of gasoline and almost everything else.

Choppy market conditions. While the stock market may be up at new highs, it generally does not move in a straight line and we can’t sit back and assume it’s going to continue heading north. The rebound that we’re seeing in the stock market is due in great measure to political factors, including the size of the deficit and Federal policy, making the 2013 market potentially quite a risky place.

Sales taxes for online retailers. Online retailers and other online businesses are likely to get hit with more sales taxes. In time, everyone will have to pay sales taxes for their online purchases, which will neutralize to a certain extent the competitive advantage that many online retailers currently enjoy and will seriously hurt some of margins.

Capital investments and new technologies. The continuous introduction of new technologies that we’re seeing is great in many ways, but purchasing these new technologies can often be quite expensive and require additional investments in terms of training and/or hiring employees who are able to use them.

Rising interest rates. Interest rates are expected to increase at some point and will hurt margins for some business owners.

Industry consolidations. Many industries, such as technology, travel and manufacturing, are experiencing consolidations. It’s critical for business owners to know when to take advantage of good offers to sell their businesses. I’ve seen some business owners who, after missing out on opportunities to sell, have gotten stuck holding the bag with their floundering businesses while their better-capitalized competitors have continued to grow.

Expansions. For some business owners, expansion is critically important to remain competitive and keep up with growing demands from clients, etc. However, this requires both capital and stomach – which not all business owners may possess in the right quantities.

Emotional considerations. Just as important as the practical considerations mentioned above are the emotional factors. Some business owners find that they’ve been through so many trials and tribulations during the past four years that, simply put, they’re tired. They want out. When these feelings hit, it’s usually wise to begin looking for ways to move on, as businesses require a great deal of energy and commitment to succeed.

In addition to selling 100 percent of your business to a strategic buyer, there are a myriad of other options that you can consider, such as selling your business to a private equity firm or family office. This would enable you to retain some of the upside and give you capital to grow your business while helping eliminate some of your risk by taking some of your money off the table.

Indeed, in today’s uncertain marketplace, business owners have many considerations and options to weigh, and it’s important to work with trusted advisors such as investment bankers and attorneys to find the solutions that are best for every situation. As always, it’s all about strategic planning – something that unfortunately some business owners are great at doing for their clients and customers but not so good at doing for themselves. Without doubt, business owners who roll up their sleeves and take the right steps at this time are likely to put themselves in the strongest position going forward into 2013.

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. www.cassel salpeter.com

Family businesses require special handling to succeed

By: JAMES S. CASSEL

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One of the greatest challenges of running family businesses is that they contain, well, family. Based on my experience working with and being a part of family businesses, I’ve learned that success requires everyone to work together harmoniously and as if they are not related.

This can sound difficult, particularly for parent-child or husband-and-wife teams, but it’s possible if everyone agrees upfront to set aside their egos and family relationships, roll up their sleeves and work toward a common goal of ensuring the business’ success. How can you do this?

It is important to recognize that your issues are probably not unique and you can learn a lot from others. Currently, family businesses comprise 90 percent of all business enterprises in the U.S. and 62 percent of total U.S. employment, according to the Small Business Administration. So take advantage of the vast knowledge, tools and other resources available today by working with consultants and business coaches who specialize in helping family owned businesses. This is a good idea for non-family businesses as well.
Having seen the good, the bad and the ugly when it comes to family businesses, I can offer some practical advice:

• Put in place the right employment policies and job responsibilities, including detailed job descriptions and goals, and enforce them consistently. Get buy-in and support by reviewing the policies with everyone.

• Routinely measure performance. Employee evaluations are helpful. Hire a non-family Human Resources Director or business coach, for example, to lead the evaluations and approve things like salary increases and vacation time. This can also help with family members who need to be fired.

• Put outsiders in positions of power. Smart business owners have independent boards of directors to give advice and often put non-family members in management who have no allegiances to anyone in the family. It is wise to employ non-family members with the strength of character to stand by their convictions and focus on what’s right for the business. This helped one of my firm’s clients when she had to make decisions that contradicted the wishes of her mother, who was a silent investor.

• Establish a clear chain of command for everyone to follow. In addition to helping reduce the likelihood of people feeling entitled to special privileges and abusing their family ties, it also helps other employees feel more comfortable with their jobs when they know the same rules apply to all. Giving family special privileges will cause problems and tensions among others and possibly undermine the success of the business.

• Reward results rather than genetics. Some of the people who matter most to family businesses – including employees, clients, referral sources and even potential buyers of the businesses – often assume that the business owners give preferential treatment to their kin. For a business to be taken seriously by all parties, everyone must believe its run fairly and with the best interest of the business at heart.

• Don’t hire your children unless they have sufficient interest and aptitude, and don’t give them too much responsibility too quickly before they have proved they’re ready. When there are problems with children, face them head on. It’s also wise to encourage your children to get experience working at another business before joining yours. My son, Philip Cassel, for example, acquired good training and experience at two other firms that made him a stronger asset when he joined Cassel Salpeter.

• Invest in employee education, including training related to people skills and communication.

• Be careful what roles you give your family members. What happens when your relative keeps the company’s books? To outside observers, including potential buyers of your business, this can create misperceptions and concerns. It’s always smart to have outside accountants review or audit your books.

• Over-communicate. Family dynamics can infuse unnecessary emotional drama. Maintaining clear, open communications channels can help neutralize touchy situations.

• Develop succession plans. Data from peakfamilybusiness.com show that only 30 percent of U.S. family businesses will successfully pass the reins to the next generation, despite the fact that approximately 70 percent of those surveyed said they would like the business to stay in the family. Almost half of the U.S. companies surveyed had no succession plans and, by the third generation, only 12 percent are still viable. It’s critical to work with experts, such as attorneys, coaches and investment bankers, to develop customized succession plans. Don’t wait until a crisis strikes – by that time, it’s usually too late. I’ve seen too many families end up in court fighting over things that could have been discussed amicably in advance.

• Show your love. Although you should forget family ties when you’re working, you should take time out of the office to nurture your family.

For family businesses, it’s important to be realistic about the potential challenges and put in place the right systems to mitigate them. A little planning now can go a long way toward ensuring long-term success – and happy family relations for all.

James 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. www.casselsalpeter.com

Whatever you do, don’t be like Congress

congressBy James S. Cassel
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For an example of how not to run a business, look no further than our U.S. Congress. Simply put, you don’t want to run your company like Congress runs the country.

It’s common sense and should be as simple as this: A company should have a board of directors acting for the benefit of the shareholders, like Congress is supposed to do things for the benefit of the citizens. And if your company’s board of directors acts to the detriment of your shareholders, then the shareholders should fire the board the same way we should fire Congress and replace the entire lot with people who will take their fiduciary obligations seriously and make the tough decisions.

Here are a few of the many learnings we can glean from the mistakes of our Congress:

Make decisions. When running a business, it is critical to make decisions rather than keep kicking the can down the road the way Congress is dealing with the reduction of expenditures. Rather than trying to blame others, you must take ownership and take action to remedy the situation. It’s never easy. Avoiding or ignoring problems doesn’t make them go away. It makes them get bigger. If you are bumping up against your credit limits and have cash-flow problems the same way the government bumps against the debt limits, you should work with your creditors to develop a plan rather than waiting until the last minute to scramble for solutions or face dire consequences like bankruptcy. Unlike the government, you cannot print money, but you may be able to sell equity and raise cash.

•  Be efficient. Much like our government needs to become more efficient, your company should continuously look for ways to increase efficiencies. Evaluate every expenditure and eliminate things you don’t need. Allocate the most resources to things that bring the most value to your firm. Invest in consultants who can help you save money, grow your business or streamline operations.

•  Don’t sugarcoat. We’ve all seen our government trying to change the definitions of things in order to make them look prettier. Don’t change your accounting methods to make problems look better or try to hide things. It is important to be clear. When there are challenges, make sure the appropriate people know so they can help find solutions. When we acknowledge the issues and problems and are willing to work together with all constituencies, we can generally come up with a solution that is acceptable by all those involved.

Take advice. Smart business owners recognize the value of smart advice. Take advantage of outside advisors to help you. However, success requires a collaborative effort in which you work with your advisors and consultants, and then take and implement their advice. I once worked with a business that hired a great advisor, but when the report was complete, it was shoved into a drawer. Reminds me of the way Congress and the president ignored the Bowles-Simpson deficit-reduction plan.(Maybe they will dust off Bowles-Simpson as a framework and surprise us all.)

•  Focus on what you can control. Effective business owners know how to prioritize and focus on what really matters. They know to deal with things that are within their reach. Understand what you can’t control, and deal with what you can control.

•  Keep a close pulse on the healthcare climate. Stay abreast of the healthcare laws this year and develop a plan for how you will handle the changes when the new healthcare law fully goes into effect next year. While it’s always better for employees to stay insured, you may have to tweak terms of your coverage to make the plan financially viable for your business. Not every business can afford Cadillac plans. Moreover, make sure you understand the law better than Congress does. I have read that very few, if any, of them read the entire bill before they voted. Before you sign any document, you should read it entirely and make sure you understand it.

•  Tackle problems head-on. If your business is losing money, don’t just keep pumping in outside money. You need to take a step back and deal with the problem by figuring out what’s causing the problem and then take the right measures to put your business back on track. For example, when it comes to employees, you need to know when to fire bad workers. Keeping these employees just means more work for everyone else, increased liability because they could make serious mistakes, and an unfair environment for other employees who have to cover for them.

•  Plan. Many middle-market business owners mistakenly assume that business plans with budgets are for bigger businesses, and they are too “small” to need business plans, succession plans, etc. They say they’re too busy with day-to-day work and don’t have time to stop and think ahead. By taking a reactionary approach and not planning for the future, they reduce the likelihood of getting what they want from their businesses. Do not be like Congress, which keeps dealing with matters piecemeal rather than adapting a budget.

•  Get help. Thankfully, there is no shortage of places where you can get help. In addition to contacting colleagues, consultants and advisors, you can get personal coaches or peer advising from companies like Vistage. Just because you’ve successfully owned a business and have done things a certain way for 20 years doesn’t mean you should keep doing things the same way today.

There’s no question that running a business is not easy. Indeed, it can feel like running a country. By taking the right steps and getting good advice along the way, business owners can minimize the challenges and increase their chance for success.

James 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.www.casselsalpeter.com

Don’t let economic uncertainty prevent business decisions for 2013

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Despite concerns, things are actually looking pretty good for the middle-market, but there are issues to keep in mind.

BY JAMES CASSEL JCASSEL@CASSELSALPETER.COM

Forget sugar plums. The visions dancing in the heads of South Florida’s middle-market business owners this holiday are looming recessions, cliffs and general uncertainty for the New Year. With this skeptical outlook, they’ve been holding off on major moves, including capital spending and hiring, until they’re certain the government is likely to chart an effective plan for strong, sustainable growth – or at least provide some rules so everyone knows how to play the game.

From afar, the world now can look pretty topsy-turvy. Europe is tangled in debt, and China is troubled with slowing growth, an expanding housing bubble and unreliable data. Here in the U.S., Capitol Hill has been debating plans on how to stave off controversial tax hikes and budget cuts known as the fiscal cliff, and although compromise seems to be in the air, the abundance of speculation and the scarcity of facts are keeping most people feeling uneasy.

However, from a different vantage point closer to ground level, things are actually looking pretty good for the middle-market in 2013. Here are some of the reasons we can feel optimistic as we move into the New Year:

Jobs are making a comeback: Despite the uncertainty, some middle-market business owners are hiring and expanding. National unemployment is well below its 10 percent peak, and the National Association for Business Economics estimates that by next year, the economy should be adding 173,000 jobs a month, up from 157,000 this year.

The latest Labor Department report shows the economy is picking up a bit, with employers adding 146,000 jobs in November – more than expected – and the unemployment rate dropping two-tenths of a percentage point to 7.7 percent.

Consumer debt has been shrinking: Consumers have been deleveraging and paying off their debts. Consumer confidence, which continues to rise, is as high as it was in 2007 before the crisis.

Housing is making a comeback: Demand is expected to increase as the Fed keeps buying bonds so mortgage rates remain at historically low rates. In addition, more construction means more jobs, and more people spending more money to furnish their new homes and enhance their lifestyles. In fact, the latest buzz in South Florida is: The extinct “tower crane” makes a comeback.

While many middle-market business owners will likely remain in their current wait-and-see mode until they have more clarity and confidence about the future, they should recognize that not making major business decisions is a major business decision, and there can be significant costs to missing opportunities. Therefore, it’s critical to consider how your business may be impacted by the expected new developments in 2013, and work with trusted advisors to develop a plan of action that’s custom-tailored to fit your business needs. Toward that end, here are a few key things to look out for in 2013:

Recession: Experts are debating whether there will be a recession, and some experts are warning of a mild one. If we go over the cliff, it is more likely to occur. Therefore, now is the time to consider how a recession could impact your business and work with your advisors to prepare your business for this possibility. Whether we go into another recession, it is always good to keep your company lean in terms of implementing sound inventory controls and weeding out bad, unprofitable customers. Cultivate relationships with your good customers to help minimize the possibility of losing business. Invest in hiring employees, not firing them. Now is a good time to look for good workers who have been laid off by other companies. Also, avoid the instinct to cut your marketing expenses, which could make things worse. Continue spreading the word about your business and, just as important, stay positive and look for ways to bring in new customers. Look at additional products to sell and other markets to enter.

• China: How will China’s economic issues affect your business? With an increase in production costs, even companies in China will start looking for lower-cost producers. Should you consider moving production back to the U.S. (what I like to call “re-shoring”). The cost of labor is becoming less of an issue than getting products on time, and having lower shipping costs can help off-set that.

• Government business: Look at how much business you are doing with the Federal Government, the Defense Department, etc. It is difficult to imagine that there will not be spending reductions at the federal level irrespective of what happens. Some people think that as states begin to recover and receive increased tax revenue, there will be more opportunities to do business with state and local governments. There is much pent-up demand for matters that have been deferred during the past few years.

• Loans: Despite today’s low interest rates, middle-market business owners have continued to sit on their cash reserves rather than deploying the cash or borrowing to make investments while keeping their cash safe for other purposes.

Unless they are extremely confident about an opportunity, they are not likely to invest. However, it’s important to keep in mind that U.S. banking regulators are likely to begin implementing higher standards for reserves. Although they make the banking system safer by providing greater cushions for banks against market fluctuations, they may make it more difficult for banks to lend money. So, if you’re considering getting a loan, you might want to secure your loan before the new standards go into effect.

There’s no doubt that middle-market business owners are in much better financial shape today than they were back during the credit crisis. By planning ahead, consulting their advisors, positioning their businesses correctly and, just as important, adopting the right perspective, middle-market business owners can stand to benefit greatly from emerging opportunities in the New Year.

James 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.www.casselsalpeter.com

 

Financial planners struggle to meet clients’ fiscal cliff goals

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By Paul Brinkmann

South Florida financial planners are doing their best to deal with client demands for protection from so-called “fiscal cliff” issues, but some say options are very limited.

“Ultimately, I don’t think we will plunge off the fiscal cliff, because I believe Washington will reach some compromise,” said Eli Butnaru, CEO of Miami-based Mora Wealth Management. “But at this point, this is one of the few times there just aren’t many alternatives. That’s why it’s considered a crisis. It’s much easier to say what not to do than what to do.”

Pressed for solutions, wealth managers the Business Journal spoke with for this report said they are providing ways to avoid the impact of worst-case scenarios. But many financial institutions warned that long-term investment decisions should not be based on short-term headlines about politics or fears of taxes rising. PNC Bank issued a statement Dec. 11, saying it “always maintains that investment choices should never be made based solely on headlines, and that the long-term view best serves.”

Technically, the nation will reach the edge of the fiscal cliff on New Year’s Eve, when the Bush-era tax cuts expire and mandatory spending cuts kick in. As of Dec. 12, national media reported little progress, except that President Barack Obama had offered to reduce new revenue expectations to $1.4 trillion from $1.6 trillion. But CBS News reported some Republicans in the GOP-controlled House called that “laughable.”

In Miami, Butnaru said he was dealing with limited options until a clearer direction emerges.

“In general, we don’t like defensive sectors, meaning the kind of investments that pay dividends,” he said. “We prefer equities now; we truly do not like bonds. It’s truly difficult to find a good bond today.”

Butnaru said he and his firm prefer to seek investments in emerging markets, including Chinese high-yield investments.

“It may sound like a contradiction, but we still look for quality junk bonds or investments,” he said. “High yield or junk might still do well from excess spread, because there’s still no spread available on the investment grade.”

Despite some talk about wealthy people making large investments, gifts or annuities in advance of the cliff, Butnaru said he thinks such activity is no more than normal.

Adam Bergman, senior tax attorney with IRA Financial Group, said he has seen a spike in requests to move money into IRA and 401(k) accounts.

“I’ve had a lot of feedback since November [from] people between 40 and 70 years old who are looking to do different things with their retirement funds,” he said.

“People know taxes are going up anyway you cut it, even if it’s only the health care surtax, so they want to divert as much income as possible,” he said. “We’ve seen an increase in the number of people who want this started by the new year to avoid the impact.”

Bergman said investors, who recently focused on returns from stocks and tax-deferred accounts, are now afraid of dividend taxes going up. He pointed to a few South Florida companies – including National Beverage Corp. and Heico Corp. – that issued special dividend payments in advance of the fiscal cliff.

“The day after the national elections, my phone started ringing more. I saw a 35 percent increase in calls about tax-deferred accounts on Nov. 5,” he said. “I think a lot of people just woke up and said ‘Wow, Jan. 1 is pretty close,’ and the stock market took a dive after the election.”

Bergman said some people call to ask questions, and others call to say they realize taxes will go up and they want specific things.

He also acknowledged that another reason for people putting money into tax-deferred accounts is more financial stability.

“We did see people, quite a few years ago, taking loans out on their tax-deferred plans,” Bergman said. “Things are definitely better now, and people are looking at ways to build up those accounts again.”

THE DETAILS:

What is the fiscal cliff?

A combination of expiring tax cuts and across-the-board government spending cuts scheduled to become effective on Jan. 1.

The idea behind the fiscal cliff was that, if the federal government allowed these two events to proceed as planned, it would have a detrimental effect on an already shaky economy, perhaps sending it back into an official recession as it cut household incomes, increased unemployment rates and undermined consumer and investor confidence.

At the same time, it was predicted that going over the fiscal cliff would significantly reduce the federal budget deficit.

Source: Investopedia.com

7 tips to help business owners navigate the cliff

James S. Cassel, founder and chairman of Cassel Salpeter & Co. LLC, a Miami-based investment-banking firm that works with middle-market companies, offers this advice for business owners amid worries about the fiscal cliff:

  • Although interest rates are not likely to skyrocket soon, it’s still a good time to lock into long-term financing like the big boys.
  • Consider your exposure to real estate, as the elimination of mortgage interest deductions may cause prices to decline.
  • With the Patient Protection and Affordable Healthcare Act and a new health care tax on the horizon, business owners should begin evaluating how the anticipated new costs may impact their bottom lines. They should work with advisors to consider strategies – such as whether to insure their employees or opt out and pay the penalties – and determine the best course of action that will support their business goals.
  • Consider doing more business with state government. As states begin to recover and get more tax revenue, there may be greater opportunities to do business.
  • Consider foreign markets to sell services or products. While emerging markets, such as South and Central America, and Asian markets look better than Europe, don’t forget Europe.
  • With more efficient equipment available and a diminished need for manual labor, you should consider “reshoring” (i.e. bringing back to the U.S.) whatever you currently manufacture offshore.
  • Look at your customer base and, if you think your business may be affected by government actions, develop a plan and consider measures like cost reductions or layoffs.