New Standards for Revenue Recognition

Revenue Recognition Principles promulgated in 2014

By Derek A. Smith, Managing Director, Next Stage Solutions, Inc | smith@nextstagesolutions.com

The Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) have at long last completed their deliberations on the establishment of revenue recognition principles that are common wherever US GAAP and International Financial Reporting Standards (“IFRS”) are applied. The new standard was issued on Wednesday, May 28, 2014 and will be effective for fiscal years beginning after December 15, 2016 for public companies and December 15, 2017 for private companies. Entities will have the option to apply the standard retrospectively or to adjust opening retained earnings for the cumulative effect of accounting for contracts that are not completed under legacy GAAP at the adoption date.

Implementation of the new standard will mark a big change for many companies in the United States today. It is estimated that there are more than 200 pieces of authoritative literature that create industry-specific rules for revenue recognition including ASC 985-605, Software: Revenue Recognition; ASC 605-35, Revenue Recognition: Construction-Type and Production-Type Contracts; and ASC 932-605 Extractive Activities – Oil and Gas: Revenue Recognition. These will all be replaced by the new standard. In the press release announcing the new standard FASB Chairman Russell Golden stated “It will eliminate a major source of inconsistency in GAAP, which currently consists of numerous disparate, industry-specific pieces of revenue recognition guidance.”

 

Why you want to start sooner rather than later

While the launch date may seem far off, companies and their management teams need to understand that systems and processes are going to need adjustment to satisfy the new guidelines. It is not appropriate to use an Excel spreadsheet to track the reporting obligations. Further, for any company that provides comparative financial statements, the results for the earlier periods will need to be recalibrated if the company applies the standard retrospectively. Public companies have to provide three years of comparative Statements of Activities.

 

What is the new Standard?

The core principle of the new standard is that “an entity shall recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services”. While there are some exceptions, the standard will apply to most transactions with customers.

The New Standard in 5 Steps

The new standard has five steps an entity must take in determining the recognition of revenue. They are as follows:

1. There must be a contract (either oral or written) with the customer;

2. The contract must spell out the separate performance obligations;

3. The transaction price must be determinable;

4. The transaction price must be allocable to the separate performance obligations in the contract; and

5. Individual performance obligation revenue will be recognized upon satisfaction of the individual performance obligation.

1. Contract with a Customer

A contract must have commercial substance; the parties are committed to perform their respective obligations; each of the parties can identify their rights regarding the goods or services to be transferred; and the entity providing the goods or services can identify the payment
terms for effecting the transfer. The standard addresses contract modifications and add-on obligations.

2. Separate Performance Obligations

The final standard will provide specific guidance on evaluating the goods and services in a contract to identify each separate performance obligation. While the final standard will not define goods or services, it will provide several examples including goods produced for sale, granting a license, and performing contractual acts. A good or service will represent a separate performance obligation if it meets both of the following criteria:

(i) It is capable of being distinct (that is, the customer can benefit from the good or service on its own or with other readily available resources); and

(ii) It is distinct in the context of the contract (that is, it is not highly dependent or highly interrelated with other promised goods or services).

The final standard will include other indicators (or similar indicators) of whether a good or service is distinct in the context of the contract.

3. Transaction Price

The third step in applying the new standard is to determine the transaction price. That is, an entity must determine the amount of consideration to which it expects to be entitled in exchange for the promised goods or services in the contract. The transaction price can be a fixed amount or can vary because of discounts, rebates, refunds, credits, incentives, performance bonuses/penalties, contingencies, price concessions, outcome-based fees, or other similar items. Under this model, an entity would estimate the transaction price by considering the effect of variable consideration, the time value of money (if a significant financing component is deemed to exist), noncash consideration, and consideration payable to the customer. Entities would use a probability-weighted approach to estimate a transaction price that is subject to variability (expected value) or an approach based on the single most likely amount, whichever is more predictive of the amount to which the entity would be entitled.

Note: Contingent consideration would only be included in the transaction price when an entity has a “high level of certainty” that the amount of revenue to be recognized would not be subject to future reversals.

4. Allocating the Transaction Price

Next, the entity must allocate the transaction price to the separate performance obligations. When a contract contains more than one separate performance obligation, an entity would allocate the transaction price to each separate performance obligation on a relative stand-alone selling price basis (with certain limited exceptions). The standard will note that the best evidence of stand-alone selling price is the price at which the good or service is sold separately by the entity. If the good or service is not sold separately, an entity will be required to estimate it by using an approach that maximizes the use of observable inputs. Acceptable estimation methods will include, but are not limited to, expected cost plus a margin, adjusted market assessment, and a residual approach (when the selling price is highly variable or uncertain).

5. Recognition of Revenue

The fifth and final step in the model is to recognize revenue when (or as) each separate performance obligation is satisfied. A performance obligation is deemed satisfied when control of the underlying goods or services (the “assets”) for the particular performance obligation is transferred to the customer. “Control” is defined under the proposed model as “the ability to direct the use of and obtain substantially all of the remaining benefits from the asset” underlying the good or service. In applying the proposed model, an entity will first evaluate whether control of a good or service is transferred over time. A performance obligation is deemed to be satisfied over time (i.e., control of the good or service is transferred over time) when at least one of the following is met:

• The entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced.

• The customer receives and consumes the benefits of the entity’s performance as the entity performs, and another entity would not need to substantially reperform the work the entity has completed to date.

• The entity’s performance does not create an asset with an alternative use to the entity and the entity has a “right to payment for performance completed to date.”

If any of the criteria are met, an entity would be required to recognize revenue over time as control of the goods or services is transferred to the customer. In such case, an entity would recognize revenue by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The standard will provide specific guidance on measuring progress toward completion, including the use and application of output and input methods.

Note: There is no reference to collectability of the revenue as currently exists in US GAAP. While there has to be a reasonable expectation of collectability the new standard does not impose a threshold such as “reasonably assured”. The standard setters have stated that any provision for bad debts must be prominently disclosed within operating expenses.

Major Changes to Consider

· Affects both Public and Private companies

· Must run parallel accounting systems for at least 2 years( private companies) and 3 years (public companies)

· New standard is Principled based not Rules based

· There is an opportunity for Judgment

Other Considerations

As with any new standard, there are other items to consider in implementing the standard. They include the required disclosures to be included in the financial statements (hint: they are onerous), and for US companies the impact on accounting for income tax obligations. For example, the Internal Revenue Code addresses advance payments for goods and services and income from long-term contracts. Entities will need to evaluate how the new revenue recognition principles reconcile with income for tax purposes.

Next Steps

For further information, please don’t hesitate to contact your Next Stage Solutions partner. It is not too soon to begin addressing the accounting and operational processes required to be modified to be in compliance with the new standard.

What CEOs must know about New Standards for Revenue Recognition

Revenue Recognition Principles as Promulgated in 2013

By Derek A. Smith, Managing Director, Next Stage Solutions, Inc. He is a CPA and Chartered Accountant and was a member of the AICPA Board of Examiners from 1998 to 2006.  The BOE sets the CPA examination. Contact: smith@nextstagesolutions.com

Major Changes to Consider The New Standard in 5 Steps
  • Affects both Public and Private companies

  • Must run parallel accounting systems for at least 2 years( private companies) and 3 years (public companies)

  • New standard is Principled based not Rules based

  • There is an opportunity for Judgment

  1. There must be a contract (either oral or written) with the customer
  2. The contract must spell out the separate performance obligations;
  3. The transaction price must be determinable;
  4. The transaction price must be allocatable to the separate performance obligations in the contract; and
  5. Individual performance obligation revenue will be recognized upon satisfaction of the individual performance obligation.

The Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) have at long last completed their deliberations on the establishment of revenue recognition principles that are common wherever US GAAP and International Financial Reporting Standards (“IFRS”) are applied. The new standard will most likely be published in the second quarter of 2013. The new standard will be effective for fiscal years beginning after December 15, 2016 for public companies and December 15, 2017 for private companies. Entities will have the option to apply the standard retrospectively or to adjust opening retained earnings for the cumulative effect of accounting for contracts that are not completed under legacy GAAP at the adoption date.

Under US GAAP today there are at least eight different sources for determining how to account for revenue (for example ASC 985-605, Software: Revenue Recognition; ASC 605-35, Revenue Recognition: Construction-Type and Production-Type Contracts; and ASC 932-605 Extractive Activities – Oil and Gas: Revenue Recognition). These will all be replaced by the new standard.

Why you want to start sooner rather than later

While the launch date may seem far off, companies and their management teams need to understand that systems and processes are going to need adjustment to satisfy the
new guidelines. It is not appropriate to use an Excel spreadsheet to track the reporting obligations. Further, for any company that provides comparative financial statements, the results for the earlier periods will need to be recalibrated if the company applies the standard retrospectively. Public companies have to provide three years of comparative Statements of Activities.

What is the New Standard?

The core principle of the new standard is that “an entity shall recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services”. While there are some exceptions, the standard will apply to most transactions with customers.

The New Standard in 5 Steps

The new standard has five steps an entity must take in determining the recognition of revenue. They are as follows:

  1. There must be a contract (either oral or written) with the customer;
  2. The contract must spell out the separate performance obligations;
  3. The transaction price must be determinable;
  4. The transaction price must be allocatable to the separate performance obligations in the contract;
  5. Individual performance obligation revenue will be recognized upon satisfaction of the individual performance obligation.

1. Contract with a Customer

A contract must have commercial substance; the parties are committed to perform their respective obligations; each of the parties can identify their rights regarding the goods or services to be transferred; and the entity providing the goods or services can identify the payment terms for effecting the transfer. The standard addresses contract modifications and add-on obligations.

2. Separate Performance Obligations

The final standard will provide specific guidance on evaluating the goods and services in a contract to identify each separate performance obligation. While the final standard will not define goods or services, it will provide several examples including goods produced for sale, granting a license, and performing contractual acts. A good or service will represent a separate performance obligation if it meets both of the following criteria:

(i) It is capable of being distinct (that is, the customer can benefit from the good or service on its own or with other readily available resources); and

(ii) It is distinct in the context of the contract (that is, it is not highly dependent or highly interrelated with other promised goods or services).

The final standard will include other indicators (or similar indicators) of whether a good or service is distinct in the context of the contract.

3. Transaction Price

The third step in applying the new standard is to determine the transaction price. That is, an entity must determine the amount of consideration to which it expects to be entitled in exchange for the promised goods or services in the contract. The transaction price can be a fixed amount or can vary because of discounts, rebates, refunds, credits, incentives, performance bonuses/penalties, contingencies, price concessions, outcome-based fees, or other similar items. Under this model, an entity would estimate the transaction price by considering the effect of variable consideration, the time value of money (if a significant financing component is deemed to exist), noncash consideration, and consideration payable to the customer. Entities would use a probability-weighted approach to estimate a transaction price that is subject to variability (expected value) or an approach based on the single most likely amount, whichever is more predictive of the amount to which the entity would be entitled.

Note: Contingent consideration would only be included in the transaction price when an entity has a “high level of certainty” that the amount of revenue to be recognized would not be subject to future reversals.

4. Allocating the Transaction Price

Next, the entity must allocate the transaction price to the separate performance obligations. When a contract contains more than one separate performance obligation, an entity would allocate the transaction price to each separate performance obligation on a relative stand-alone selling price basis (with certain limited exceptions). The standard will note that the best evidence of stand-alone selling price is the price at which the good or service is sold separately by the entity. If the good or service is not sold separately, an entity will be required to estimate it by using an approach that maximizes the use of observable inputs. Acceptable estimation methods will include, but are not limited to, expected cost plus a margin, adjusted market assessment, and a residual approach (when the selling price is highly variable or uncertain)

5. Recognition of Revenue

The fifth and final step in the model is to recognize revenue when (or as) each separate performance obligation is satisfied. A performance obligation is deemed satisfied when control of the underlying goods or services (the “assets”) for the particular performance obligation is transferred to the customer. “Control” is defined under the proposed model as “the ability to direct the use of and obtain substantially all of the remaining benefits from the asset” underlying the good or service. In applying the proposed model, an entity will first evaluate whether control of a good or service is transferred over time. A performance obligation is deemed to be satisfied over time (i.e., control of the good or service is transferred over time) when at least one of the following is met:

The entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced.

The customer receives and consumes the benefits of the entity’s performance as the entity performs, and another entity would not need to substantially re-perform the work the entity has completed to date.

The entity’s performance does not create an asset with an alternative use to the entity and the entity has a “right to payment for performance completed to date.”

If any of the criteria are met, an entity would be required to recognize revenue over time as control of the goods or services is transferred to the customer. In such case, an entity would recognize revenue by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The standard will provide specific guidance on measuring progress toward completion, including the use and application of output and input methods.

Note: There is no reference to collectability of the revenue as currently exists in US GAAP. While there has to be a reasonable expectation of collectability the new standard does not impose a threshold such as “reasonably assured”. The standard setters have stated that any provision for bad debts must be prominently disclosed within operating expenses.

Other Considerations

As with any new standard, there are other items to consider in implementing the standard. They include the required disclosures to be included in the financial statements (hint: they are onerous), and for US companies the impact on accounting for income tax obligations. For example, the Internal Revenue Code addresses advance payments for goods and services and income from long-term contracts. Entities will need to evaluate how the new revenue recognition principles reconcile with income for tax purposes.

Next Steps

Discuss this issue and potential opportunity with your CFO at your earliest convenience.  For further information, please don’t hesitate to contact your Next Stage Solutions partner. It is not too soon to begin addressing the accounting and operational processes required to be modified to be in compliance with the new standard.

Annual NSS CEO Survey Results and Report 2012

Annual NSS CEO Survey Results and Report –2012

NSS conducted its Annual CEO Survey 3rd quarter last year and found some intriguing consistencies as well as one very strong dichotomy.  The purpose of the survey was to gain better understanding of the decisions-making process of CEOs in the greater Boston area and how they view the finance function.

Each of the questions represented a part of the business in the same order. All of the potential answers represent contributions from a finance team can and should make. Examples of how a finance team must contribute in the outlined aspects of a business:

 

Sales: CFOs forecast the most profitable products and channels

Operations: CFOs benchmark performance metrics and financial goals

Organization: CFOs close the gap between information flow and real-time decision-making

Finance: CFO negotiates capital transactions

 

Three of the four business aspects (sales, operations and organization) had consistent answers, with Sales and Organization somewhat more important than Operations.  The exception however was Finance which was viewed very differently and inconsistently from very low in expectations to a very high in terms in providing liquidity and access to capital markets.

The results also give us a better way to identify how to support CEOs with their aspirations, afflictions, challenges and desired improvements. The survey results are not surprising to NSS in that all aspects and questions represented in the survey are Finance Driven Functions.  What is of importance is that the dichotomy gets clearly defined when the expectations of the Finance Functions are set very low yet the challenges such as Access to Capital Markets and Product and Channel Cost/benefit Analyses are set remarkably high. This is an unnecessary compromise that can be very costly to a business.

NSS has observed this compromise where CEOs experience a similar pattern and frustration with the overall finance function and a mismatch of expertise and needs. Maybe the CFO is really a Controller type or the Controller does NOT provide CFO capabilities. CEOs need to be able to rely on their CFO as value creator and integrator for growth and profit.

The biggest organizational improvement aspired to in this survey was Communications.  They want to better understanding of how all levels can contribute to achieving the goals of the company. Again, a NSS CFO helps a CEO by attaching information flow to financial metrics and reporting and plays a major role in achieving this through communications with all departments.

Today’s CEO wants to incorporate and fully integrate the Finance Functions into all parts of a business as the silo mentality of departments gets eliminated and replaced with a more integrative approach and transparency to business.

Next generation finance functions need to be redefined to support CEOs for better and faster decision-making.  Agility is vital in growing and maintaining a business in volatile markets.  NSS and its high level CFOs use the driving analogy to best describe its finance and business focus. The GPS of Finance™ incorporates information integration, capital asset management and business performance measures and monitors as value creators.

In summary, from the survey we deduce that Sales continues to be a major concern along with Organizational well being. Operations sits somewhere in between with medium to high importance. We also conclude that Finance is not recognized as an important function in relations to value creation and is showcased as the only dichotomy of the four business characteristics. CEOs need to know that this is an important and realistic expectation from their CFOs.

Today’s CFO must be a business partner to the CEO, a value creator and integrator and directly affect the bottom and top line of a business.

NSS turns this problem into a solution for companies by closing the gap between needs and expectations and by pairing high level finance and business partners with CEOs at a better price point.

Contact us today to discuss further in how NSS works differently with its clients and how we may help you!! 617-449-7728 or info@nextstagesolutions.com

Original Survey Questions:

 

Aspirations

 

 

Afflictions

With the ability to wave a magic wand, what would be most important to your company in the near future?

 

Which is the biggest constraint in the present state of your company?

Market Opportunities are exploited with effective account management

SA

Sales Force and support systems not in place to capture growth opportunities

Profits are maximized by focusing on value drivers

OP

Cost reduction constraints to build out a scalable infrastructure

Performance is integrated from strategy to execution.

OR

Working in the business does not allow time to work on the future of the business

The finance team is a recognized value creator for growth and profits.

FI

Emphasis on accounting and compliance hinder business analysis and predictive capabilities

Challenges

 

Value Creation

Which is the biggest challenge you face in moving forward?

 

Which improvement ranks the highest for you to achieve success moving from present to future state?

Identify and prioritize opportunities using product and channel cost/benefit analysis

SA

Establish a culture for sales of managing team goals and forecasting future performance

Put processes in place, shorten time to market and streamline product delivery

OP

Gain efficiencies by leveraging operating technology and advanced management techniques

Build an executive team that is balanced between vision and execution

OR

Increase the understanding of how all levels can contribute to achieving the goals of the company

Obtain liquidity throug
h organic cash flow plus access to credit and capital markets

FI

Expand financial strategic vision and risk assessment to achieve growth and profitability

Key:  SA = Sales | OP = Operations | OR = Organizational | FI = Finance

 

Figure 1

Interview with our new team member – Laurie Taylor!

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.

Interview with our new team member – Mark Ott!

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!

NSS Roadmap to Growth and Best Practices in 2010

NSS is co-sponsoring four CEO Seminars around the theme of “Moving Forward: A Roadmap to Growth and Best Practices in 2010” .  The first one was successfully held March 23 at Furman Gregory Deptula.  Our next seminar is scheduled to be on Tuesday, June 15 and we are currently formulating the agenda based on the feedback from the CEOs in attendance at the March meeting.

NSS provided this hand out:

Flexibility

Keep your company nimble, lean and focused.  Just as large companies have divested non-core competencies, carefully consider which aspects of your business should remain fixed costs and which should become variable.  This keeps your business capital efficient and brings greater flexibility in moving your business forward.  Consider outsourcing non-core functions such as HR, finance, legal, sales and marketing.

Focus

Take a look at your lines of business in product/services and analyze closely which lines are using what resources.  If you have a product that takes 70% of your resources and represents 20% of your revenue, you have a problem.  Evaluate your customer/client revenue streams and determine what portion of total revenue each contributes.  Customers/clients that make up more than 30% of total revenue may in fact be a danger to your long term stability.  Stay diversified and avoid relying on one or two big clients.

Working Capital

Cash is always King.  In this recession, keeping cash flow positive has been harder and harder to achieve, especially for small businesses.  Where once monthly cash flow checks were adequate, today a daily/weekly Financial Dashboard is a necessity.  Financial Dashboards give you key financial indicators such as accounts receivable and inventory turnovers, working capital and current account ratios. Know at all time what your 6-month cash flow looks like and what action you may need to take.  Look beyond the ratios to get a regular pulse of industry trends and changes in technology.  Keep an eye on what the competition is doing, and check their press releases, stock prices and other activities that could impact your business negatively.

Equity/Debt Financing

Equity investors are still in flux.  With the financial meltdown, they have become somewhat more risk averse, leaving a bigger capital gap.  However, many are also making continuous investments and new, smaller funds are being created.  Bootstrap as long as feasible and build your revenue streams or user base.   This will enhance your business valuation over time.  Once you decide to raise funds from  equity investors, take the time for due diligence and investigate what type of equity funder would be the right fit, understand the investor’s needs and interests in terms of size of funds needed, industry expertise and support.

On the debt side of financing, try to diversify your banking relationships, the old ‘do-it-all’ approach is no longer an optimal solution.  Many local banks are starting to lend again, but mostly to businesses with strong balance sheets. There are various financing solutions to consider such as Accounts Receivable, equipment and real estate financing. Consider carefully all details in the term sheets and other agreements and evaluate the different options with extensive cost/benefit analyses.

Opportunities for Growth

With robust financial planning, a recession can provide opportunities.  Growth may not be achieved the same way as before, as direct sales may be impacted by the economy.  Consider the option to grow via merger or acquisition of a:

  • technology  that brings greater efficiencies
  • business with additional products diversifying your product line
  • business with different distribution channels

Even a small company can gain greater market share, but this is only accomplished with a strong financial strategy and a solid understanding of managing and balancing risks.  If you are too risk averse you might miss a valuable opportunity and if you are too risky you may compromise the business.

Financial Strategy

Now more than ever you want to revisit your long term strategy.  In this current economic climate it is essential to have multiple roadmaps and be ready to take detours.  Being a productive CEO or business owner gives you a competitive edge.  Every downturn or recession brings opportunities; know what they are and plan accordingly by developing cost/benefit analyses of your options and revisit them regularly.

2010 will still bring some uncertainties and having the best team of experts will make it a better ride.  Have a 6-month, 18-month and 36-month strategy with milestones and execution points you want to accomplish. Share your short-term and long-term goals and objectives with your employees and create a culture where problem solving, networking and business development are everyone’s business.

We can help!

We thank you for attending this first of four seminars.  If you have any questions or specific issues around best practices in finance and growth for your business, we would be delighted to provide you with a consultation free of charge.  Please contact Rudi Scheiber-Kurtz, CEO of Next Stage Solutions, Inc. at 617-449-7728 ext 704 or email at scheiberkurtz@nextstagesolutions.com to set up an appointment.

Maximizing Opportunities in Today’s M&A Market

NSS Ambassador Laura Kevghas of Mirus Capital Advisors will be one of the panelists.  We hope you can join us.

Wednesday, March 10, 2010

8:00 a.m. – Registration and Breakfast
8:30-10:00 a.m. – Program

Whether you are a buyer or seller, there are opportunities in the current economic climate to maximize your return on a merger, acquisition, or sale of a business. Our panel will review the current M&A market including a discussion of the deals getting done, opportunities for both buyers and sellers, and a review of how to successfully sell or buy a business.

Topics will include:
The Current M&A Market and Trends
The Credit Markets and their Relation to Valuation
Current Business Valuations and the Impact on Estate Planning Opportunities
How to Prepare for and Pursue a Transaction

University of Massachusetts Lowell
MIL Conference Room
Wannalancit Mills
600 Suffolk Street
Lowell, Massachusetts
Directions

RSVP
nutterevents@nutter.com or 617.439.2622