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Alternative Approaches To Building And Managing Equity Capital

Alternative Approaches To Building And Managing Equity Capital. FACE THE COLD, HARD FACTS OF EQUITY MANAGEMENT. FACE THE COLD, HARD FACTS OF EQUITY MANAGEMENT. Understand why you have equity in the first place. FACE THE COLD, HARD FACTS OF EQUITY MANAGEMENT.

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Alternative Approaches To Building And Managing Equity Capital

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  1. Alternative ApproachesTo Building And Managing Equity Capital

  2. FACE THE COLD, HARD FACTS OF EQUITY MANAGEMENT

  3. FACE THE COLD, HARD FACTS OF EQUITY MANAGEMENT • Understand why you have equity in the first place

  4. FACE THE COLD, HARD FACTS OF EQUITY MANAGEMENT • Understand why you have equity in the first place • Is it a sustainable model in your current and future business environment?

  5. EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE PROGRAM

  6. EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE PROGRAM • Assumptions: • Growth must be internal without adding additional equity through mergers, debt through financing, etc.

  7. EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE PROGRAM • Assumptions: • Growth must be internal without adding additional equity through mergers, debt through financing, etc. • All sales are considered to be patronage based sales

  8. EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE PROGRAM • Assumptions: • Growth must be internal without adding additional equity through mergers, debt through financing, etc. • All sales are considered to be patronage based sales • The company is a $50 million company in year 1 and pays 30% cash patronage and 20% of earnings in retirement.

  9. EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE PROGRAM • Assumptions: • Growth must be internal without adding additional equity through mergers, debt through financing, etc. • All sales are considered to be patronage based sales • The company is a $50 million company in year 1 and pays 30% cash patronage and 20% of earnings in retirement.

  10. EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE PROGRAM • Assumptions: • Growth must be internal without adding additional equity through mergers, debt through financing, etc. • All sales are considered to be patronage based sales • The company is a $50 million company in year 1 and pays 30% cash patronage and 20% of earnings in retirement.

  11. EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE PROGRAM • Assumptions: • Growth must be internal without adding additional equity through mergers, debt through financing, etc. • All sales are considered to be patronage based sales • The company is a $50 million company in year 1 and pays 30% cash patronage and 20% of earnings in retirement.

  12. EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE PROGRAM • Assumptions: • Growth must be internal without adding additional equity through mergers, debt through financing, etc. • All sales are considered to be patronage based sales • The company is a $50 million company in year 1 and pays 30% cash patronage and 20% of earnings in retirement.

  13. EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE PROGRAM • Assumptions: • Growth must be internal without adding additional equity through mergers, debt through financing, etc. • All sales are considered to be patronage based sales • The company is a $50 million company in year 1 and pays 30% cash patronage and 20% of earnings in retirement.

  14. EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE PROGRAM • Assumptions: • Growth must be internal without adding additional equity through mergers, debt through financing, etc. • All sales are considered to be patronage based sales • The company is a $50 million company in year 1 and pays 30% cash patronage and 20% of earnings in retirement.

  15. FACE THE COLD, HARD FACTS OF EQUITY MANAGEMENT • Understand why you have equity in the first place • Is it a sustainable model in your current and future business environment? • If it is not a sustainable model in your situation, what can be done about it?

  16. IDENTIFY YOURGOALS / PRIORITIES

  17. IDENTIFY YOURGOALS / PRIORITIES • What will you sacrifice to revolve equity?

  18. IDENTIFY YOURGOALS / PRIORITIES • What will you sacrifice to revolve equity? Growth • Profit • Patronage Refunds • Equipment • Price Selection • People • Facilities • Local Ownership

  19. IDENTIFY YOURGOALS / PRIORITIES • What will you sacrifice to revolve equity? • Retire old equity while minimizing future liability Growth • Profit • Patronage Refunds • Equipment • Price Selection • People • Facilities • Local Ownership

  20. IDENTIFY YOURGOALS / PRIORITIES • What will you sacrifice to revolve equity? • Retire old equity while minimizing future liability • Get the support and understanding of the board and key staff Growth • Profit • Patronage Refunds • Equipment • Price Selection • People • Facilities • Local Ownership

  21. KNOW WHAT YOU AREUP AGAINST

  22. KNOW WHAT YOU AREUP AGAINST • Run reports on equity by year and age

  23. KNOW WHAT YOU AREUP AGAINST • Run reports on equity by year and age • Run reports on members with no birth dates in the system

  24. KNOW WHAT YOU AREUP AGAINST • Run reports on equity by year and age • Run reports on members with no birth dates in the system. • Rationalize your best way to retire the equity and minimize future liabilities

  25. KNOW WHAT YOU AREUP AGAINST • Run reports on equity by year and age • Run reports on members with no birth dates in the system. • Rationalize your best way to retire the equity and minimize future liabilities • Age of patron vs. yearly retirement plan • Estates

  26. WARNING: Most, if not all, equity management plans do not conform with the IRS rules. It’s where on the risk curve you want to be.

  27. QUALIFIED vs.NON QUALIFIED EQUITY

  28. QUALIFIED vs.NON QUALIFIED EQUITY • Definition: Tax liability to member vs. co-op

  29. QUALIFIED vs.NON QUALIFIED EQUITY • Definition: Tax liability to member vs. co-op • Identify N, P, B and Non Patronage Customers

  30. QUALIFIED vs.NON QUALIFIED EQUITY • Definition: Tax liability to member vs. co-op • Identify N, P, B and Non Patronage Customers • Example:

  31. QUALIFIED vs.NON QUALIFIED EQUITY • Definition: Tax liability to member vs. co-op • Identify N, P, B and Non Patronage Customers • Example:

  32. Example: In both examples the member would still have $7,000 in equity

  33. Retirement – “I only want my stock back!”

  34. Retirement – “I only want my stock back!” • Old Policy was about 77 years old for retirement

  35. Retirement – “I only want my stock back!” • Old Policy was about 77 years old for retirement • This year Premier will be at age 69

  36. Retirement – “I only want my stock back!” • Old Policy was about 77 years old for retirement • This year Premier will be at age 69 • Receive 100% of the qualified equity earned prior to 2002

  37. Retirement – “I only want my stock back!” • Old Policy was about 77 years old for retirement • This year Premier will be at age 69 • Receive 100% of the qualified equity earned prior to 2002 • “Rule of 72” Total Equity: $67,154 Pre-2002: $62,926

  38. Retirement – “I only want my stock back!” • Old Policy was about 77 years old for retirement • This year Premier will be at age 69 • Receive 100% of the qualified equity earned prior to 2002 • “Rule of 72” Total Equity: $67,154 Pre-2002: $62,926 • Invest $62,926 at age 69 at 9% ROI

  39. Retirement – “I only want my stock back!” • Old Policy was about 77 years old for retirement • This year Premier will be at age 69 • Receive 100% of the qualified equity earned prior to 2002 • “Rule of 72” Total Equity: $67,154 Pre-2002: $62,926 • Invest $62,926 at age 69 at 9% ROI • At age 77: $125,852 vs. receiving $67,154 at age 77

  40. PATRONAGE vs. NON PATRONAGE SALES / PROFITS

  41. PATRONAGE vs. NON PATRONAGE SALES / PROFITS • Build your unallocated reserve

  42. PATRONAGE vs. NON PATRONAGE SALES / PROFITS • Build your unallocated reserve • Cash (unidentified), Non patronage, <$1,500

  43. THANK YOU Presented by: Andy Fiene General Manager Premier Cooperative

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