In this month’s “Viewpoint” a periodic newsletter published by Mirus Capital Advisors, the topic of how ready you should be when a buyer knocks at the door is discussed.  Laura Kevghas and David Hoffer, partners at Mirus Capital Advisors, Inc., write about the importance an investment banker plays in one of your biggest transaction of your life.

The article reaches out to a group of experts, including Rudi Scheiber-Kurtz, CEO of Next Stage Solutions. NSS works closely with Investment Bankers and M&A Advisors representing the business as CFO or Internal Financial Advisor during this transaction.

The article includes many excellent tips.  To read the full article, click on the link MirusCapitalViewpointSept2011

M&A activities are picking up?  How should you prepare?  NSS conducted a survey last year with a diverse group of M&A EXPERTS about the internal and external approach a business needs to consider to end up with a successful exit.

By Rudi Scheiber-Kurtz, CEO of Next Stage Solutions. Inc.

Growing a company takes all the energy of a CEO and Exit Planning is mostly on the periphery.  Developing a long-term approach is essential in achieving a successful exit.  This will be the biggest game you will ever play and you want the end result to reflect that.  With this survey summary we want to showcase the necessary steps for you to consider.  Mitigate risk up front and consider early on an advisory team.

The EXPERT survey takers included prominent Investment Bankers, M&A Advisors, Attorneys, CPAs and Financial Advisors|CFO, Valuation and Management Consultants from the greater Boston area.

The summary and Benchmark Report represents the overall sentiment from the EXPERTS. Click to get the report: M&A Guidelines 2011

NSS Workshop Series for CEOs and Business Owners

Private Equity Transactions: From Raising Growth Capital to Making an Exit | What you Need to Know.

Date: Tuesday, November 9, 2010   7:30am – 9:30am

Host: Wolf & Company | 99 High Street | Boston, MA 02110

Who Should Attend?

This workshop is exclusively for any President/CEO or Business Owner of a mature company with greater than $10MM in sales. If you are not a candidate of the above criteria, please forward this email to clients and colleagues who are.

Attention: This workshop will be strictly confidential. Names and contact information will not be released.  No solicitations.

Moderator:

Frank Leibly, Partner, Alcon Partners

Panelists:

John Fernsell, CEO, Ibex Outdoor Clothing

Ethan Flaherty, Partner, Pabian & Russell

Laura Kevghas, Partner, Mirus Capital

Discussion Topics:

• What is Private Equity, and how is it relevant to my business?
• What kinds of transaction structures are common?
• What questions should I be prepared to answer?
• What types of companies are good candidates to work with Private Equity firms?
• Should I hire an investment banker or business broker?
• What are the steps towards a capital raise and an eventual exit?
• What does a due diligence process look like?
• Why a private equity transaction instead of a strategic sale?
• What to expect after a transaction is complete?
• Is now a good time for a private equity transaction?
• Horror stories and how to prevent them.

Sponsored by Next Stage Solutions, Inc

Attendance is complimentary, but registration is required

Call today 617-449-7728 or send an email info@nextstagesolutions.com to save a space

By Mark Ott, CFO Consultant, Next Stage Solutions, Inc. (NSS)

Previously I talked about How to Prepare Your Company for Sale and the need to get your historical financial information in order.  While potential buyers are certainly interested in how well your company has performed in the past, they are even more interested in how well you will perform going forward as this is what they are truly buying.  While no forecast is guaranteed, nothing will make a potential buyer more nervous than a rosy forecast that doesn’t hang together.

Prepare a Credible Forecast

Many things go into a sound financial forecast but here are a few key things to focus on:

• Sound historical financials – the past is often times a good indication of the future.  Dramatic changes in trends from the past to the future need to be explainable and believable.
• Detail your assumptions – capture each and every assumption and test them before you employ them in your forecast.  Be able to explain the assumptions and defend them.
• Test the logic built into your model – test it yourself, give it to a trusted colleague to test, give it to your accountant/financial advisor to test.  After you’re satisfied, give it one more test.
• Consider buying or subscribing to a forecasting tool – Many companies rely solely on Excel models.  I can almost guarantee you that there are flaws in any such models.  Using a forecasting tool can eliminate many of these flaws, make it simpler to import actual data, and make it far easier to do what-if scenarios.
• Presentation – Simpler is better. Prepare materials that are easy to read and understand and have supplemental charts, graphs, and more that drill down into more detail should questions come up.

Working on these points will go a long way to developing better forecast, budgets, and long range plans.  One other thing to keep in mind:  make sure you and your financial partner understand the projections thoroughly and can talk about them easily and freely.  No matter how sound they may be, if you’re unsure of yourself in front of potential investors, they will be wary of what you are telling them.

Next time we’ll talk a bit about why it may be helpful to enlist the help of professional people to help you sell (or buy) a company and when it is appropriate to do so.

If you are contemplating to sell your business, make sure to join our next NSS CEO Workshop on this topic on Tuesday, Nov 9, 2010

NSS Advisory Board member Steve Honig, partner in the Boston office of Duane Morris, a national law firm, published an interesting article in Lawyers Weekly.  It ponders with the issue around corporate governance and Enterprise Risk Management.

Laurie Taylor joined the NSS team recently.  He has over 20 years of experience and has worked with multiple start-up as Controller. We are delighted to have him on board.

Most Satisfying: In your CONTROLLER work you have done in the past, what is the most satisfying feedback you got from the CEO?

Nineteen out of twenty client companies have offered me a full time position during the engagement.

Most Inventive: Given that as CONTROLLER we understand the importance of providing our clients with more than just accounting and financial reporting, share with us a project that truly made you a value creator.

I began a two person project to determine why a major bank’s ATM conversion had an out of balance total of $19M after the merger of the two banking systems.   The bank booked a 200k reserve to cover this reconciliation exposure.  I requested a Bank Tiger team to assist my current consulting team and at the end of the project we had completely reconciled the account and were only unable to account for $9k in bank funds.  We also discovered a major systems glitch that was the result of the systems merger and trained the banking staff to recognize the problem and how to correct the system if it occurred again.

Most Positive: CONTROLLER’s have different skill set, yet often we are viewed as one of the same.  Tell us a story where your actions made a powerful positive change and why.

I was assigned a project to take over for a Director of Finance at a specialized moving van company.  I first determined that there was a massive amount of misspending going on and no one was managing the AR accounts.  In 6 weeks we were able to make enough corrections that company was stable enough for sale to a much better funded and staffed regional carrier.  The sale of this business unit saved 250 staff member’s jobs as a result of the merger instead of a company closure due to prior management neglect.

Best Business Book: What should every CEO be reading going forward in this tepid economy?

The Why of Work: How Great Leaders Build Abundant Organizations That Win by
David Ulrich and Wendy Ulrich

Funniest Fact: Tell us something funny about you.

I am crazy about WWII aircraft that have massively supercharged engines that “go fast, stay low, and turn left!” also known as the National Championship Air Races held each fall in Reno, NV.  The only rules are that these planes must have a prop and straight wings.

By Mark Ott, CFO Consultant, Next Stage Solutions, Inc. (NSS)

While the M&A market is fairly quiet as we enter the summer doldrums, it is a perfect time for owners and boards to think about what preparations can be made now in anticipation of selling a company when the market does open up.  Over the next several months, I will highlight some of the key financial issues that you should be thinking about and preparing for during this quiet period.

Are Your Historical Financials In Order?

In discussions with potential buyers, one potential red flag is a set of historical financials which doesn’t stand up to scrutiny.  You should have a complete set of financial statements (Income Statement, Balance Sheet, Cash Flow) for the previous three years (two minimum) which have either been reviewed by or, better yet, certified by outside auditors as well as unaudited interim financials for the current year.  If your accounting is currently on a cash basis, you should consider changing to an accrual basis (after consulting with your tax advisor) and it would be advisable to ensure that your accounting is in compliance with GAAP (Generally Accepted Accounting Principles).

Most companies have someone in house to do their bookkeeping but it is wise to have an independent company like Next Stage Solutions (NSS) come in and review the historical financials and get them in good shape.  NSS has strategic-thinking CFO’s who have experience in leading companies through the M&A process.  Their participation in this phase will actually pay for itself to some degree as it will reduce the cost of the review/audit by the outside audit firm and accelerate the process.  Furthermore, you cannot use the same firm to prepare the financials and then audit/review them.

One other good reason to have sound historical financials is that they will better enable you to Prepare a Credible Forecast which will be the subject of my next article.

Mark Ott joined Next Stage Solutions this Spring.  Read on to see what Mark has been up to – he has a great story to tell!

Most Satisfying: In your CFO work you have done in the past, what is the most satisfying feedback you got from the CEO?

The most satisfying feedback I received is when the CEO told me that he knew he could spend a considerable amount of time out of the office (with customers, investors, board members, press, etc.) knowing that everything back at headquarters was being looked after with me looking after things.

Most Inventive: Given that as CFO we understand the importance of providing our clients with more than just accounting and financial reporting, share with us a project that truly made you a value creator.

When we moved a company from California to Massachusetts, I had to build a complete infrastructure pretty much from the ground up.  This included the recruitment/interviewing and engagement/hiring of new corporate attorneys, external auditors, Accounting Manager, Office Manager, and Human Resources Manager as well as establishing new banking relationships and corporate insurance programs.  All of this had to be done in a matter of three months.

Most Positive: CFOs have different skill set, yet often we are viewed as one of the same.  Tell us a story where your actions made a powerful positive change and why.

When I was European Controller for a large networking company, I had eight country controllers reporting to me.  Some of the countries (like the UK and Germany) were larger contributors to the results of the overall operation than others (like Spain and Sweden).  In that environment the controllers for the larger countries tended to be more influential in group decisions and the controllers for the smaller countries would sit back and complain that their needs were always overlooked because of their size.  This ultimately led to a team that did not work very well together and this was reinforced by pre-existing cultural differences.  One of the things I did to turn this around was to solicit ideas from the controllers concerning topics to be covered in an upcoming quarterly staff meeting.  When the time for the meeting came, I appointed the controller who suggested the topic as the leader of the discussion leader and subsequent action items.  This forced the smaller countries to play a much more active role in the group in identifying their issues and forced the larger countries to sit up and listen and help find solutions as they were cast in more of a “follower” role.  Following this pattern in subsequent staff meeting resulted in a much more cohesive pan-European staff.

Best Business Book: What should every CEO be reading going forward in this tepid economy?

“Leadership in the Era of Economic Uncertainty:  The New Rules for Getting the Right Things Done in Difficult Times” by Ram Charan, McGraw-Hill.

Funniest Fact: Tell us something funny about you.

My fraternity brothers used to call me “Howard”, which is my middle name.  They thought that it was an “amusing” middle name, so they thought they could get me going if they kept calling me by that name.  It worked for a while but the nickname stuck throughout college and they will even use it today in those rare occasions when we get together.

Stay tuned for our next team member’s story!

IBM just published an extensive and insightful study about the global chief financial officer.  The 2010 IBM Global CFO Study reveals the importance of the CFO role today and how a financial advisor must be broader and more strategic. It surveyed 1900+ CFOs worldwide from a cross section of enterprise sizes.

Today’s CFO must bring a broad understanding for a business, more than ever.  Figure 1 shows the significant changes over the last 5 years on the importance of five company-wide activities. Notice the largest changes are around managing and mitigating risk (93% increase) and integrating information across the enterprise at 109% increase.

Figure 1

The study defines the CFOs into four groups:

1. Value Integrators
2. Disciplined Operators
3. Constrained Advisors
4. Scorekeepers

It evaluates the effectiveness of all four in multiple subject matters and shows the gap or discrepancy between the different styles.  For simplicity, we compare the two opposites, that of the Value Integrator and the Scorekeeper.   The Scorekeeper is defined as a CFO focusing primarily on financial reporting, compliance and accounting with some budgeting and forecasting.

The Value Integrator is viewed as a CFO who continuously improves the finance efficiency and provides broad business insights to the business.  They use technology to achieve greater data accuracy and develop better analytical tools for forecasting and scenario planning. Value Integrators understand the importance of managing enterprise risk and opportunities.  This study points out that Value Integrators consistently outperform the other 3 groups and have provided significant security to businesses in this recent downturn.

Figure 2 shows the 5-year effect most significantly around EBITDA, where the difference is more than 20X. Value Integrators also outperform on the REVENUE and ROIC side, with 49% and 30%, respectively.  These numbers are indeed noteworthy, the differences are truly impressive.

Figure 2

Multiple financial measures in this study are evaluated (see figure 3) and most impressively, Value Integrators achieved sustainability within their companies despite the economic recession.  The study also evaluates enterprise-focused effectiveness and how expectations versus executions show a widening gap. One of the larger gaps (34%) is integration of information across enterprises.  Today’s CFO must integrate information to understand which metrics are important and how often: weekly, daily or realtime.  Proactive CEOs demand proactive data support from their financial team.

Figure 3

The two key capabilities associated with the outperformance of the Value Integrator are:

1. Finance  efficiency – provides business-relevant information and strong analytics based on good data
2. Business Insight – enterprise focused  and risk-based decision making support in a timely manner

Figure 4 shows how Value Integrators outperformed on all aspects of CFO responsibilities.  Using Scorekeepers as the baseline, it is hard to avoid noticing the alarming difference between Scorekeepers and Value Integrators. Very importantly, combining the skill set of finance and enterprise knowledge has a multiplier effect and separates the Value Integrator by a large margin. Finance and risk are embedded in the company.  Risk management and opportunities are in fact a big focus for a forward looking CFO. The support and overall contributions from a CFO to an enterprise are becoming increasingly strategic.

Figure 4

Clearly CFOs need to master and control all tactical aspects of finance.  Historic data provides you with a historical view.  A current view is represented by financial dashboards important to all decision-making.  The forward looking view is vitally important for ongoing sustainability and growth of a business.  Only with the understanding and support of all three can the CFO be truly pro-active in the decision-making process, scenario planning, forecasting and risk management and mitigation.  The new, strategic CFO must possess the expertise and skill set in support of the CEO (figure 5).

Figure 5

The strong emphasis on tactical finance for the past 10 years is partly due to Sarbanes-Oxley.  CFOs have continuously been transaction driven leaving a significant gap between actual and aspiration (see figure 6).  CFOs continue to spend half their time around transactional processing.  NSS thinks that the future mix should be:

40% Decision-support
30% Transactional
30% Control

Today’s economic landscape demands increased worldliness, intellect and knowledge from CEOs and CFOs. This combination gives the CFO more enterprise wide responsibilities as a trusted business partner who understands finance, connects the dots, brings micro- and macroeconomic knowledge and is market and industry savvy.

Figure 6

NSS is interested in your feedback and in how you have navigated through this recession.  The 2010 IBM Global CFO Study shows powerful statistics in support of a Value Integrator as a CFO and why it is so important to drive your business in that direction.  Give us a call to discuss further in how we may support you and your business with our value driven strategic CFO focus and strong ROI.

Rudi Scheiber-Kurtz, CEO
Next Stage Solutions, Inc.
The GPS of Finance