Great piece by Ryan Caldbeck, CEO of crowdfunder CircleUp, on using convertible debt to grow early stage consumer product companies. Shorter version: It helps defer valuation conversations when you have solid revenue, but the current revenue does not reflect the company’s potential. For the full article, click here.
If you are interested in investing in early stage consumer product companies, I highly recommend CircleUp. They have a number of great investment opportunities.
As a middle market CFO, one aspect of my past experience at large corporations that I miss is the ability to develop talent throughout the accounting and finance team through job swapping and promoting from within. In fast growing middle market businesses, there is ample opportunity for career development, but it stems from the growth of the company and the need for each person to wear multiple hats. In larger corporations, you need to rotate people through different positions to diversify their skills, improve operations and prevent boredom. In middle market companies, it’s not as easy or as necessary, but that doesn’t mean you shouldn’t do it.
If there aren’t enough positions within your accounting and finance team to make it happen, consider temporary job swaps with other departments. Your financial folks might bring a new perspective to the sales or operations divisions and vice versa. It will promote better teamwork, develop your talent pool and keep people engaged, just like it does at large corporations.
A new study released by Ernst & Young examined 539 Private Equity deals that exited from 2006 to 2012. These are my key takeaways from the study:
PE backed firms crushed public companies and have done quite well in spite of the recession. The PE exits from 2006 – 2012 outperformed investor returns on publicly held companies by a multiple of 5.4 over the same period. For PE exits from 2010 – 2012, many of which were entered into prior to the recession, annual EBITDA growth averaged 11.8% compared to 5.5% in public markets.
Organic revenue growth is increasingly the primary driver of growth in EBITDA. For PE exits from 2010 – 2012, organic revenue growth (as opposed to EBITDA growth through acquisition or cost-cutting) accounted for 45% of the growth in EBITDA versus 39% in the pre-recession years of 2006-2007. In 2010-2012 alone, organic revenue growth accounted for over 50% of the growth in EBITDA.
Multiples, which were depressed during the recession, have rebounded. For PE exits from 2010 – 2012, EBITDA growth accounted for 70% of the PE returns with the other 30% being from increasing multiples.
Holding periods are up. For PE exits in 2012, the average holding period was 5.1 years, up from 3.4 years in 2006.
An article from the Harvard Business Review on the importance of good technical writing skills and why it should be a company-wide endeavor. It even comes with a complete handbook. No time for all that? Here’s the shorter version:
Despite sluggish M&A activity, the National Center for the Middle Market’s 2013 Q2 Middle Market Indicator report shows solid growth with optimism and hiring on the upswing. For the full report, click the link below:
Great article by Robert Sher in CFO magazine about how CFO’s at fast growing middle market companies should spend less time on accounting and more time building the leadership infrastructure to allow the firm to scale. For the full article, click here.
Should you include Social Media KPI’s on your dashboard reporting? The answer for many consumer-focused middle market companies is increasingly becoming “Yes”.
Social media is growing and evolving at an incredible pace. While many companies now realize the importance of having a social media strategy, some have been slower to realize the importance of measuring their social media activity and including social media KPI’s in their dashboard reporting alongside things like sales, margins, inventory, cashflow and key financial ratios. Dashboard reporting is custom tailored to the needs of each organization, so the KPI’s to include will vary. They could be as simple as the number of visitors and page views on your blog, the number of followers on twitter, or fans on Facebook. You can track these statistics over time and compare them to goals, or to your competition. On more detailed reports, you can measure the effectiveness of your campaign showing which efforts were most and least successful and how the social media activity translates to sales. You can mine demographical information and highlight significant fans and followers or significant mentions, good or bad, that appear throughout the social media world. And, of course, you can report how much you are spending on your social media strategy and calculate your ROI.
There are middle market companies for whom a social media strategy is not important, so not every company should include social media KPI’s in their dashboard reports. But if you are a CFO at a company where your social media strategy is key, consider adding social media KPI’s into your dashboard and other reports.
In California as well as most other states, if your business purchases taxable items from an out-of-state vendor, that vendor may not be required to charge you sales tax if they have no presence in California, but that doesn’t mean you don’t have to pay it. It’s called Use Tax and your company is required to pay it directly to the California Board of Equalization (BOE). The BOE keeps track of the top non-compliance issues they bust companies for and that one tops the list.
Next in line?
When you sell taxable goods to another company for resale purposes, you do not have to charge sales tax provided you obtain and retain a resale certificate from the customer. The second biggest non-compliance issue is selling for resale without the proper supporting documentation.
When you purchase items for resale, but then remove them from inventory for personal or non-resale use, you are required to pay Use Tax on the purchase cost of those items. Failure to do so is the third most prevalent noncompliance issue.
For more information and the complete list of the top CA BOE non-compliance issues, click here.