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Clearing the underbrush

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Legal and business options to reduce your business's costs from sickness, improve resistance to getting sued, avoid cash flow problems that can sink your venture, and clear away obstacles to business …

Legal and business options to reduce your business's costs from sickness, improve resistance to getting sued, avoid cash flow problems that can sink your venture, and clear away obstacles to business growth.

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  • 1. CLEARING THE UNDERBRUSH Lincolnwood Chamber of Commerce August 22, 2014 Speaker: William A. Price, Attorney At Law
  • 2. I. GETTING SICK The Obamacare Dilemma: Individual Market Providers More Expensive, Smaller Networks The Business Dilemma: Key Employee and Insider Relationships Depend on Good Benefits The Business Dilemma II: Obamacare Mandates, Adverse Selection, and Small Business Market Premiums All Increasing
  • 3. SOME HEALTH CARE OPTIONS Self-Insurance: Businesses That Self-Insure not subject to specific Obamacare coverage mandates, just must provide “adequate” insurance Variations: Private Health Insurance Trust, Association Captives, Individual Company Captive Insurance Entity Common Theme: Carry and manage or hire management of claims to high deductible, then buy reinsurance for amounts above deductible amounts – much cheaper than primary coverage insurance
  • 4. II. GETTING SUED Cook County experiences more than 2/3 of the litigation in Illinois, with only 40% of the population  More than half of all doctors trained here move elsewhere, in part because of our adverse litigation climate Your business or profession probably is experiencing premium increases, since stock market and other asset returns are down, so both loss experience and investment income produce pressures for cost increases to insured persons and entities.
  • 5. RISK MANAGEMENT OPTIONS  Separation of Family Assets From Operating Businesses: Once high litigation risk business profits are earned, US (not international, those have tax risks) asset protection entities like Alaska or Delaware trusts with more than individual owner/professional ownership designed for family estate planning may be appropriate to reduce jurisdictional, bankruptcy, and litigation risks.  Separation Of Asset Holding Entities: Real estate and key equipment ownership entities can operate at “arms length” from high litigation businesses. Economically separate businesses (e.g. low risk cattle vs high risk hotel/resort on ranch) can be separate entities.
  • 6. III. GETTING SUNK  Cash Flow troubles, not lack of profitability, are what kill most businesses.  Typical Sources Of Cash Flow Problems: a. The Infernal Revenue Service, with tax collection process powers (or Ill. Dept. of Revenue, or cities) b. Disappointed Creditors, who sue and freeze accounts, or, if banks, cut off financing c. Greedy Life Or Business Partners d. Deadbeat Customers, Like The State of Illinois
  • 7. CASH FLOW SOLUTIONS  1. Get paid in advance: The Dell business model  2. Pay The D—n Taxes, Especially Those Your Employees Owe. Estimated taxes and other late pay periods for income, property, and sales taxes look like a cheap loan, but they can shut you down, and hurt your credit.  3. Partner With Vendors And Customers For Longer Payment Terms, Reduction Of Middlemen You Have To Pay Off  4. Refinance To Take Advantage Long Term Of Current Low Prime Rates
  • 8. IV. SURVIVING Business Value Increases With Size: 1x EBITDA for solo practice, less than $1 million, 3-4X EBITDA up to $10 million, 5-6 X Private Or 8X P/E Exit From $10-50 million, Industry rates for $50 million plus What Underbrush Is In The Way Of Reaching The Next Valuation Level/Exit Event? Old round minority shareholders? Inefficient equipment? Unproductive partners/employees/sales channels? Ancient business processes?
  • 9. UNDERBRUSH CLEARANCE  For Minority Shares: Create Reverse Stock Split Or Other Expulsion Events, Giving Them A Happy Fair Value Exit  For Inefficient Equipment: Use New Vendor Cheap Or Zero Interest Financing Terms To Dump Inefficient Production Equipment. Or Find New Contract Manufacturing Relationships.  For Unproductive Partners/Employees: Put profit milestone-related incentives in your Buy-Sell Agreements. Drop the idiots overboard.  For Ancient Business Processes: Improve your margins by direct customer relationships through real time feedback and online value creation relationships, in tax-efficient jurisdictions
  • 10. QUESTIONS? William A. Price Attorney at Law www.growthlaw.com P.O. Box 1425 Warrenville, IL 60555 Tel/Fax 1-800-630-4780 Email: wprice@growthlaw.com