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How Strong is Your Core (or COAR)?

How Strong is Your Core (or COAR)?

How Strong is Your Core (or COAR)?

By Michael Stier

“Being a leader isn’t about ability. It’s about responsibility.” This pearl of wisdom shared with Major Rebecca Childs, played by Hillary Swank, by her longtime mentor in the 2003 movie “The Core”. As the leader of your business, who is responsible for your COAR? Your business’ four COARsystems are critical to your success: 

1. Cash Flow 
2. Operations 
3. Accounting 
4. Revenue

The Chief Financial Officer of a company is the person who oversees all the financial functions of a business. While the role of the CFO is much more complex and multi-faceted, financial oversight is the CFO’s core role. At a higher level, the role of the CFO is more strategic.

 

Your COARBusiness Systems

At FocusCFO, a balanced approach is used by our CFOs in focusing on these four COARbusiness systems. By having tools and systems in place in each of these areas, businesses can operate at an optimal level and maximize internal cash flow. In addition to building tools, we at FocusCFO develop ongoing forecasting, planning and analysis tools in all key business areas in order to work collaboratively with the CEO to build a strategic growth plan for the company. 

Examples of the application of COAR 

  • Driving internal cash flow by actively managing working capital and improving product and service line profitability. 
  • Providing regular operations reporting, focusing on key performance indicators and operating data. 
  • Ensuring that all internal accounting and management reporting is timely and accurate. 
  • Developing tools to measure and manage revenue, including the sales pipeline. 
  • Improving the flow of financial and other information between the business and its banker, CPA and other key advisors. 

Which brings us back to the initial question of who in your organization is responsible for your COAR? For most business owners, your time and abilities reside with product/service and business development. Most do not have enough bandwidth to also assure that your COAR is strong. We can help you with that. 

 

Michael Stier is an Area President for FocusCFO based in Charlotte, NC. 

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. For more information, visit us at focuscfo.com or follow us on LinkedIn. 

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Every Exit is an Entrance Elsewhere

Every Exit is an Entrance Elsewhere

Every Exit is an Entrance Elsewhere

By Michael Stier

“Look on every exit as being an entrance somewhere else.” My most obscure movie reference (so far). From Tom Stoppard’s ‘Rosencrantz & Guildenstern Are Dead’ — 1966 novel and 1990 movie starring Richard Dreyfuss and Gary Oldman. The story of Hamlet told from the worm’s-eye view of two minor characters, bewildered Rosencrantz and Guildenstern.

Whatever your specific exit plan, it should begin with your end goal (or ‘next entrance’) in mind. And give yourself plenty of time for it to take shape – 3 to 5 years is a good rule of thumb. 

As a small business owner your goal from the beginning was to build value but, at some point, you will exit the business. If you have executed an exit strategy plan over three to five years and created maximum value, you have options. 

  • Continue to grow your business and pay yourself a healthy income. 
  • Hire someone to run the business for you while you benefit from the profits. 
  • Transition the business to your family or other management. 
  • Sell the business. 

Let’s discuss the sale options in more specific terms. Please note that tax implications must always be considered when choosing an option. 

Sale on the Open Market – Fair Market Value 

Is this the right option for you? Consider: 

  • Will you be able to get the price you need in the time frame you have in mind? 
  • How difficult will it be to find a buyer? 
  • How much do market factors impact your business, and what is projected to happen in your industry and the market in your desired sale time frame? 
  • What are your goals for the terms of the sale? Is this realistic? 

Strategic Sale Within Your Market 

Your business may be in a position to be acquired by another company that has a similar product or service, or a similar customer base. That company may want to acquire you for a variety of reasons your company assets, access to your customers, intellectual property, or to remove you as a competitor. Here are some things to consider: 

  • What companies are potential acquirers (if there are any)? 
  • What is your value to an acquirer compared to your value to a buyer in the open market? It could be more or less, based on the why the other company wishes to acquire you. In some cases, the value may be much greater if the company is acquiring you for strategic reasons. 
  • Will you be required to stay with the company for a transition period? This is often the case. Do you want to do this? What are the risks to you if the acquisition/merger does not go well? You should make sure that the terms of acquisition include adequate protections for you. 

Employee Stock Ownership Plan (ESOP) 

Allows your employees to purchase the company over time. This can often be a favorable option for business owners who want to significantly improve the tax impact of the sale of their business. Here are some things to consider: 

  • How should you structure your ESOP in order to create the most favorable tax outcome for you, as well as a positive outcome for your business and employees? 
  • Do you have long-term valuable employees? If you do not, and have a high turnover of employees, an ESOP will not work well. 
  • What are the future prospects for your company? Your company needs to have a realistically viable future based on your current financial position (which should be low debt, good cash flow) and favorable long-term market conditions. 

Sell to an Insider 

You may choose to sell the business to a person(s) who is already involved in the business. It may be an employee, customer, friend, or family member. Often, in a friendly sale like this, the business owner finances the sale over a period of time. A friendly sale can also just mean that you are passing the business to your heirs, but often still taking an income from it during your retirement. 

Here are some things to consider: 

  • Is the buyer(s) qualified (and motivated) to manage the business successfully? 
  • Consider the impact on your relationship with the buyer if the business has issues or fails in the future. Are you willing to take that risk? 
  • Will you be able to sell with terms that will allow to achieve your financial goals? (i.e., are you going to be too nice to the buyer and put yourself at a disadvantage?) You may simply choose to let someone else manage the business and start taking as much cash out of the business as possible until you are ready to retire, and then sell it at a lesser value or just let it die. Here are some things to consider: 
  • Will you be able to get enough, and save enough cash to retire comfortably? 
  • Are you willing to sacrifice the value of the business by taking cash out rather than growing the business? 
  • How does this impact your employees, now or in the future? 

Liquidate the Business 

You may choose to simply choose to sell it in pieces when you’re ready to exit. Here are some things to consider: 

  • Are you so valuable to the business that it is unlikely to be viable without you? Typically, dissolving the business is only the best option if this is true. If the business won’t be successful without you, who will buy it? 
  • What are the assets of your business worth? Is it enough? 

The manner of which you exit your business should be based on 3 – 5 years of planning, not on a snap decision resulting from an unexpected event. You’ve spent considerable years of your life building your business. You owe it to yourself to prepare for the day when you will leave it. 

Michael Stier is an Area President for FocusCFO based in Charlotte, NC. 

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast, with more than 100 CFOs and Area Presidents throughout Ohio, Michigan, Kentucky, Indiana, Pennsylvania, Tennessee, and North Carolina. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. For more information, visit us at focuscfo.com or follow us on LinkedIn. 

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It’s Not Personal, It’s Business

It’s Not Personal, It’s Business

It’s Not Personal, It’s Business

By Michael Stier

“It’s not personal Sonny, it’s strictly business.” The 1972 blockbuster ‘The Godfather’ is rife with variations of this iconic line, along with many others. It’s probably one of my most oft quoted movies… just ask my wife. 

But let’s get real! For small business owners it is very personal. We eat, sleep, and breathe our business. It is our passion, and it is consuming. Tucked somewhere in the back recesses of our mind is the notion of what a successful exit from this business may eventually look like and what our ‘next chapter’ may be. But how many of us actually have a formal exit plan, put in place far enough in advance to make it realistic to accomplish? Get real! 

But Make no Mistake…. We Will All Eventually Exit Our Business. 

One way or another, we will all eventually exit our business. The question to ask yourself – do want to exit on your terms, or on terms that are forced upon you (or your family)? While there are many facets to the exit planning process, the subject of this paper is on your personal readiness to exit, including a vision of what your life will look like after you are no longer involved, fully or materially, in managing the business. 

You Must Have a Plan 

Why is this important? Studies have shown that 75% of owners who exit their business are profoundly unhappy a year after the exit! And those are the ones that do sell. Many businesses fail to sell at all, a significant number due the owner’s cold feet. The primary driver in both cases is the absence of a plan ‘for their next chapter’. 

Are you Emotionally Ready? 

First, as a business owner who has dedicated your life to building something of value, you must be emotionally ready to let go. Are you, in fact, ready? Because we entrepreneurs spend our lives managing the highs and lows of everyday business, we are often left with an emotional void stemming from a lack of purpose or just, simply, things to do. Planning – far in advance – the logistics of the exit will by a catalyst to envision what your new life will look like. It will help you to emotionally prepare. 

Are You Financially Ready? 

Second, you must have a personal financial plan for life after exit. This will be based on your current personal assets, what lump sum you receive for the business when you exit, and any residual income you may earn from the business. Based on these factors, your financial plan must address: 

  • Will you receive adequate income to enable you to maintain the lifestyle you desire? Will this income be sustainable for your lifetime? 
  • Will you have funds to do the things you want to do during retirement such as travel, buy a new car, help family members, etc.? 
  • • Will you have funds for your own long-term care? 
  • Will you be able to maintain funds that they wish to pass on to their heirs? 

 

The plan will involve determining how to invest your assets, what insurance you may need such as long-term care and life insurance, and how you will receive income distributions from various sources. 

What Will You Do with Your Time? 

Third, consider how you will spend your time in your next chapter. How will you fill that very natural void and what you will do on a day-to-day basis? Lack of a next chapter plan can take a very real emotional toll. For some, this may not be a problem. You may already have ambitions and plans for your “next chapter”. This is why planning “life after exit” is a critical part of the overall exit planning process. 

And you don’t have to plan alone. Seek out trusted advisors to help you. Certified Exit Planning Advisors (CEPA®) are trained to assist you. You can find a CEPA near you by visiting the Exit Planning Institute (epi.org) or contact FocusCFO. 

Michael Stier is an Area President for FocusCFO based in Charlotte, NC. 

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast, with more than 100 CFOs and Area Presidents throughout Ohio, Michigan, Kentucky, Indiana, Pennsylvania, Tennessee, and North Carolina. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. For more information, visit us at focuscfo.com or follow us on LinkedIn. 

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All Hands 2021 Award Winners

All Hands 2021 Award Winners

2021 Award Winners

Congratulations to these Associates for their recent award at the FocusCFO All Hands meeting.

Client for Life Award

Gold Level

Tom Flynn

Area President, Central Ohio

David Green

CFO, Central Ohio

Jeff Lacy

Area President, Central Ohio

Pat Lang

CFO, Central Ohio

Client for Life Award

Bronze Level

Mike Derringer

Area President, Central Ohio

Joe Dougherty

CFO, Central Ohio

Peter Geise

CFO, Central Ohio

Greg Gens

Area President, Northern Ohio

Jim Gilbride

Area President, Northern Ohio

David Gouttiere

CFO, Northern Ohio

Jeff Lacy

Area President, Central Ohio

Scott Lee

CFO, Central Ohio

Sherif Matar

CFO, Central Ohio

Jim McKinney

CFO, Central Ohio

Todd Peter

CFO, Northern Ohio

Jeff Semple

Area President, Northern Ohio

Skip Vermilya

CFO, Northern Ohio

Todd Whetstone

CFO, Northern Ohio

Lynette Zody

CFO, Central Ohio

CFO Hall of Fame

Gold Level

CURRENT MEMBERS

David Bourke

Director, CFO Services

Bruce Collen

CFO, Central Ohio

Pat Lang

CFO, Central Ohio

Lynnette Zody

CFO, Central Ohio

CFO Hall of Fame

Silver Level

NEW MEMBERS

Joe Dougherty

CFO, Central Ohio

CURRENT MEMBERS

Dan Bloom

CFO, Central Ohio

Don Cain

CFO, Central Ohio

Jim McKinney

CFO, Central Ohio

Jim Zins

CFO, Central Ohio

CFO Hall of Fame

Bronze Level

NEW MEMBERS

Scott Lee

CFO, Central Ohio

Walter Himmelman

CFO, Northern Ohio

Scott Davis

CFO, Southwest Ohio

Richard Murch

CFO, Central Ohio

Ric Butler

CFO, Central Ohio

CURRENT MEMBERS

Wendy Brugmann

CFO, Northern Ohio

Will Cooper

CFO, Central Ohio

Dean Cole

CFO, Central Ohio

Kathleen Ferry

CFO, Northern Ohio

David Gouttiere

CFO, Northern Ohio

David Green

CFO, Central Ohio

Sherif Matar

CFO, Central Ohio

Todd Peter

CFO, Northern Ohio

Jim Rowlands

CFO, Northern Ohio

Bob Stecki

CFO, Central Ohio

Skip Vermilya

CFO, Northern Ohio

Area President Awards

Rookie of the Year

Michael Stier

Area President, Carolinas

Area President Awards

Rising Star

Lesli Matukaitis

Area President, Michigan 

Mitch Willis

Area President, Pennsylvania

Area President Hall of Fame

Gold Level

NEW MEMBERS

Jim Gilbride

Area President, Central Ohio

CURRENT MEMBERS

Mike Derringer

Area President,
Central Ohio

Tom Flynn

Area President,
Central Ohio

Jeff Lacy

Area President,
Central Ohio

Jeff Semple

Area President,
Northern Ohio

Area President Hall of Fame

Silver Level

NEW MEMBERS

Bob Miller

Area President, Central Ohio

Darren Cherry

Area President, Central Ohio

CURRENT MEMBERS

Forest Bookman

Area President,
Northern Ohio

Fred Dannhauser

Area President,
Northern Ohio

Peter Geise

Area President,
Northern Ohio

Area President Hall of Fame

Bronze Level

NEW MEMBERS

Bob McAdams

Area President,
Central Ohio

Jeff Farrington

Area President,
Michigan

CURRENT MEMBERS

Bob Miller

Area President,
Central Ohio

Greg Gens

Area President,
Northern Ohio

2020 Continuous Learning Award

Exit Planning Institute – CEPA

NEW MEMBERS

Kim Cooper

CFO, Carolinas

Mark Clower

Area President, Southwest Ohio

Michael Stier

Area President, Carolinas

Randy Feger

CFO, Pennsylvania

Mike Derringer

Area President, Central Ohio

Greg Gens

Area President, Northern Ohio

David Green

CFO, Central Ohio

Lesli Matukaitis

Area President, Michigan

Jeff Farrington

Area President, Michigan

Tom Bartos

Area President, Pennsylvania

Forest Bookman

Area President, Northern Ohio

Bob Palmerton

CFO, Michigan

Mark Rust

CFO, Pennsylvania

Peter Geise

Area President, Northern Ohio

VETERANS

David Bourke

Director,
CFO Services

Darren Cherry

Area President,
Central Ohio

Mark Clower

Area President,
Southwest Ohio

Kathleen Ferry

Area President,
Northern Ohio

Tom Flynn

Area President,
Central Ohio

Jim Gilbride

Area President,
Northern Ohio

Brad Martyn

Visionary and Founder
FocusCFO

Jeff Semple

Area President,
Northern Ohio

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Can ABL Help Your Cash Flow

Can ABL Help Your Cash Flow

Can ABL Help Your Cash Flow?

By Michael Stier

 ABL…? Airborne Lasers? Advanced Blending? Abetalipoproteinemia? No, in this case … Asset Based Lending. 

If your business has high inventory levels or is poised for rapid growth, but lacks cash flow, an asset-based loan (ABL) might be the perfect fit. Despite greater leverage tolerance and higher advance rates, ABL pricing is only modestly more expensive than traditional loans, because it has a proven track record in minimizing lender losses. And is cheaper than factoring. 

Does your organization have accounts receivable and inventory that can be leveraged to improve liquidity? The nature and quality of your working capital can make all the difference.

Companies that maintain high levels of quality working capital assets and produce modest cash flow are ideal candidates for an asset-based loan (ABL).

Liquid Collateral is Key for Leveraging an Asset-based Loan 

Large retailers, manufacturers and distribution companies are good candidates for ABLs as they invest significantly in working capital and often produce relatively low free cash flow (FCF). 

An ABL can be perfect for a company of this profile, particularly if they are poised for rapid growth, acquisitions or considering a shareholder buyout. Many companies can generate higher debt capacity via a borrowing base, rather than traditional commercial loans. 

The traditional way to measure debt capacity is a function of cash flow, typically calculated as a multiple of earnings. ABL uses a borrowing base predicated on working capital liquidation values, which typically range from 40 percent to 70 percent for inventory and 80 percent to 90 percent for accounts. 

Eligible Collateral Has a Hierarchy 

Lenders specializing in asset-based loans look for collateral that’s liquid. The stack-rank asset preference is typically: 

1. Receivables 

2. Inventory 

3. Equipment 

4. Real estate 

The higher an asset is in the ranking, the more liquid it is. Ideal collateral are accounts receivable or inventory that’s easily valued and monetized. Generally, the faster that the asset turns, the more attractive it is as collateral. 

It’s Important to Prepare for a Meeting with Prospective Lenders 

Lenders often start the process of evaluating their working capital assets: inventory, machinery and equipment, and/ or real estate. After funding, the lender tracks adjustments in value through frequent reporting, periodic exams and inventory appraisals during the lending period. As a borrower, you will be asked to submit reports at least monthly, that reflect changes in the quantity and/or value of your working capital assets. Your CFO plays a critical, ongoing role as the point person with your lender. 

ABL Pricing Can be Competitive with Traditional Loans 

Costs can vary by lender, but most borrowers can expect to pay loan costs – such as a closing fee, a direct interest charge, unused fees and modest monitoring fees. Despite greater leverage tolerance and higher advance rates, ABL pricing is only modestly more expensive than traditional loans, because it has a proven track record in minimizing lender losses. And is cheaper than factoring. 

Michael Stier is an Area President for FocusCFO based in Charlotte, NC. 

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast, with more than 100 CFOs and Area Presidents throughout Ohio, Michigan, Kentucky, Indiana, Pennsylvania, Tennessee, and North Carolina. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. For more information, visit us at focuscfo.com or follow us on LinkedIn. 

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The Inconsequential Owner

The Inconsequential Owner

The Inconsequential Owner

By Michael Stier

In all likelihood, you are absolutely critical to the success of your business. Without you, there is no business.

We need to fix that!

With good planning and some work, we can help you become an Inconsequential Owner. Think Dr. Evil (Mike Myers) from the movie ‘Austin Powers: International Man of Mystery’, “The details of my life are quite inconsequential…” 

All owners understand (at some level anyway) that they will someday leave the businesses they have created. Let’s assume for a moment that tomorrow you leave your business permanently. If you are an Inconsequential Owner, your exit will have no impact on the business, and that’s good for business value. Buyers pay for business value—not for the departing owner.

If you constitute a significant part of your company’s value (a/k/a a Consequential Owner), and you have left the scene, there will likely be few buyers interested in your company, and those who are will likely pay significantly less than they would have had you been an Inconsequential Owner.

Exit Planning is the process you can use to transform yourself into an Inconsequential Owner for your sake, for your family’s sake and the sake of your business and employees. While perhaps not the most flattering label, it probably aligns with what your children have been telling you for years!

Put another way, your Exit Plan should answer this question: “What has to happen in my business by the time I leave it, to:
1. enable me (and my family) to achieve financial security
2. allow me to move forward with the rest of my life, secure in knowledge that I have been a good steward of the business?”

Our mission at FocusCFO is to help owners achieve their personal and business goals. Critical to this mission is increasing the awareness of proper exit planning for all business owners. Many of us a FocusCFO are Certified Exit Planning Advisors (CEPA®), accustomed to helping owners think through their plans and orchestrate their team of advisors to achieve the goal.

Michael Stier is an Area President for FocusCFO based in Charlotte, NC. 

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast, with more than 100 CFOs and Area Presidents throughout Ohio, Michigan, Kentucky, Indiana, Pennsylvania, Tennessee, and North Carolina. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. For more information, visit us at focuscfo.com or follow us on LinkedIn. 

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