Corporate Finance

The reality is that fraud does exist in today's business environment, with potentially devastating effects. Uncovering and unwinding fraudulent activities in a company's financial accounting department can be very difficult and many times the business owner will not recoup their losses. How can a small business owner prevent and/or detect fraud? How can fraud be prevented in circumstances where one person is responsible for the finances? How can a business owner safeguard the company's assets?

There are a few steps that business owners can take to reduce the risk of fraud:

• Lock your valuables such as check stock, cash, signature stamps, and physical inventory.
• Segregate accounting duties such as check writing and signing, receiving and counting inventory, and depositing checks and reconciling the bank statements. If this isn't possible with your current staff, you might consider a part-time cfo, controller or bookkeeper to segregate the duties.
• Review third party back-up when authorizing transactions, such as reviewing original invoices before signing accounts payable checks.
• Perform background checks and/or check references on all employees and prepare performance reviews to monitor the employees activities.

I’d like to spend some time touching on a technology solution that continues to grow in maturity -  “Cloud Computing.”  The basic concept behind Cloud Computing is being able to consume technology solutions as your business needs them without the typical capital investment needed to purchase software or hardware. The name, like many other titles given to tech products, gives a visual picture of your hardware and software solutions being provided somewhere out there in the cloud of virtualization. You will hear other names being used to help differentiate what specific type of cloud solution is being provided; Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) both describe the operating environment. Another popular alias for cloud computing you may recognize more since the launch of Salesforce.com is Software as a Service (SaaS).  Although the technology architecture and consulting service may differ with each type, the benefits of a robust environment with economies of scale are the same.

Gartner identified Cloud Computing as one of its top 10 strategic technologies for 2009. These technologies are enabling businesses to access tools and solutions that would have previously been cost prohibitive or put a significant drain on cash. What I find compelling is that although many large enterprises are using this ‘pay-as-you consume’ technology solution, according to Forrester Research, small and medium size businesses are not. Why are operations with more limited resources not taking advantage of this new advance in technology that brings advanced solutions to your finger tips without a heavy investment? Is it likely that most small companies don't have a CIO or Part-Time CIO helping to make these decisions? What can be done to encourage small businesses to incorporate these technology solutions in their strategic plans? Tell me what you think.

“Our business plan was predicated on equity and debt,” Blowtorch Chief Executive Kelly Rodriques said. “Our debt effectively went away while we were working on our first couple projects and we just slowed everything down. We’ve kept it alive, but haven’t been doing any investing.”

Blowtorch’s story is an unfortunate case in which the company’s fate belonged to financiers instead of the leadership charged with executing the vision. Click here to read the full story at WSJ.com.

How can you avoid a similar fate? When our business consultants work with our clients on fund raising activities and the development of a corporate finance plan, we first build financial projections to try to determine how much capital is needed and what structure is best suited for the business. We also consider the condition of the market, the strength of the investor(s), the cash burn in the business, and confidence that management has in the execution of its strategic and business plans.

We would also typically steer our clients away from "committed" or "pledged" funds and instead opt to bring the money into their account or into an escrow fund. This should help avoid a situation like Blowtorch that thought it had $50 million when it in fact had something significantly less and was unable to execute its plans.

If you are wrestling with these issues, contact Milestone Advisors, an Indianapolis consulting firm that provides management accounting, corporate finance, and business strategy services to CEO's just like you.
 

"I'm often asked how I came up with the idea for my baseball tours company, Big League Tours. It's pretty simple, really. Just like everything else in my life, when my experience, passions and opportunities intersect, "big breaks" have occurred.

What led me to start Big League Tours is my background in entrepreneurial activities, my love for baseball and my recognition of a niche opportunity.

My background in entrepreneurial activities began at a young age when my dad encouraged me to mow lawns in my hometown of Summitville. He helped me set a price, ask for the money and realize that when you are providing a service that people need or want, you shouldn't feel like you are selling them anything.

From there I went to Ball State University to study entrepreneurship, which only increased my desire to be involved with entrepreneurial ventures. Starting at the Small Business Development Center in Columbus and later the SBDC in Indianapolis, I counseled and trained small-business owners in all aspects of business planning, startup and operations.

Seeing a need to provide services to entrepreneurs led my co-founder, Tom Gabbert, and me to launch Milestone Advisors in 2003. At Milestone, we advise CEOs on business strategy, corporate finance and management accounting. We have worked with more than 300 companies since our inception and have grown to 25 people."

You can go to IndyStar.com to see the full article. You can also visit MilestoneAdvisors.net to learn more about the business strategy, corporate finance, and part-time CFO or other management accounting advice that the firm offers.

Access to capital often determines whether a start-up enterprise succeeds or dies in its early stages. Here are several common types of business financing options available to young companies.

1. Angel Investors: Angel investors are an excellent source of early stage financing. They are often willing to tread where there is too much risk for bank financing and not enough profit potential for venture capitalists. Angels will invest for a longer time-horizon than will other investors --up to five years or more. They may also invest smaller amounts -- $1 million or less.
2. Venture Capital: Because they want a way to cash out in three to five years, venture capitalists usually shy away from very new business plans and rarely invest less than $5 million at a time. Accepting a venture capital investment also represents the potential loss of independence for owners, because venture capitalists often take an active role on the company's board and may push a specific strategic agenda.
3. Commercial Banks: Commercial loans are attractive because they don't require entrepreneurs to turn over equity or company control. But servicing debt can drain a young company with limited cash flow. New companies may not even have access to bank financing loans if they have no operating history and no collateral to secure the loan. Businesses seeking $100,000 or less, however, can often find unsecured loans available through a simple application process focusing on the owner's personal credit history. Business owners with personal assets can also obtain secured loans against those assets.

3) Understand the agreements that you have signed. Many relationships are soured by misunderstandings or lack of knowledge by the borrower about the terms and conditions of the loan. If you don’t understand the terms and conditions, ask your lender questions. If you are still unsure, seek professional advice. Attorneys, accounting firms,  and consultants that have worked with bank transactions can help you understand the agreement

4) Live by the agreement. If you owe your lender financial statements on the 15th of the month, "don’t" provide them on the 16th (or later). Provide borrowing base certificates on time. Provide year-end reviewed statements as required. Whatever the terms and conditions are, none of them should be a surprise to you and they are in the agreement for a reason. The less your lender has to hound you to live up to your end of the deal, the more apt they will be to want to help you in the future.

5) Get to know more than one person at the bank. Very few people will stay in one position at one company for very long. Bankers are no exception. Get to know your lender, the head of the banking division, even the President of the bank. When changes are made within the bank, you’ll have insiders that can still assist you after the transition.

6) Keep your lender in the loop. What’s new in your business or industry? How are you doing regarding meeting your business plan? Any needs for additional capital? While much of banking is based on numbers, there is a very important personal relationship element as well. If you haven’t met with your lender within the last quarter, you have waited too long.

7) You must tell them the bad news, too. This is the hardest rule for most entrepreneurs. The idea of sharing bad news with their lender makes them cringe. But if you have been living up to your agreement, have kept your lender in the loop, and have more than one person at the bank on your side, you will be surprised how they can help you work through bad situations. They would rather know up front and have an opportunity to help than to find out after it’s too late to do anything.

Keep these rules in mind as you maintain your banking relationship, and your bank is more likely to be there for you when you need them most. Either way, if you need assistance with any of your business finances, from buying a business and raising capital, to bookkeeping and paying the bills, and beyond, Milestone Financial Advisors is here to assist you as well.

Most small business owners (and many large business owners as well), don’t understand the importance of "Managing Their Banking Relationship". Even if they do understand its importance, few know how to nurture that relationship to the point that it can actually help them grow their business.

The relationship you have with your bank could be critical to the ultimate success of your business. Every business has to weather a few financial storms from time to time, but if your banking relationship is healthy, your business has a much better chance of being around to see brighter days.

So what’s the trick to maintaining a good banking relationship? For starters, follow the 7 rules outlined below. Remember, the best way to avoid seeking a new banking relationship is to wisely manage the one that you have. If you are not a financial accounting expert, some of these rules may be a little intimidating, but they have to be followed to protect that all-important relationship with your bank. If necessary, get some assistance from a qualified Business Finance Advisor or experienced CFO. Avoid getting advice from friends or people that "think" they know what they are talking about. Uncle Bob has ruined plenty of banking relationships already.

1) Know your needs. The bank is there to provide you with capital to support your needs. They are not there to determine your needs. So be prepared. Complete your business plan and include all appropriate financial projections. Determine the capital required and the preferred structure. Then work with your lender to put that structure in place.

2) Plan for (and discuss) the future. Communicate your future capital needs to your lender, not just the needs for today. In other words, don’t borrow money today expecting that in six months you’ll borrow another round of funds without any problems. You may have reached your maximum borrowing capacity. If so, you will come to an impasse with your bank in six months. More importantly, you may not be able to address the business opportunities after you’ve built them.