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QUESTION 1 : WHAT FINANCIAL STRATEGIES DO BEST IN CLASS COMPANIES USE TO GROW THEIR BUSINESS?

HOT LEGAL QUESTIONS & COLD FACTS FOR MANUFACTURERS Peter L. Coffey Bradley J. Kalscheur Amy O. Bruchs Jeffrey H. Brown. QUESTION 1 : WHAT FINANCIAL STRATEGIES DO BEST IN CLASS COMPANIES USE TO GROW THEIR BUSINESS?. Peter L. Coffey Michael Best & Friedrich LLP.

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QUESTION 1 : WHAT FINANCIAL STRATEGIES DO BEST IN CLASS COMPANIES USE TO GROW THEIR BUSINESS?

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  1. HOT LEGAL QUESTIONS & COLD FACTS FOR MANUFACTURERSPeter L. CoffeyBradley J. KalscheurAmy O. BruchsJeffrey H. Brown

  2. QUESTION 1:WHAT FINANCIAL STRATEGIES DO BEST IN CLASS COMPANIES USE TO GROW THEIR BUSINESS? Peter L. Coffey Michael Best & Friedrich LLP

  3. GROWTH CAPITAL CAN BE USED FOR: • Facility expansion • Sales and marketing initiatives • Capital expenditure and equipment purchase • Acquisitions • New product development • Pay down debt and free up cash being used for debt service

  4. DOCUMENTATION NEEDED FOR YOUR FINANCING • Personal Background • Resumes • Business Plan • Personal Credit Report • Business Credit Report • Income Tax Returns • Financial Statements • Bank Statements • Collateral • Legal Documents

  5. YOU WILL BE ASKED: • How much money are you going to need and why? • What would you do if you had more? Less? • What is the money going to be used for and what return on the investment do you expect? • How will you repay the loan or how/when can we exit the investment? • What assets do you have available for security? How liquid are they?

  6. How much can you afford to lose and still maintain a viable operation? • What risk management measures have been or are to be implemented, including insurance and/or other risk mitigators (e.g. hedging)? • What have been the trends in the business’s key financial position and performance indicators? • What keeps you up at night? • Have you ever operated under a revolving credit facility including daily borrowing base calulations?

  7. BE PREPARED: Financial Projections • Projection of the Company’s sales or income. • Projection of expenses. • Estimated level of investment in current and fixed assets. • Calculation of the Company’s financing needs.

  8. VALUATION ISSUES – WHAT’S IT WORTH? • Valuation is not an exact science and the valuation decided on has major consequences for the Company and its current and future investors. A valuation settoolow devalues the existing investors’ equity and overly dilutes their ownership percentage by allowing new investors to acquire a stake in the Company at a discount.

  9. VALUATION ISSUES – WHAT’S IT WORTH? A valuation that is settoohigh may: • Damage the Company’s ability to raise future capital. A high valuation might cause investors and observers to question the Company’s credibility. • Make it hard for initial investors to sell their holdings and exit. If the Company has failed to meet earlier valuation projections, new investors are less likely to offer an acceptable price for shares held by existing stockholders. • Damage the Company’s reputation. Investors will likely become disappointed in a Company that fails to deliver on its projections. Their sentiment may become widely known in investor circles.

  10. FINDING THE OPTIMAL CAPITAL STRUCTURE

  11. SIDE BY SIDE COMPARISON

  12. TAKE AWAYS: • Lenders and investors are looking for someone who has done their homework. • Lenders and investors want to minimize their risk by structuring their loan/investment with covenants – they aren’t in the business of losing money. • Shop and compare – different firms are sometimes more aggressive than others – are they new to the market? What’s their sweet spot? • Process should not be adversarial. • Think of it as a negotiation. It should lead to a good and fair result, keep your personal relationship positive (because usually something will need to be revised) and understand the deal that you are striking.

  13. Question 2:How do recent changes in the estate and gift tax laws impact future plans for my company and my family? Bradley J. KalscheurMichael Best & Friedrich LLP

  14. Federal Estate And Gift Tax System (as of 2014) • At Death, Total Value Of Assets Owned By Decedent Is Subject To Estate Tax • Assets receive a full-basis step up (or step down) • Marital property law of Wisconsin allows for double step-up of asset basis at death of first spouse • Important income tax consequences • 3 Basic Rules: • Transfers To Spouse (Who Is A U.S. Citizen) Are Tax-Free • Transfers To Charities Are Tax-Free • Other Transfers in Excess of the Federal Exemption Equivalent ($5,340,000 in 2014) Are Taxable at 40%

  15. Federal Estate and Gift Tax Exemption Equivalents • Year Estate TaxGift Tax Top Bracket • 2009 $3,500,000 $1,000,000 45% • 2010 REPEAL* $1,000,000 35% • 2011 > $5,000,000* $5,000,000* 40% • - Annual gift tax exclusion of $14,000 • - Many states (not Wisconsin) have separate estate or gift tax exemptions at lower dollar amounts than federal • - Exemption amount is indexed for inflation from 2011, so in 2014, the exemption amount is $5,340,000

  16. Introduction of Portability in 2011 • Under prior law, the estate tax exemption of the first to die was a “use it or lose it” proposition • The 2010 Tax Relief Act provides for portability of a deceased spouse’s unused estate tax exclusion amount (“DSUEA”) • For deaths occurring in 2011 and later, a surviving spouse may add their DSUEA to the surviving spouse’s estate tax exemption without the use of the traditional credit shelter trust

  17. Key Elements of a Succession Plan • Start early. • Define goals and objectives. • Involve family. • Seek input from outside advisors. • Identify successors. • Create an estate plan. • Optimize valuation discounts. • Adopt business agreements. • Communicate plan. • Implement and monitor plan.

  18. Why Do Succession Plans Fail? • Denial • Procrastination • High Taxes • Lack of Successor • Lack of Funds • Family Acrimony • Husband v. Wife • Parents v. Children • Children v. Children • Active v. Active • Active v. Inactive

  19. Estate Plan • Revocable Trusts - Utilize Tax Credits • Marital Property Agreement (if applicable) • Allocate Remaining Stock in Corporation to Active Children • Equitable Distribution of Other Property to other child not in business

  20. Revocable Trusts Revocable Trust of 1st to Die Revocable Trust of Survivor Remaining Assets Of 1st to Die Survivor’s Assets Estate Tax Applicable Exclusion Amount Family Trust Marital Trust Surviving Spouse

  21. Question 3:What issues does my company need to identify and control when it undertakes background checks on applicants and/or its employees? Amy O. BruchsMichael Best & Friedrich LLP

  22. What issues does my company need to identify and control when it undertakes background checks on applicants and/or its employees? • EEOC’s (recently weakened) enforcement guidance on background checks • Arrest/conviction record discrimination • Compliance with the Fair Credit Reporting Act • Legality of researching applicants/employees on social media, such as Facebook

  23. In 2013, the EEOC stated that its “number one priority was to remove barriers to employment,” caused by common hiring tools, such as background screens. • Particular focus: job requirements related to arrests and convictions, high school diploma, and periods of unemployment

  24. Two potential claims: • Same record, different treatment • Exclusion policy is not job related and consistent with business necessity

  25. In light of resounding defeats, do background checks remain the EEOC’s number one priority?

  26. State law protections: Arrest and Conviction Record Discrimination

  27. Employers must comply with the Fair Credit Reporting Act.

  28. Issues with research on social media: • What is private? • Can you demand social media passwords from applicants or employees?

  29. Question 4:What issues should my company address if it decides to outsource its financial and marketing data management to the “cloud”? Jeffrey H. BrownMichael Best & Friedrich LLP

  30. “THE CLOUD” • What and where?

  31. EXAMPLES • Amazon • Google • Software as a Service (SaaS) • Your business

  32. LEGAL MATTERS • Compliance • Privacy • Security • Ownership and Use of Data • Performance and Reliability • Warranties • Indemnification and Limitations of Liability • Termination and Transition Services

  33. COMPLIANCE • With laws (e.g., California, Canada, European Union) • With industry standards and best practices • With existing contractual obligations

  34. DATA PRIVACY • Privacy Policies • Does yours permit outsourcing • Personal Information • Permissions • Usage Restrictions • Big Data changes anonymity

  35. DATA SECURITY • Big data sources may be a • Many big data systems were not designed with security in mind • How secure is secure enough? • Who bears the risk of a breach?

  36. OWNERSHIP AND USE OF DATA • By contract • By law • Big Data analysis may reveal new information • Individual rights

  37. PERFORMANCE AND RELIABILITY • Service levels • Remediation and recourse

  38. WARRANTIES • Yours • Theirs

  39. INDEMNIFICATION AND LIMITATIONS OF LIABILITY • Risk shifting • Conditions • Insurance

  40. TERMINATION AND TRANSITION SERVICES • Conditions under which a party can terminate • Transition upon termination

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