Tis’ the Season – for Budgeting!

Posted December 13, 2010 by keithmcaslan
Categories: Business Management, Business Plan, Business Strategy, Cash Management, CEO, CFO, Colorado CFO, Financial Management, Incentive Compensation, Trusted ADvisor, Uncategorized, virtual CFO

By Marty Koenig, Founder & CEO and Keith McAslan, Partner, CxO To Go

Introduction:

Tis’ the season where everyone is thinking about the upcoming holidays, skiing in the mountains, as December is a short month and business is either slowing down or going crazy to hit year end numbers.  However, if you didn’t begin your 2011 business plan process in October or November for the New Year, December Tis’ the season to accelerate strategic and tactical planning to prepare your business for the new year.

Your company’s business plan can be one of your most important business documents – IF it is well written and usable. A plan that is unrealistic, too simplistic or a monstrosity parked in a binder is useless. Depending on the need of the business, the business plan will have different characteristics. In some cases, it might be necessary to have two versions of your business plan.

If the plan is to be used to attain funding from financial institutions or investors, its tone will be geared for that type of reader. The business must be described as a well conceived and viable business. Investors want to assess the comprehensiveness of the idea and/or the products and services. They will vet the management team and their experience and the financials will be rigorously reviewed. The business plan must not only be compelling, but thorough and detailed.

If the plan is to be used by an entrepreneur who intends to use the plan as a road map for his or her business, it will be written with the goals of the business in mind. Attention to the objectives of each goal and steps to achieve those goals will be included. Practical financial projections are included and the emphasis is on the requirements for starting and growing a profitable business.

Process Methodology

In addition to the Executive Summary (which provides a synopsis of the plan) a business plan is made up of five distinct sections; each with important components. An appendix may be included if there is substantial supporting content to reinforce statements made in the plan.

By following the outline below, a thorough plan can be crafted narrating the purpose of the company, your products and services, how you going to produce, market and sell your products and services, who and how you will manage the business and how it will be financed and sustain profitability.

Some of these sections will be one or two sentences in length. It is not necessary to have an abundance of words. Brevity with specific content is preferable.  Depending on the type of your business and your point in the organization lifecycle, some of these sections will be more robust than others. A few sections may not be pertinent to your business at all.

It is important to remember that your plan will only be as good and thorough as the information you share.

1. Description of Business

a. Company description

i. Legal company name, dba’s, brand names, model names, web domain names, legal form of company, ownership, business location(s), patents, etc.

b. Company mission and vision and values

i. Statement of company purpose or objective

ii. Long term vision, goals, business strategies

iii. Value statement of the firm

c. Market opportunity or concept

i. Description of your industry

1. industry maturity, seasonality affects, economic factors,  government regulations, technology advances

ii. Industry analysis and trends

1. size and growth of your industry

2. distribution channels

iii. Strategic opportunities within the industry

d. Stage of development

i. Clear sense of how far along the company is in terms of development, customers, revenue, technology, etc.

e. Overview of products and services

i. Description of all products and services. What need do they fill?  How do they save time or money? Why should someone buy?

f. Milestones

i. Outline of milestones achieved to date

ii. Future milestones to measure success

g. Community involvement and social responsibility

h. Exit plan / Strategy

2. Marketing

a. Target market

i. Thorough understanding of your customers

ii. Distinct, meaningful characteristics of market segments

iii. Demographic information

b. Marketing and sales strategy

i. Market size and trends

ii. Your company’s message (product, price, promotion and

place)

iii. Marketing vehicles and tactics

iv. Marketing budget

v. Sales structure and channels (sales personnel and process)

vi. Sales projections

c. Competition and market research

i. Competitive assessment

ii. Customer perceptions

iii. Competitive operational factors

iv. Market share distribution

v. Future competitors

d. SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats)

i. Your strategic position (advantages and barriers)

ii. Risk analysis

3. Operations

a. Day to day functions of your company

b. Facilities

c. Production plans

d. Supply and distribution

e. Order fulfillment

f. Customer service

g. Research and development

h. Financial control

i. Technology plan and budget

4. Management and Organization

a. Histories and capabilities of management team

b. Personnel requirements

c. Compensations and incentives

d. Board of Directors, Advisory Boards and Consultants

e. Management style

5. Finances

a. Income Statement

b. Cash Flow Projections

c. Balance Sheet

d. Break-even Analysis

e. Sources and uses of funds

Conclusion

The Business plan should be a living document that guides the CEO and management team on a strategic and tactical course for the fiscal year, not just a document that sits on the shelf and collects dust.  In the course of your business operations, it may be necessary to update assumptions, financial projections, and milestones.

About the Authors:

Marty Koenig is the Founder & CEO of CxO To Go LLC. He has experience with companies as small as $100,000 and as large as Fortune 30. He re-architected, grew and sold businesses, has led multibillion-dollar contracts with Fortune 100s and helped dozens of small companies get capital attractive. He has extensive experience leading their growth in just about every area: finance & accounting, business development, operations, sales, marketing, turnarounds and capital strategy.  Marty is the Chief Financial Officer, Chief Operating Officer, and Chief Strategy officer for his private clients.  Mr. Koenig is a lifetime business practitioner who now uses his experience to help other companies create success and increase company value.

Keith McAslan is a Partner at CxO To Go LLC. He is a senior business executive with extensive experience in finance and operations for manufacturing, distribution, technology, health care and private equity industries as a CFO, COO, CEO and Managing Director.  He has demonstrated success to successfully grow businesses organically, and through acquisitions, and led several turn-arounds. Keith was nominated for the Denver Business Journal 2010  CFO of the Year for turning around and selling a domestic manufacturer of hand tools 90 days for a double digit multiple of EBITDA and saving over 400 jobs in Colorado.

Available for delivery in late December is the latest book by Marty Koenig and Keith McAslan – Business Owner’s Handbook – Focus on Management of Money and Leadership to Increase Your Company Value.

Proposed Lease Accounting Changes Impact Commercial Real Estate

Posted September 27, 2010 by keithmcaslan
Categories: Business Management, Business Strategy, Cash Management, CEO, CFO, Colorado CFO, Commercial Real Estate, CPA, Debt Financing, Due Diligence, Financial Management, Financing, Leasing, Lender Financing, Operating Lease, Private Equity, virtual CFO

By Keith McAslan, Partner, CxO To Go

Introduction:

The Financial Accounting Standards Board (FASB) on August, 17, 2010 released their “exposure draft” requiring companies to record nearly all leases on their balance sheets as a “right to use” asset, and a corresponding “future lease payment – liability”.  What does this mean to your business in layman terms?  This proposal in essence does away with operating leases; all leases (unless immaterial) would be capitalized using the present value of the minimum lease payments.  Therefore, businesses who in the past had off-balance sheet lease obligations, must now record these obligations on their balance sheet.

A key point to consider with regards to the proposed lease accounting changes is that, in all likelihood, existing operating leases, signed prior to the implementation of the new rules, will require reclassification as capital leases that must be accounted for on the balance sheet. This means that real estate professionals must immediately consider the effect that existing and planned leases will have on financial statements once the proposed rules are implemented. Since operating lease obligations can represent a larger liability than all balance sheet assets combined, lease reclassification can significantly alter the businesses balance sheet.

The impact of recording these lease obligations on the balance sheet can have multiple impacts, such as: businesses needing to alert their lenders as they will now be non-compliant with their loan covenants, negotiating new loan covenants with the lenders due to the restated financial statements, ratios used to evaluate a businesses potential of credit will be adversely impacted and the restatement of a lessee’s financial statement once the change takes effect may result in a lower equity balance, and changes to various accounting ratios

The conceptual basis for lease accounting would change from determining when “substantially all the benefits and risks of ownership” have been transferred, to recognizing “right to use” as an asset and apportioning assets (and obligations) between the lessee and the lessor.

As part of FASB’s announcement, the Board stated that in their view “the current accounting in this area does not clearly portray the resources and obligations arising from lease transactions.” This suggests that the final result will likely require more leasing activity to be reflected on the balance sheet than is currently the case. In other words, many, perhaps virtually all, leases now considered operating are likely to be considered capital under the new standards. Thus, many companies with large operating lease portfolios are likely to see a material change on their corporate financial statements.

Part of the purpose for this is to coordinate lease accounting standards with the International Accounting Standards Board (IASB), which sets accounting standards for Europe and many other countries. The IASB and FASB currently have substantial differences in their treatment of leases; particularly notable is that the “bright line” tests of FAS 13 (whether the lease term is 75% or more of the economic life, and whether the present value of the rents is 90% or more of the fair value) are not used by the IASB, which prefers a “facts and circumstances” approach that entails more judgment calls. Both, however, have the concept of capital (or finance) and operating leases, however the dividing line is drawn between such leases.

The FASB will accept public comments on this proposed change through December 15, 2010.  If FASB makes a final decision in 2011 regarding this proposed change to lease accounting, the new rules will go into effect in 2013.

Additionally, the staff of the Securities and Exchange Commission reported in a report mandated under Sarbanes-Oxley, that the amount of operating leases which are kept off the balance sheet is estimated at $1.25 trillion that would be transferred to corporate balance sheets if this proposed accounting change is adopted.

Commercial Real Estate:

The impact on the Commercial Real Estate market would be substantial and will have a significant impact on commercial tenants and landlords.  David Nebiker, Managing Partner of ProTenant (a commercial real estate firm that focuses on assisting Denver and regional companies to strategize, develop, and implement long-term, comprehensive facility solutions) added “this proposed change not only effects the tenants and landlords, but brokers as it increases the complexity of lease agreements and provides a strong impetus for tenants to execute shorter term leases”.

The shorter term leases create financing issues for property owners as lenders and investors prefer longer term leases to secure their investment.  Therefore, landlords should secure financing for purchase or refinance prior to the implementation of this regulation, as financing will be considerably more difficult the future.

This accounting change will increase the administrative burden on companies and the leasing premium for single tenant buildings will effectively be eliminated.  John McAslan an Associate at ProTenant added “the impact of this proposed change will have a significant impact on leasing behavior. Lessors of single tenant buildings will ask themselves why not just own the building, if I have to record it on my financial statements anyway?”

Under the proposed rules, tenants would have to capitalize the present value of virtually all “likely” lease obligations on the corporate balance sheets.  FASB views leasing essentially as a form of financing in which the landlord is letting a tenant use a capital asset, in exchange for a lease payment that includes the principal and interest, similar to a mortgage.

David Nebiker said “the regulators have missed the point of why most businesses lease and that is for flexibility as their workforce expands and contracts, as location needs change, and businesses would rather invest their cash in producing revenue growth, rather than owning real estate.”

The proposed accounting changes will also impact landlords, especially business that are publically traded or have public debt with audited financial statements.  Mall owners and trusts will required to perform analysis for each tenant located in their buildings or malls, analyzing the terms of occupancy and contingent lease rates.

Proactive landlords, tenants and brokers need to familiarize themselves with the proposed standards that could take effect in 2013 and begin to negotiate leases accordingly.

Conclusion:

The end result of this proposed lease accounting change is a greater compliance burden for the lessee as all leases will have a deferred tax component, will be carried on the balance sheet, will require periodic reassessment and may require more detailed financial statement disclosure.

Therefore, lessors need to know how to structure and sell transactions that will be desirable to lessees in the future. Many lessees will realize that the new rules take away the off balance sheet benefits FASB 13 afforded them in the past, and will determine leasing to be a less beneficial option. They may also see the new standards as being more cumbersome and complicated to account for and disclose. Finally, it will become a challenge for every lessor and commercial real estate broker to find a new approach for marketing commercial real estate leases that make them more attractive than owning.

However, this proposed accounting change to FAS 13 could potentially stimulate a lack luster commercial real estate market in 2011 and 2012 as businesses decided to purchase property rather than deal with the administrative issues of leasing in 2013 and beyond.

In conclusion, it is recommended that landlords and tenants begin preparing for this change by reviewing their leases with their commercial real estate broker and discussing the financial ramifications with their CFO, outside accountant and tax accountant to avoid potential financial surprises if/when the accounting changes are adopted.

Both David Nebiker and John McAslan of ProTenant indicated their entire corporate team are continually educating themselves and advising their clients about these potential changes on a pro-active basis.

Addendum – Definition of Capital and Operating Leases:

The basic concept of lease accounting is that some leases are merely rentals, whereas others are effectively purchases. As an example, if a company rents office space for a year, the space is worth nearly as much at the end of the year as when the lease started; the company is simply using it for a short period of time, and this is an example of an operating lease.

However, if a company leases a computer for five years, and at the end of the lease the computer is nearly worthless. The lessor (the company who receives the lease payments) anticipates this, and charges the lessee (the company who uses the asset) a lease payment that will recover all of the lease’s costs, including a profit.  This transaction is called a capital lease, however it is essentially a purchase with a loan, as such an asset and liability must be recorded on the lessee’s financial statements. Essentially, the capital lease payments are considered repayments of a loan; depreciation and interest expense, rather than lease expense, are then recorded on the income statement.

Operating leases do not normally affect a company’s balance sheet. There is, however, one exception. If a lease has scheduled changes in the lease payment (for instance, a planned increase for inflation, or a lease holiday for the first six months), the rent expense is to be recognized on an equal basis over the life of the lease. The difference between the lease expense recognized and the lease actually paid is considered a deferred liability (for the lessee, if the leases are increasing) or asset (if decreasing).

Whether capital or operating, the future minimum lease commitments must also be disclosed as a footnote in the financial statements. The lease commitment must be broken out by year for the first five years, and then all remaining rents are combined.

A lease is capital if any one of the following four tests is met:
1) The lease conveys ownership to the lessee at the end of the lease term;
2) The lessee has an option to purchase the asset at a bargain price at the end of the lease term
3) The term of the lease is 75% or more of the economic life of the asset.
4) The present value of the rents, using the lessee’s incremental borrowing rate, is 90% or more of the fair market value of the asset.

Each of these criteria, and their components, are described in more detail in FAS 13 (codified as section L10 of the FASB Current Text or ASC 840 of the Codification).

About the Author:

Keith McAslan is a Partner with CxO To Go a national professional services company headquartered in Denver, Colorado that provides on-demand C-Level expertise and best practices to client companies on a part time, flexible, and affordable basis. Keith is sought after to provide advisory services as the Trusted Advisor to Owners and CEO’s. By utilizing his extensive experience as a successful financial and operational C-level executive, Keith brings a results driven leadership style to complex situations.

McAslan’s expertise includes: financial advisory; management consulting; part time, interim & virtual CFO, COO and CEO; debt and equity financing; turnaround management; acquisition and divestiture advisory. Most recently Keith, was instrumental in the successful sale of Western Forge to Ideal Industries. As the interim CFO with finance and private investment transaction experience, he guided the management team through the complex sale and due diligence process completing the sale from prospective buyer presentation to close within 60 days.   Please contact Keith at 303-520-2493, www.cxotogo.com, or kmcaslan@CxOToGo.com to discuss your business needs.

The Ultimate “Cash is King” Template for Business

Posted September 13, 2010 by keithmcaslan
Categories: Business Management, Business Plan, Business Strategy, Cash Management, CEO, CFO, Colorado CFO, Credit, Debt Financing, Financial Management, Financing, Lender Financing, Tax Planning, Uncategorized, virtual CFO

By Keith McAslan, Partner, CxO To Go

Introduction:

Most CEO’s and small/medium business owners only review the financial position of the business with their Bookkeeper/Controller two to three weeks after the month has ended.  This is like driving your car forward while looking exclusively in the rear view mirror – it doesn’t work.  Most CEO’s and business owners focus on the “bottom line” (net income, EBIT or EBITDA), and fail to recognize that “Cash is King”!  If you talk to your Banker, or your CFO, or other successful business owners, they will all direct you to focus on cash as the key metric for success.

Do you know what your current cash balance in the bank is today?  How about at the end of the week?  Any problems meeting your payroll or accounts payable obligations? So what tool are you using to monitor and project your cash?

The Dashboard-Cashboard is the ultimate “Cash is King Template”, as it is a  tool that is forward looking and helps the businesses understand the drivers of cash and projects the future cash position.

The Key Benefits of the Dashboard – Cashboard

The benefits of a business implementing a weekly Dashboard-Cashboard include:

  • It provides a forward looking perspective to the cash position of the company for the week ahead and identifies any potential cash issues.
  • When combined with a 13 week cash flow forecast the CEO and leadership team always have knowledge of the cash road map and can take pro-active action if required.
  • The order board and sales funnel provide insight to the effectiveness of the sales efforts and highlight any potential revenue shortfalls or significant orders pending for the team to take action.
  • The Dashboard-Cashboard becomes part of the weekly business review and all key leadership members become keenly aware of the importance of cash and can take action ranging from:  communicating to vendors and deferring payments, sales staff assisting in the collection of receivables, focusing the sales staff on moving customers through the sales funnel and closing orders.
  • Once the organization is focused on cash on a real time basis versus reviewing the results of operations three weeks after the month is over, they take ownership and realized they can individually impact the success of the business.
  • The bookkeeper/Controller now becomes an active member in managing the business and not just the “Bean Counters” who reports after the fact and can help guide the business.

Dashboard – Cashboard example:


Conclusion:

Businesses that implement a Dashboard-Cashboard typically are more successful than businesses that do not have one, because they are pro-actively managing the business, looking forward and adapting to changing financial circumstances.  However, it is highly recommended that a business implement a 13 week cash flow forecast discipline in conjunction with the Dashboard-Cashboard.  Additionally, successful businesses typically have a monthly financial forecasting process that projects sales, capital expenditures, operating expenses, profitability and issue a twelve month income statement, balance sheet and cash flow analysis.  CxO To Go™ executives work along side the CEO and leadership team to produce professional, sophisticated, effective and standardized financial projections (CFOCast™).

CEO’s and owners of small/medium business should have a part time/virtual CFO with financial and operational experience to supplement their skills and experience.  The inclusion of a part time/virtual CFO as the “Trusted Advisor” to the leadership team enhances the overall capability of the business and is a key component towards the future success of the business.

About the Author:

Keith McAslan is a Partner with CxO To Go a national professional services company headquartered in Denver, Colorado that provides on-demand C-Level expertise and best practices to client companies on a part time, flexible, and affordable basis. Keith is sought after to provide advisory services as the Trusted Advisor to Owners and CEO’s. By utilizing his extensive experience as a successful financial and operational C-level executive, Keith brings a results driven leadership style to complex situations.

McAslan’s expertise includes: financial advisory; management consulting; part time, interim & virtual CFO, COO and CEO; debt and equity financing; turnaround management; acquisition and divestiture advisory. Most recently Keith, was instrumental in the successful sale of Western Forge to Ideal Industries. As the interim CFO with finance and private investment transaction experience, he guided the management team through the complex sale and due diligence process completing the sale from prospective buyer presentation to close within 60 days.   Please contact Keith at 303-520-2493, www.cxotogo.com, or kmcaslan@CxOToGo.com to discuss your business needs.

What All Successful CEO’s Know

Posted August 17, 2010 by keithmcaslan
Categories: Business Management, Business Plan, Business Strategy, CEO, CFO, Colorado CFO, Exit Strategy, Financial Management, Human Resources, Mergers & Acquisitions, Portfolio Company, Private Equity, Trusted ADvisor

You can’t run the business alone

By Keith McAslan, Partner, CxO To Go

Introduction:

Many CEO’s and small/medium business owners do not have a Board of Advisors, or Board of Directors to help hold them accountable and direct the business towards the ultimate goal of monetization with an exit strategy. If the business cannot afford a full time CFO, a part time CFO with a broad based business experience can be that “Trusted Advisor”. Ideally the CFO who is the “Trusted Advisor” not only has financial experience, but operating experience as well to provide global insight to issues facing the business.

The Value Add:

The CFO who becomes the “Trusted Advisor” to the CEO delivers results-driven, professional counsel and solutions for complex situations. The key benefits for the CEO and the organization having a “Trusted Advisor” include:

· The CEO can think and act like an entrepreneur, focusing on business growth and customers.

· A “Trusted Advisor” who is an accomplished financial/operational executive quickly understands the key issues and can support the CEO, providing alternatives and recommendations to complex problems as part of the decision making process.

· Allows the CEO to think strategically, but provides the additional bandwidth to implement effective tactics.

· Drives the CEO and the business to plan for the long term building annual business plans and three year strategic plans.

· Provides a higher level of analytical support relating the results from operations to the financial statements and explains the variances to budget and the prior year.

· Helps identify key company initiatives on which to focus and in what priority sequence.

· Prepares the CEO and the business for an ultimate exit strategy to monetize the investment

· Provides an external challenge to the CEO’s decision-making process, the Trusted Advisor doesn’t tell the CEO what they want to hear, but tells them what they need to hear.

· Ensures all perspectives are considered in the decision making process to arrive at the best decision for the business.

· Execute decisions – most businesses in crisis have the common problem of either not making decision on a timely basis or making the wrong decisions.

· Develop and implement operational plans based on the strategy developed in the business plan

· Uses prior broad based industry experience to ensure the marketing, sales, engineering, manufacturing, logistics and human resources are executing according to best practices.

· Provides treasury and capital market support to secure funding alternatives and interfaces with the lenders regarding the performance of the business

· The “Trusted Advisor” becomes the coach, mentor and key confidant of the CEO and the one person the CEO relies on the most for unbiased, straightforward communication.

The Key Benefits of the “Trusted Advisor”

  • Sustainability – Business answers from an experienced “Trusted Advisor” provides unbiased, on-target, and unencumbered feedback.
  • Accountability – The more accountability the CEO and the business have the better everyone will perform. Without accountability, goals will be missed instead of made. The “Trusted Advisor” provides accountability, measurement, and metrics from the CEO down to ensure goals are more than just wish lists!
  • Focus – The CEO gets to focus on the most urgent and important things, so the company produces the results it seeks in its business and strategic plans.
  • Trust – The “Trusted Advisor” has developed a relationship of trust with the CEO by demonstrating, credibility, reliability, respect, business acumen and transparency.
  • Communication – The CEO and the “Trusted Advisor” communicate frequently and openly about all issues impacting the business, with the “Trusted Advisor” providing a safe sounding board for the CEO.
  • Networking – The “Trusted Advisor” typically has a network of business contacts that expands the CEO’s network and provides the business greater reach in the business community.
  • Succession Planning – Together the CEO and “Trusted Advisor” develop succession and contingency  plans to secure the enterprise value of the company and increase its ultimate worth at exit.

Conclusion:

CEO’s and owners of small/medium business should have a “Trusted Advisor” with financial and operational experience to supplement their skills and experience. The inclusion of a “Trusted Advisor” to the leadership team enhances the overall capability of the business and is a key component towards the future success of the business.  This check and balance with a “Trusted Advisor” who is the key partner to the CEO is a common tread that surfaces when examining successful CEO’s.

Author:

Keith McAslan is a Partner with CxO To Go a national professional services company headquartered in Denver, Colorado that provides on-demand C-Level expertise and best practices to client companies on a part time, flexible, and affordable basis. Keith is sought after to provide advisory services as the Trusted Advisor to Owners and CEO’s. By utilizing his extensive experience as a successful financial and operational C-level executive, Keith brings a results driven leadership style to complex situations.

McAslan’s expertise includes: financial advisory; management consulting; part time, interim & virtual CFO, COO and CEO; debt and equity financing; turnaround management; acquisition and divestiture advisory. Most recently Keith, was instrumental in the successful sale of Western Forge to Ideal Industries. As the interim CFO with finance and private investment transaction experience, he guided the management team through the complex sale and due diligence process completing the sale from prospective buyer presentation to close within 60 days.   Keith’s performance at Western Forge earned him a nomination for the Denver Business Journal 2010 CFO of the Year.  Please contact Keith at 303-520-2493, www.cxotogo.com, or kmcaslan@CxOToGo.com to discuss your business needs.

25 Questions to Ask When Hiring a CPA

Posted July 8, 2010 by keithmcaslan
Categories: Business Management, Business Strategy, Cash Management, CEO, CFO, Colorado CFO, CPA, Financial Management, Tax Planning, Trusted ADvisor

The following outline is provided for small and medium businesses who are interested in engaging a CPA firm to provide tax and bookkeeping services and not sure what questions to ask prospective firms during the interview phase of discussions.

Question #1: Is timely service delivered?

Accounting information can get out of date quickly. Except for annual information, most accounting information should be no more than 10-30 days old. You should be able to access your up-to-date information and your CPA quickly and easily.  This question is applicable if the business uses the CPA to close the books rather than have an internal accountant, Controller and/or CFO.

A proficient CPA makes it a habit to get back to clients as quickly as possible. Phone messages and emails should be replied to the day they are left – or no later than the following day.

Question #2: Do the same people always service our account?

Ideally the same person (Partner, Manager or Senior) should work with the business — not whoever is available at the time. That way a relationship can be built where the accountant and you are comfortable with each other.

Question #3: What services beyond the usual reporting and number-crunching are offered?  (Note:  this question is specifically intended for outsourced firms who are providing booking services, as well as tax)

A CPA firm who offers bookkeeping services needs to be more than just a data entry clerk.  It’s their duty as an advisor to make sure the information they receive makes sense. If it doesn’t, they should ask questions and seek clarity.

Question #4: How can the CPA firm help your business make more money? control expenses?  reduce taxes?

The answer to this question will help you find out if the firm is interested in your business. Did they review the financial information you provided prior to the interview? Did they make sure you understood the accounting concepts, instead of tossing off a bunch of jargon? Do they have creative ideas to increase revenue? reduce expenses? reorganize the business?  A proficient CPA’s goal to save you more in taxes — it is also in his best interest that you succeed.

Question #5: Do you believe we are paying too much, too little, or just the right amount of tax?  Explain your logic?

Beyond simply preparing tax forms, a CPA should be involved in business planning throughout the year. Typically, a quarterly review should be scheduled to ensure books and records are in order. This also allows the CPA time to advise clients about their businesses so they function with peak tax efficiency.

Because most business owners pay too much in taxes, a proficient CPA will analyze the tax situation from the form of entity to all legal means to plan and minimize all taxes paid.

Question #6: Do you consider your CPA firm to be tech-savvy?

Small business accounting software has made powerful accounting tools available to everyone. But these accounting packages (QuickBooks) are only as useful to the person who installs and runs the application. For this reason, a proficient CPA can help you install and set up a set of books, while also requesting them for review.

Question #7: Who are your other clients? WE would like to speak to a few references.

Imagine this scenario: You hire an accountant based on the assumption he understands the basics of your business. Then, you find out he’s never had a client like you before. Instead, he’s only prepared tax forms for wealthy individuals who don’t own businesses.

Avoid this disaster by asking about the accountant’s clients. If they are businesses similar to yours, that’s a good sign. In asking about clients, you will also want to understand the CPA’s work schedule and whether he has the time and resources to support you adequately.

Question #8: What kind of creative business advice will you offer the business? Tax reduction strategy? Corporate Structure changes? Social Media expertise? Web site? Cash Management? Budgeting? Forecasting? Capital Structure?

Advising clients on what they can do to grow and set goals, as well as discussing issues, are all part of a proficient CPA’s services. Together, this allows you to discover what works for your business so funds are used wisely.

Question #9: Why should I use you?

Ask the question and just listen for the answer. You should feel like the CPA really cares about your success.

Question #10: What kind of credentials do you have? What school did you attend? Where is your CAP license?

Tax professionals are usually certified public accountants (CPAs), enrolled agents (EAs) or unenrolled preparers.

Question #11: How much professional education do your associates get annually?

Just passing the test to be a CPA or an EA isn’t enough. With the tax code and interpretations of the code changing every year, continuing education is really essential. EAs are required to have 72 hours of continuing education in a three-year period; each state sets its own requirements for CPAs.

Many tax professionals take more than the minimum requirement for continuing education. Although more training doesn’t necessarily mean the tax pro will be superior, it’s certainly not a bad sign.

Question #12: Who will I be interacting with? Partner, Manager, Senior?

Many tax firms assign more than one person to a client’s return. You probably don’t need to know how the “back room” operates, but you want to know if the person you’re interviewing is the one who will be able to answer your questions about your return.

Question #13: What’s your policy on returning phone calls? emails?

A common complaint often heard from businesses about their CPA’s is the long wait for returned phone calls or email messages. CPA’s aren’t famous for their communication skills. It’s not unreasonable to ask how long you should expect to wait to have a call or email returned. Asking also lets your CPA know you do want your calls and emails returned promptly.

Question #14: Are you available outside of the tax season?

Some tax preparers are seasonal. They are available only the first four months of the year, or their offices are close for a few months each year. If you expect year-round access, you need to make sure the tax professional is available.

Question #15: Are you a corporation of CPAs or an individual CPA that has their own business?

If you opt for the corporation, find out if you’ll be dealing with one particular person, or will it be whoever answers the phone when you call. It’s best to have one person to build a relationship with.

Question #16: When do you work? Are you available after hours for calls and emails if needed?

What are the CPA’s hours of operation? Make sure that you can call him at hours that are convenient for you.

Question #17: Do you conduct your own business and personal affairs in a reasonably efficient and sensible way?

Ask questions about the CPA’s approach to getting and serving clients, the role of staff, the use of technology – including computers, communications equipment and the Internet — as well as ways of keeping current, research methods, management of files and records, etc.

Question #18: Will my computer and/or I be serviced by you, a partner or junior accountants?

Many CPA firms train new associates at the client’s expense. Be sure you get what you pay for.

Question #19: How are your fees calculated? Will you be charging me for every phone discussion?

To avoid friction later, it is essential to discuss the CPA’s fee structure. Tax professionals may bill by the hour, form, overall return or some combination. After reviewing your previous returns and interviewing you, a tax professional should be able to give you a good-faith estimate of costs. If the CPA uses a time-based system, discuss the hourly rate of the accountant and staff, overhead expense reimbursement (what is the cost of a fax?) and whether certain time is not billed.

Find out now whether a simple two-minute phone call or a one-page fax means an hour of billable time. If that’s the case, run for the door.

Question #20: What can I do to help you with your work and keep your fees to a minimum?

A great deal of your accountant’s time can be saved by preparing information beforehand. Find out if your CPA is willing to work with you to offload this work to your firm.

Question #21: Do you perceive any conflicts of interest?

CPAs work for dozens of firms and scores and sometimes hundreds of individuals. You should inquire if any of your direct competition is represented by the firm. If so, inquire as to how this conflict is handled.

Question #22: How long have you been a Certified Public Accountant, and what other licenses do you hold?

You should inquire with the state CPA organization to discover if there have been any disciplinary actions entered. Some accountants also have credentials as financial planners (PFS), securities representatives, business valuation experts, even lawyers. Check web directories and websites (e.g., http://www.CPAdirectory.com)

Question #23: How well have you integrated computers and the Internet into your practice, and has it enabled you to do more for the clients at less cost?

Integrating your computer files with your CPA’s files can save time and money — and increase accuracy. Doing so over the Internet makes it even simpler. Find out how your CPA uses the Internet. Does he have his own website? If so, check it out and ask questions about the resources available on it. Find out how you can interact with him and his computer systems to make work flow more efficient, while enabling both of you to stay in touch.

Question #24: How do you plan on communicating and how frequently with our Controller and/or CFO?

Be sure the CPA is willing to be part of your team and work with your staff to ensure success.

Question #25: Why should we hire your firm versus another CPA firm?

This is a good closing question to see how the firm responds and see if they were listening to your needs and really offer a competitive advantage or are just another me too firm.

The Author:

Keith McAslan is a Partner with CxO To Go a national professional services company headquartered in Denver, Colorado that provides on-demand C-Level expertise and best practices to client companies on a part time, flexible, and affordable basis. Keith is sought after to provide advisory services as the trusted advisor to Owners and CEO’s. By utilizing his extensive experience as a successful financial and operational C-level executive, McAslan brings a results driven leadership style to complex situations.

McAslan’s expertise includes: financial advisory; management consulting; part time, interim & virtual CFO, COO and CEO; debt and equity financing; turnaround management; acquisition and divestiture advisory. Most recently Keith, was instrumental in the successful sale of Western Forge to Ideal Industries. As the interim CFO with finance and private investment transaction experience, guided the management team through the sale and due diligence process completing the sale from prospective buyer presentation to close within 60 days.   Contact Keith at 303-520-2493, www.cxotogo.com, or kmcaslan@CxOToGo.com to discuss your business needs.

Business versus Personal Credit

Posted June 21, 2010 by keithmcaslan
Categories: Business Management, Business Strategy, Cash Management, CEO, CFO, Colorado CFO, Credit, Debt Financing, Financial Management, Financing, Lender Financing

Personal – Personal credit building starts when an individual provides their social security number and applies for their first credit card.  At that point a credit profile is started with the personal credit reporting agencies in the region of the country in which they reside. This profile, also commonly known as a “credit report”, is built with every credit inquiry, credit application submitted, change of address and job change. The information contained in the report is usually reported to the credit bureaus by those businesses issuing credit. Eventually, the credit report is viewed as a statement or report of an individual’s ability to pay back a debt, and is the key tool to access and grant credit.

Business – When a business issues another business credit, it’s referred to as trade credit (credit from vendors or suppliers).  Trade, or business, credit is the single largest source of lending in the world, but it typically not reported to the business credit agencies.  The data regarding trade credit transactions must be submitted and then is accumulated by the business credit bureaus to create a business credit report using the business name, address and federal tax identification number (FIN). The business credit bureaus use this data to generate a historical report about a company’s business credit transactions and payment history.  Typically, the businesses issuing credit rely on the business credit report to determine the credit they are willing to grant and the amount of the credit limit.  Additionally, many businesses (suppliers/vendors) will submit credit reference applications to the key suppliers of the business as a method to obtain payment patterns as part of the credit granting process.

The major credit bureaus are:

  • Dun & Bradstreet
  • Business Credit USA
  • Corporate Experian
  • Small Business Equifax
  • TransUnion  (Personal)

The information provided to the business credit bureaus (primarily D&B) is sent in voluntarily, as businesses are not required to report.  Therefore, credit bureaus may never receive any information about the business credit transactions and a business could go for years accumulating business credit without being reported to the credit bureaus and establishing a positive business credit history.

Establishing Business Credit History:

Business credit scores range on a scale from 0 to 100 with 75 or more considered an excellent rating. Personal credit scores, on the other hand, range from 300 to 850 with a score of 680 or higher considered excellent.  With today’s tighter credit scrutiny the higher the credit score, the more likely an individual or business is to obtain credit and at more favorable terms.

While it is important to know that there are many factors (www.myfico.com) that affect a credit score; it’s based on more than just whether you pay your bills on time (still very important). The credit score will be affected by the amount of available credit you have on bank lines of credit and credit cards, the length of time you’ve had a credit profile, the number of inquiries made on your credit profile, paying the bills on time, bankruptcy, as well as other considerations.

The typical American consumer credit report receives two to three credit inquiries per year and usually has 11 credit obligations – typically broken down as 7 credit cards and 4 installment loans. Business owners are not your typical consumer, because they carry both personal and business credit. This typically doubles the number of inquiries made to their personal credit profile and the number of credit obligations they carry at any given time, all of which negatively impact the personal credit score. Additionally, because business inquiries and personal inquiries are not separated on the personal credit report, the personal credit scores are negatively impacted. As mentioned earlier, using the personal credit history to get business credit, businesses are not able to build their business history/score, all of which could help attain critical business credit in the future.

A critical mistake many business owners make is using their personal information to apply for business credit, leases and loans. This practice has the resultant impact of potentially lowering their personal credit score, while not building a business credit history and business credit score.

A key to establishing a business credit profile and score is to find companies (UPS, FEDEX, etc.) or your key supplier and vendors that will grant credit for your business without using your personal credit information and then report the payment experiences to the business credit bureaus. By reporting the information to the proper credit bureaus, those companies will help the business establish a business credit profile and score.

The Seven Steps to Success for Establishing Business Credit:

1. Company Legal Structure – The business must be a legal entity unto itself in order to establish business credit. Therefore, it is recommended to form a corporation (C Corp) or LLC (discuss with your CPA the advantage/disadvantages of a C Corp versus LLC) as opposed to structuring your business as a sole proprietorship or partnership. Formation of a sole proprietorship or partnership, dictates that personal credit information could be included on the business credit report. Additionally, as a sole proprietor or partner in a partnership, you are personally liable for the debts of the business and all your personal assets are at risk in the event of litigation.

Corporations and LLC’s, on the other hand, provide the business owners liability protection, and can build a business credit profile that’s separate from the personal credit profile.  Therefore, apply for credit under your business’s name and find businesses will to grant credit without a personal credit check or guarantee.

Remember –  obtain an FIN or EIN from the IRS at the http://www.irs.gov

2. Register with Business Credit Agencies – The best known business credit bureau is Dun & Bradstreet (www.dnb.com).  Dun & Bradstreet has a process on their web site to establish a D-U-N-S number (a specific 9 digit number related to your business) and instructions how to establish a business credit rating. It is strongly recommended that you  contact D&B and follow their process to establish business credit. The following is from the D&B web site:

How do I get started with D&B?  With our unsurpassed global data collection system, D&B continually gathers the data that initiates the creation of business credit profiles on new companies. Many kinds of activities can trigger a profile on a new company, such as incorporating your business, applying for a loan, getting a business telephone number, taking out a lease on office space – even just when another company seeks information from D&B about your business. Still, a new business may not have a complete business credit profile. Getting a D-U-N-S Number from D&B – the worldwide standard for business classification systems – is an essential part of helping you establish your business credit profile and will ensure that when a company looks you up in the D&B database they will find you. In some cases, a D&B D-U-N-S Number is so a requirement for doing business some entities, such as the US government.

You should make sure you have a D&B business credit profile if:

  • You are planning to obtain a business loan
  • You need to purchase or lease equipment
  • Your cash flow is tight
  • You want to ensure you are getting a fair deal from lenders compared to your competition
  • You want to pay net 30 days instead of COD (Cash On Delivery)
  • You are paying interest at prime plus 1, or even higher
  • You plan to do business with entities that require a D-U-N-S® Number, e.g. the US Government

These issues and dozens other like them can be addressed by having a strong business credit profile. A good rating provides you with the financial freedom to take the steps you need to grow, and is a straightforward, unbiased method for other companies to assess your level of risk when considering taking you on as a creditor. A poor credit rating is a certain barrier to growth and success, preventing you from getting adequate funding on fair terms.

Communicating directly with D&B will help establish your business credit in less time. If you are a new company, D&B can help you build a complete business credit profile from the ground up; if you have been in operation for a while, you will want to improve and/or protect your business credit profile. Find out more about how to establish, monitor, improve, or protect your business credit.

3. Credit Market Requirements – Businesses must meet all the requirements of the credit market in order to have a higher probability of credit approval, as not being in compliance with the credit market can “send up signal flares” with both credit bureaus and potential grantors of business credit. Some of the “signal flares” include:

  • not having a business license,
  • not being registered with the Secretary of State for a certificate of good standing,
  • operating under your social security number rather than a FIN or EIN,
  • not having a phone line (land line) that is listed in the phone directory in the exact business legal name,
  • no web site, or
  • not having a business email address (not AOL or gmail, but a specific URL for your company).

4. Small Business Credit Lines – Investigate and locate a minimum of five businesses (vendors/suppliers) willing to grant a small business credit without personal guarantees and will report the payment experiences to the business credit bureaus.  This will assist your business to establish a credit report and build a financial credit foundation for the company.  Find companies willing to grant credit that report to the credit bureaus such as UPS, FEDEX, www.marketingoncredit.com.

5. Business Credit Cards – Obtain three business credit cards (Sam’s Club Discover Business card), that are not linked to you personally and that report the business credit to the reporting agencies.  Then be sure to always pay your bills on time!

6. Financial Statements, Business Plans and Loan Packages – These documents are often required by many credit grantors as part of their loan application process.  CxO To GO (www.CxOToGo.com) is a national professional services firm that has assisted many business with their financial statement preparation and business plans.  Additionally, CxO To Go has packages such as PowerPlan™ and PowerPlan2™ for business plans, PowerPuncher™ for executive summaries, CFOCast™ for financial projections and BankSell™ for bank proposals so lenders and bankers will take action.  It is important to note that 61% of all businesses are turned down for a loan due to a poor loan package, however with BankSell™  the lender loan package gets results and moves the applicant to the top of the list for review and credit committee approval.

7. Debt management – Be a smart money manager and manage the debt levels to ensure they are not too burdensome and can be paid back with current cash flow.  Do not incur debt that will over leverage the company and cause missed or late payments.

Author:

Keith McAslan is a Partner with CxO To Go a national professional services company headquartered in Denver, Colorado that provides on-demand C-Level expertise and best practices to client companies on a part time, flexible, and affordable basis. Keith is sought after to provide advisory services as the trusted advisor to Owners and CEO’s. By utilizing his extensive experience as a successful financial and operational C-level executive, McAslan brings a results driven leadership style to complex situations.

McAslan’s expertise includes: financial advisory; management consulting; part time, interim & virtual CFO, COO and CEO; debt and equity financing; turnaround management; acquisition and divestiture advisory. Most recently Keith, was instrumental in the successful sale of Western Forge to Ideal Industries. As the interim CFO with finance and private investment transaction experience, guided the management team through the sale and due diligence process completing the sale from prospective buyer presentation to close within 60 days.   Contact Keith for your free two hour strategy session at 303-520-2493, www.cxotogo.com, or kmcaslan@CxOToGo.com to discuss your business needs.

Employment Agreements

Posted June 2, 2010 by keithmcaslan
Categories: Business Management, Business Plan, Cash Management, CEO, CFO, Colorado CFO, Human Resources, Managment Incentive Plan, Private Equity, Trusted ADvisor, Uncategorized, virtual CFO

Tags: , , , ,

Introduction:

Employment agreements with key members of management are important for continuity of management as well as the protection of the company.  The following is an extensive employment agreement that covers the employees employment, relocation and non-compete.

Typically, an employment agreement of this type is used for a Vice President level or above position in the organization.  The following is an example of an employment agreement.

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this “Agreement”) is made effective as of _____________, 20XX and is by and COMPANY NAME, a STATE OF INCORPORATION, TYPE OF COMPANY <LLC, C-CORP, etc> “Company”) and EMPLOYEE NAME (“EMPLOYEE”).

Recitals

A.        The Company desires to employ EMPLOYEE to serve as the Vice President Sales and Marketing, and EMPLOYEE desires to continue to serve the Company in such capacity.

B.        The Company and EMPLOYEE each desires to set forth in writing the terms and conditions of their understandings and agreements with respect to the employment of EMPLOYEE as Vice President Sales and Marketing.

Agreement

In consideration of the mutual covenants and obligations contained herein, the Company hereby agrees to employ EMPLOYEE and EMPLOYEE hereby accepts such employment upon the terms and conditions set forth in this Agreement:

  1. Employment; Duties; Compensation.

(a)                Term.  The Company shall employ EMPLOYEE, and EMPLOYEE shall serve the Company, for a term commencing on the date hereof and continuing until this Agreement is terminated pursuant to the provisions of Section 3 hereof (the “Term of Employment”).

(b)               Duties.  During the Term of Employment, EMPLOYEE shall perform such duties and responsibilities as are set forth on Exhibit A hereto.  During the Term of Employment and except for absences due to vacation and illness in accordance with the policies of the Company, EMPLOYEE shall devote substantially all of his time during normal business hours to the business affairs of the Company.

(c)                Compensation.  As compensation for the services to be rendered by EMPLOYEE during the Term of Employment and the other obligations undertaken by EMPLOYEE hereunder, EMPLOYEE shall be entitled to the following compensation:

(i)                 Salary.  During the Term of Employment, the Company shall pay to EMPLOYEE an annual base salary of not less than $XXX,XXX (as adjusted as set forth below from time to time, the “Base Salary”).  The Base Salary will be paid by the Company in equal installments according to the Company’s customary payroll practices, but in any event not less frequently than monthly.

(ii)               Incentive Compensation.  During the Term of Employment, EMPLOYEE shall participate in the incentive compensation and/or profit sharing plan(s), if any, set forth on Exhibit B hereto (the “Bonus Plan(s)”) on the terms set forth in such Bonus Plan(s); provided that, prior to the participation by EMPLOYEE in any Bonus Plan in any period, EMPLOYEE shall be subject to a performance review by the Company in accordance with its practices as then in effect from time to time and shall satisfy all conditions necessary for participation in the Bonus Plan.

(iii)             Benefits.  During the Term of Employment, the Company shall provide EMPLOYEE with the benefits set forth on Exhibit C hereto (the “Benefits”) on the terms set forth in the applicable plan documents, benefit documents, employee handbooks and/or employee manuals as then in effect from time to time.

(iv)             Automobile Allowance.   EMPLOYEE shall also receive a monthly automobile allowance of AMOUNT and No/100 Dollars ($X00.00) per month, said amount to be paid to EMPLOYEE as part of his regular monthly compensation, and subject to income taxes, withholdings and deductions.

(v)               Temporary Living Expenses and Relocation Allowance.  Prior to EMPLOYEE’ move of his permanent residence under this Agreement, the Company shall secure temporary living arrangements for EMPLOYEE consisting of a one bedroom apartment for a period not to exceed six (6) months.  The Company shall also pay EMPLOYEE a relocation allowance of AMOUNT and No/100 Dollars ($XX,000.00) (the “Relocation Allowance”), said amount to be paid to EMPLOYEE in lump sum payment, less applicable income taxes, withholdings and deductions.  For purposes of this provision, the Relocation Allowance will be paid to EMPLOYEE upon completion of his move to a permanent residence within a one (1) hour drive of NEW OFICE LOCATION.  Should EMPLOYEE not move and maintain his permanent residence within a one (1) hour drive of NEW OFFICE LOCATION on or before the date that is one year from the date of this Agreement, he shall not be eligible for the Relocation Allowance.

(d)               Business Expenses.  The Company shall reimburse EMPLOYEE for all business expenses that are reasonable and necessary and incurred by EMPLOYEE while performing his duties under this Agreement, upon presentation of expense statements, receipts and/or vouchers or such other information and documentation as the Company may reasonably require.

  1. Confidentiality; Non-Competition; Non-Solicitation.

(a)                Company Property.  All written materials, records, data and other documents prepared or possessed by EMPLOYEE during EMPLOYEE’s employment by the Company are and shall be the Company’s property.  All information, ideas, concepts, improvements, discoveries and inventions that EMPLOYEE conceives of, makes, develops or acquires, or has conceived of, made, developed or acquired, individually or with others, during EMPLOYEE’s employment (whether during business hours and whether or not on Company’s premises), that directly relate to or are derivatives of the Company’s business, products or services are the Company’s sole and exclusive property.  All memoranda, notes, records, files, correspondence, drawings, manuals, models, specifications, computer programs, maps and other documents, data or materials of any type embodying such information, ideas, concepts, improvements, discoveries and inventions are and shall be the Company’s property.  EMPLOYEE does not own or have any right to, nor does EMPLOYEE claim to own or have any right to, any concepts, improvements, discoveries or inventions, or any memoranda, notes, records, files, correspondence, drawings, manuals, models, specifications, computer programs, maps or other documents, data or materials of any type embodying such concepts, improvements, discoveries or inventions (collectively, the “Company Property“), to the extent competitive with the business of the Company as described in Section 2(c).  At the termination of EMPLOYEE’s employment for any reason, EMPLOYEE shall return to the Company all (i) Company Property, (ii) of the Company’s documents, (iii) of the Company’s data and (iv) other property of the Company, in each case in EMPLOYEE’s possession or under EMPLOYEE’s control.

(b)               Confidential Information.

(i)                 Non-Disclosure. EMPLOYEE acknowledges that the Company’s business is highly competitive and that the Company will provide EMPLOYEE with access to Confidential Information (as defined below). EMPLOYEE acknowledges that this Confidential Information constitutes a valuable, special and unique asset the Company uses to obtain a competitive advantage over competitors.  EMPLOYEE further acknowledges that protecting such Confidential Information against unauthorized disclosure and use is critically important to the Company in maintaining its competitive position.  EMPLOYEE will not, at any time during or after EMPLOYEE’s Term of Employment, make any unauthorized disclosure of any Confidential Information or make any use thereof, except in the carrying out of EMPLOYEE’s employment responsibilities to the Company, and further shall take all reasonable precautions to prevent the inadvertent or accidental disclosure of any Confidential Information.  EMPLOYEE also agrees to preserve and protect the confidentiality of third party confidential information to the same extent, and on the same basis, as the Company’s Confidential Information.  As used in this Agreement, the term “Confidential Information” shall mean information of a confidential or secret nature that relates to the technology, intellectual property, customers, employees, plans, products, research and development, financial affairs or other aspects of the business of the Company or of any other party with whom the Company agrees to hold such information of such party in confidence, whether having existed, now existing, or to be developed or created during EMPLOYEE’s Term of Employment, whether tangible or intangible, whether or not marked as confidential, and whether or how stored, compiled or memorialized physically, electronically, graphically, photographically or in writing.

(ii)               Return.  EMPLOYEE promptly shall return to the Company all Confidential Information at any time upon the request of the Company, and in any event (and without such request) upon the termination of EMPLOYEE’s employment with the Company.  EMPLOYEE shall not retain any copies or other physical embodiments of any Confidential Information after the termination for any reason of EMPLOYEE’s employment with the Company.

(c)                Non-Competition.

(i)                 Prohibition.  During the period commencing on the date hereof and continuing through the 1st anniversary of the termination for any reason of EMPLOYEE’s employment with the Company, EMPLOYEE shall not, directly or indirectly, alone or as a partner, founder, joint venture, officer, director, employee, consultant, agent, independent contractor or stockholder of any company or business, whether now or hereafter existing, compete with the Company with respect to any of the Company Activities in the Geographic Territory.  Notwithstanding the foregoing, EMPLOYEE’s ownership of not more than 1% of the shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or on the Nasdaq Stock Market shall not be deemed to violate the prohibitions of this paragraph.  EMPLOYEE acknowledges that this covenant will not impair EMPLOYEE from becoming gainfully employed, or otherwise earning a livelihood following termination of employment with the Company.  EMPLOYEE further acknowledges that if a court of competent jurisdiction finds this non-competition provision invalid or unenforceable due to unreasonableness in time, geographic scope, or scope of the Company’s business, then such court will interpret and enforce this provision to the maximum extent that such court deems reasonable.

(ii)               Exceptions.  EMPLOYEE shall not be considered to have violated this Section 2(c) if there is a Sale (as defined below) of the Company and EMPLOYEE becomes an employee of the purchasing entity.  As used in this Agreement, “Sale” shall mean the sale of more than fifty percent (50%) of the equity of the Company, a merger of the Company with an entity the equity of which after the merger the stockholders of the Company immediately prior to such merger own less than fifty percent (50%), or the sale of substantially all of the assets of the Company, in any case to a person or entity not affiliated with the Company or its parent company or any of their respective subsidiaries or other affiliates, shareholders, directors or officers.  A recapitalization or change of form of the Company shall not be considered a Sale.

(iii)             Defined Terms.  As used in this Agreement, (A) “Geographic Territory” means the geographic areas in which the Company is conducting the Company Activities as of the last day of EMPLOYEE’s Term of Employment; (B) “Company Activities” means, collectively, the manufacture, production, design, engineering, importation, purchase, offering, providing, marketing, sale, distribution, research or development of all products or services by the Company at any time during EMPLOYEE’s Term of Employment; and (C) “Active Prospect” means a person or other entity to whom the Company made a proposal, or with whom an employee of the Company met, for the purpose of seeking to provide products or services to that person or entity, at any time within the twelve (12) months immediately prior to the last day of the Term of Employment.

(d)               Non-Solicitation.  EMPLOYEE agrees that any attempt on his part to induce others to leave the Company’s employ, or any effort by EMPLOYEE to interfere with the Company’s relationship with its other employees, independent contractors, vendors, clients or customers, would be harmful and damaging to the Company.  Therefore, EMPLOYEE agrees that during the period commencing on the date hereof and continuing through the 1st anniversary of the termination for any reason of EMPLOYEE’s employment with the Company, EMPLOYEE shall not, and shall not facilitate, encourage or solicit others to:

(i)                 solicit or accept orders or business of any kind relating to any Company Activity from any customer or Active Prospect of the Company within the Geographic Territory, except in furtherance of the Company’s business as an employee of the Company;

(ii)               knowingly induce or attempt to induce any customer of the Company to terminate or reduce its relationship with the Company, or otherwise interfere with, impair, disrupt or damage the Company’s relationship with any customer or Active Prospect of the Company;

(iii)             recruit or solicit any person who is or was employed by the Company at any time during EMPLOYEE’s Term of Employment or thereafter, or in any manner otherwise seek to induce any such person to leave his or her employment with the Company;

(iv)             knowingly induce or attempt to induce any independent contractor, consultant, supplier or vendor to terminate its relationship with the Company, or otherwise intentionally interfere with, impair, disrupt or damage the Company’s relationship with any such independent contractor, consultant, supplier or vendor; or

(v)               incorporate or otherwise create any business organization utilizing any name which is confusingly similar to that of the Company.

(e)                No Constraints.  EMPLOYEE is not a party to, or otherwise bound by, any employment contract, patent disclosure agreement, proprietary information agreement, noncompetition agreement or any other contract or agreement or any restrictive covenant relating to the right of EMPLOYEE to be employed by or provide services to the Company.

  1. Termination.

(a)                Termination.  The employment of EMPLOYEE under this Agreement shall be terminated:

(i)                 immediately upon the death of EMPLOYEE without further action by the Company;

(ii)               immediately upon written notice of termination for Cause (as defined below) by the Company to EMPLOYEE; or

(iii)             upon thirty (30) days’ prior written notice by the Company for termination without Cause.

(b)        As used in this Agreement, the term “Cause” means (i) EMPLOYEE’ continued failure to perform his duties and responsibilities in a manner satisfactory to the President and Chief Executive Officer of the Company; (ii) EMPLOYEE’s engagement in willful, reckless or grossly negligent misconduct that is materially injurious to the Company or any of its affiliates, monetarily or otherwise; (iii) except as provided by (iv), the conviction, or plea of guilty or nolo contendre, of EMPLOYEE of a crime involving a felony; (iv) the charging of EMPLOYEE with an act of criminal fraud, misappropriation or personal dishonesty; (v) a material breach by EMPLOYEE of any provision of this Agreement; or (vi) drug or alcohol abuse (legal or illegal) by EMPLOYEE that materially impairs EMPLOYEE’s ability to perform his duties hereunder and that is not corrected within 15 days following written notice thereof to EMPLOYEE by the Company (except that, after the second occurrence of such abuse followed by notice and cure under this section, no cure period will apply and EMPLOYEE can be terminated immediately).

(c)        Severance Pay.   In the event EMPLOYEE is terminated Without Cause and (i) such termination is not, in the Company’s judgment, in connection with the  Sale, the Company shall pay EMPLOYEE twelve (12) months severance pay, or (ii) such termination is, in the Company’s judgment, in connection with the Sale of the Company, the Company shall pay EMPLOYEE six (6) months severance pay. This Severance Pay will  based upon his current regular monthly base salary, and does not include the automobile allowance, incentive payments or commission payments, and will be paid to EMPLOYEE through the Company’s regular payroll procedures, less applicable income taxes, withholdings and deductions.

  1. Miscellaneous.

(a)                Amendment.  This Agreement may be amended only by a written document executed by each of the parties to this Agreement.

(b)               Entire Agreement.  This Agreement and the other agreements, plan documents and similar documents referred to herein or in the Exhibits hereto set forth the entire understanding of the parties to this Agreement regarding the subject matter hereof and supersede all prior contracts, agreements, arrangements, communications, discussions, representations and warranties, whether oral or written, between the parties regarding the subject matter hereof.

(c)                Notices.  Any notice, request, consent and other communication required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given (i) when received if personally delivered or delivered by confirmed facsimile, (ii) within 1 day after being sent by recognized overnight delivery service, or (iii) within 5 days after being sent by registered or certified mail, return receipt requested, postage prepaid, to the parties (and to the persons to whom copies shall be sent) at their respective addresses set forth below.

If to the Company:     COMPANY NAME

COMPANY ADDRESS

If to EMPLOYEE:                 EMPLOYEE

EMPLOYEE ADDRESS

Any party by written notice to the other party may change the address or the persons to who notices or copies thereof shall be directed.

(d)               Assignment.  This Agreement shall be binding upon and inure to the benefit of the heirs and legal representatives of EMPLOYEE and the permitted assigns and successors of the Company, but neither this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to hypothecation by EMPLOYEE (except by will or by operation of the laws of intestate succession) or by the Company, except that the Company may assign this Agreement to any successor (whether by merger, purchase or otherwise), if such successor expressly agrees to assume the obligations of the Company hereunder.

(e)                Governing Law.  This Agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of STATE NAME, without reference to rules relating to conflicts of law.

(f)                Dispute Resolution.  Any dispute or controversy arising under this Agreement shall be determined and settled by arbitration under the Commercial Arbitration Rules of the American Arbitration Association.  Any such arbitration commenced pursuant to this Section 4(f) shall take place in CITY, STATE.  The arbitration shall be final and binding and judgment thereon may be entered by any court having competent jurisdiction.  EMPLOYEE acknowledges that monetary damages will not be an adequate remedy for the Company in the event of a breach of the covenants contained in Section 2, and that it would be impossible for the Company to measure damages in the event of such a breach.  Therefore, EMPLOYEE agrees that, in addition to other rights that the Company may have, EMPLOYEE shall forfeit the right to any payments under this Agreement, and the Company shall be entitled to injunctive relief, in the event of a breach or threatened breach of a covenant contained in this Agreement.  Notwithstanding anything to the contrary contained herein, the Company may seek injunctive relief from a court of competent jurisdiction in the event of a breach or threatened breach of a covenant contained in this Agreement.

(g)               Severability.  Each section and subsection of this Agreement constitutes a separate and distinct provision hereof.  It is the intent of the parties to this Agreement that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applicable.  Accordingly, if any one or more of the terms, covenants or restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, covenants and restrictions shall remain in full force and effect, and the invalid, void or unenforceable provisions shall be deemed severable.  Moreover, if any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject matter, it shall be reformed by limiting and reducing it to the minimum extent necessary, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.

(h)               Assistance in Litigation.  EMPLOYEE shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or that may be brought in the future against or on behalf of the Company that relate to events or occurrences that transpired while EMPLOYEE was employed by the Company.

(i)                 Waivers.  Any waiver by any party of any violation of, breach of or default under any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or waiver of any other violation of, breach of or default under, any other provision of this Agreement.

(j)                 Withholding of Taxes.  The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required to be withheld pursuant to any law or government regulation or ruling.

(k)               Survival of Certain Obligations.  The obligations of the Company and EMPLOYEE set forth in this Agreement which by their terms extend beyond or survive the termination of the Term of Employment shall not be affected or diminished in any way by the termination of the Term of Employment.

(l)                 Voluntary Agreement.  Each party to this Agreement has read and fully understands the terms and provisions hereof, has had the opportunity to review this Agreement with legal counsel, has executed this Agreement based upon such party’s own judgment and, if desired, advice of counsel, and knowingly, voluntarily and without duress, agrees to all of the terms set forth in this Agreement.  The parties have participated jointly in the negotiation and drafting of this Agreement.  If an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties and no presumption or burden of proof will arise favoring or disfavoring any party because of authorship of any provision of this Agreement.  Except as expressly set forth in this Agreement, neither the parties nor their affiliates, advisors and/or their attorneys have made any representation or warranty, express or implied, at law or in equity with respect of the subject matter contained herein.

Execution Page Follows

The Company has caused this Agreement to be duly executed and delivered by its duly authorized officer, and EMPLOYEE has duly executed and delivered this Agreement, as of the date first written above.

COMPANY NAME
By: 
Name:
Title: 
EMPLOYEE
________
EMPLOYEE NAME

EXHIBIT A

Duties and Responsibilities

Performance of duties typical of a NAME OF THE POSITION, together with such other duties and responsibilities from time to time assigned to EMPLOYEE, whether orally or in writing, by the President and Chief Executive Officer of the Company.

EXHIBIT B

Incentive Bonus

Incentive Bonus

EMPLOYEE will be eligible for additional compensation comprised of an Incentive Bonus.  Whether the Incentive Bonus will be paid and the amount of the Incentive Bonus that may be paid is subject to change from time to time based upon the sole discretion and approval of the Board of Directors of the Company.  The Incentive Bonus is governed by the Company’s Management Incentive Compensation Plan; in the event of any conflict between this Agreement and the Management Incentive Compensation Plan, the Management Incentive Compensation Plan shall control.

EXHIBIT C

Benefits

A.        EMPLOYEE shall receive the following:

1.         Health insurance coverage for EMPLOYEE and his family, if elected and pursuant to all terms and conditions (including eligibility conditions payment of applicable amounts to the Company) of the applicable plan.

2.         Three weeks paid vacation.

Conclusion:

The Employment Agreement is legal document containing the agreement of both parties for employment.  The author is not an attorney and does not purport to offer legal counsel, but only provide a general overview of an employment agreement and a sample for viewing.  Therefore, it is strongly recommended that legal counsel be engaged and represent both the Company and Employee during the entirety of negotiation and employment agreement process to ensure all legal rights are protected.

The Author:

Keith McAslan is a Partner with CxO To Go a national professional services company headquartered in Denver, Colorado that provides on-demand C-Level expertise and best practices to client companies on a part time, flexible, and affordable basis. Keith is sought after to provide advisory services as the trusted advisor to Owners and CEO’s. By utilizing his extensive experience as a successful financial and operational C-level executive, McAslan brings a results driven leadership style to complex situations.

McAslan’s expertise includes: financial advisory; management consulting; part time, interim & virtual CFO, COO and CEO; debt and equity financing; turnaround management; acquisition and divestiture advisory. Most recently Keith, was instrumental in the successful sale of Western Forge to Ideal Industries. As the interim CFO with finance and private investment transaction experience, guided the management team through the sale and due diligence process completing the sale from prospective buyer presentation to close within 60 days.   Contact Keith at 303-520-2493, www.cxotogo.com, or kmcaslan@CxOToGo.com to discuss your business needs.