Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Do you need a new piece of equipment? If so, should you buy it before the end of the year or wait until 2022? Are you planning significant capital improvements to a building or office space? Or are the supply chain issues and inability to get product to your shop in a timely manner affecting business results?
If so, it might be time to get back in touch with your banker, your accountant and the rest of your team of advisers.
Year-end is always a good time to take stock of how your company has done this year and what you have in mind going forward. With the COVID-19 pandemic still in play, with tax changes and loan forgiveness uncertainty around pandemic-related government relief programs, and with resources in general tight, doing so this year might be more important than ever.
And, whether it’s going to be at the end of this year or the beginning of next when you make that next investment, it’s always good to let a lender know well in advance of when you might need a loan or line of credit, says Andy Schornack, CEO of Flagship Bank Minnesota. If your banker, for whatever reason, can’t make financing happen, with enough advanced warning, you might be able to get advice on another solution.
“We want to make that process as smooth as possible,” he says. “It’s best to tell your banker early on if you’re looking at doing a major purchase, before going down the road of doing one and then trying to figure out how to pay for it later.”
Schornack and his team are working right now on setting up regular business reviews. For an existing client with whom he is more familiar, it’s likely a shorter conversation around what the budget looks like for 2022, what new growth plans might be put in place and whether there are any new product lines or equipment purchases in the works.
For a new client, he’d probably want to do a lengthier historical review with an up-to-date set of financial statements and talk about issues like how the company managed through COVID challenges, whether it used the time as an opportunity to find ways to improve operations and how the metrics in place for managing planning have changed.
With both, he’d look at relevant challenges related to, for example, recruiting and keeping employees or how to deal with supply chain challenges.
“A big conversation topic right now is logistics,” he says. “If you are in a manufacturing business and you need supplies from China, you might’ve been three to six months out on your planning. Now you’re six to nine months. A lot of the purchases being done today are not for spring or summer, they’re actually starting to make purchases and plans for next fall already.”
On the insurance side, ransomware attacks have increased six-fold by some accounts and criminal methods have become increasingly sophisticated, creating a significant — and expensive — arena for cyber insurance.
It’s a relatively new area of insurance, but one that has become more important in recent years. That said, companies should expect higher premiums and deductibles and more investing in upgrading required protective controls in order to obtain such insurance against the increasingly sophisticated cyber criminals, says Tim Gallagher, a senior vice president of business insurance middle market for Marsh & McLennan Agency LLC.
“It’s not uncommon to see a small $5,000 annual premium policy renewal for three, four, five times that this year,” he says. “The tools that the criminals have outpaced the tools our clients have. That has created a lot of activity, a lot of loss. As such, the marketplace reacted with higher premiums.”
Carriers are requiring a lot more in terms of protection and procedures for clients to secure the insurance, as well, he adds. Often clients can’t even get a policy without minimum protections in place, such as multi-factor authentication, a method that requires users to successfully present two or more pieces of evidence to gain access to their information.
“It’s pretty hard to get coverage without that,” Gallagher says.
Luckily, he adds, the rest of the property and casualty insurance market has quieted a bit. Rates on protecting some property and automobiles are increasing, especially for those with unfavorable loss histories or those who are in difficult businesses. Otherwise, those rates have softening some.
“If it’s in a desirable class of business, defined as a class of business where the industry has had good fortune as a whole, and they have had a low level of loss, we’re starting to see competitive rates come back again, where you get two or three carriers that are fighting for the business,” he says.
Worker’s compensation, a large area of spend for many business clients, has performed well, he says. “As a result, those rates have been pretty flat and, in a lot of cases, we’ve actually seen rate reduction.”
The new year also is a good time for business owners to look at their personal situations to ensure they’re on track to meet goals or in the mood to change them.
“Really trying to set the stage to put yourself in a position of strength with taxes and cash flow, and really planning ahead are a lot of the conversations we are having with clients right now,” says Elise Huston, advisor – advisory services manager with JNBA Financial Advisors.
Small business owners need to keep their personal financial situations in mind as they plan for the future of their businesses, as well, she adds.
Optimizing savings opportunities would be the first priority for those closing in on retirements. Make sure you take advantage of retirement plans that include a company match, get on health insurance plans that allow for health savings accounts or those on which employers provide matches.
It also makes sense to examine debt loads to see if any higher interest rates could be renegotiated. Those with student loans that haven’t required payments in recent months will likely see those payments coming back soon.
“Is there an opportunity to put some additional money toward the student loan payments?” she says, “because all of that will likely go toward paying down principal right now.”
Tom Siders, a partner with L. Harris Partners, does advocate dusting off and updating whatever catastrophe plan companies had in place prior to the COVID pandemic. Make sure there are plans in place, he says, in the event of another global disaster or a fire or an earthquake.
But most planning, he adds, should be of the longer term — three to five years — variety. And it must be more meaningful than simply adding 6 percent to the bottom line and 3 percent to expenses. It needs to be about what your company is going to do more of or less of in the year ahead and how are you going to add value to the company well into the future.
“What are we going to stop doing that’s adding no value to our business and what are we going to start doing that does add value to our business,” he says. “That value might not be on the P-and-L, but it is positioning the business for future growth, expansion and profitability.”
Siders cites one client who sat with him years ago who told him he wanted to “grow the business like hell” and sell it five or six years later. From that time forward, that business owner worked on building a strong management team and putting in systems and processes aimed at making it repeatable without his involvement.
“He was a control freak,” Siders says. “He had trouble letting go. Well, we got him to do it. And he put in internal controls so he could feel comfortable when he wasn’t there.”
The company worked on expanding its product line, diversifying its customer base and, generally, growing value. Planning, Siders says, even when looking at 2022, needs to have a long-term focus on what is going to show value in the future — even if the owners think they are going to be involved for the next 20 years.
“We never know when our number comes up,” Siders says. “The business is a separate entity, but for a lot of people it’s an extension of them. But if you aren’t there, do you want the business to expire when you do? That’s why it’s important to have a succession plan. If you are laying in a hospital bed for eight months, you want to make sure the business continues.”
So, always keep the end in mind, he adds. “It’s all about picking out two, three, four strategic objectives to position your business for growth and prosperity.”
With that in mind, JNBA Financial Advisors has seen an interesting shift in the way many of its clients are looking at their retirements as the global pandemic has played out, Huston says.
For some, it has clarified that they want to retire as soon as possible, so they “have been taking the last year to try to get their financial house in order again, really make sure they have everything buttoned up and in place and that they’ve taken a good look at all the different areas of their financial life,” Huston says.
For others, they’ve found that if they can continue with flexible work-from-home-at-least-occasionally plan, that they might be able to stick out a few more years of work than they initially intended.
“We’ve had a handful of others who’ve said ‘hey, I don’t think my company is going to go back to in-person work,’” she says. “’I love working remote from my cabin. It makes it really easy. I think I could actually hang out a lot longer than we planned.’”
In either case, “it’s really figuring out what did they identify as being important to them over the last year,” Huston adds. “And then how do we help build that into the new normal for them once we, hopefully, get out on the other side of these pandemic restrictions.”
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