Friday, December 5, 2014

Preparing for a Business Sale or Capital Raise - Business Valuation


Visit Axial.Net

For those interested in merger and acquisitions and capital raisings matters, I highly recommend checking out Axial (www.axial.net) and its blog (www.axial.net/forum).  I am not affiliated with Axial in any way, I’m just a fan.

Axial is fast growing, award-winning online platform which helps business owners find and access capital.  The site is ”…really a business development tool to help lenders, investors, advisers and CEOs find opportunities.  It's how deals can get started," per Peter Lehrman, Axial’s CEO.

One of the groups served by Axial is business owners who are thinking about a long-term strategy to either sell their businesses or to raise capital.  In September, 2014 Lehrman was featured in a very instructive Webinar titled What’s the “Right Price” For Your Business? Understanding and Bridging the Valuation Gap (http://vimeo.com/106358660) in which he discussed issues facing CEOs who are developing such strategies.  A few of the points made during the Webinar are:
  • There is an imbalance in experience of CEOs vs. professional buyers in M&A transactions.
  • Valuation Gap = What the seller wants vs. what the market will pay.
  • Future Financial Value = Inherent Value + Market Factors + Who’s at the Table.
  • Growth rate of revenue and profitability are key factors in valuation.
  • Axial found that CEOs spend on average between 0% and 5% of their time developing an exit strategy.
  • Axial suggests that CEOs spend 10% of their time acquiring information about M&A and acquiring relationships that will be helpful to the exit or capital raising process.  Because of the CEOs’ unique position and responsibilities, this activity should not be delegated to others in an organization.
I believe that one of the most important things to learn during the “acquiring information” stage is how providers of capital approach business valuation and transaction pricing.  Understanding how these concepts apply to your specific situation, before you hire a financial advisor, will help you choose an advisor who is aligned with you regarding pricing objectives.

Business Valuation Calculations

Most business valuation instruction calls for determining the enterprise value of a business by adding together the present values of several forecast years’ free cash flow and the business’s terminal value (final forecast year free cash flow times a multiple).  An often used, shorthand, less rigorous approach to calculating value is to multiply a company’s actual or forecast year-one EBITDA times an average market multiple as reported by many investment banks and other sources.  This later approach completely ignores pretty much all of the unique characteristics of a business, most importantly its prospects for revenue and profitability growth.  In the public company realm this approach would be the equivalent of stating that all Nasdaq-traded common stocks should sell at the same multiple of earnings per share.

Among other deficiencies, many valuation approaches like those above leave out critical pricing factors which are extremely important to professional investors and sellers alike, i.e., they do not compute the buyer’s expected return on its equity investment as a result of paying a computed enterprise value.  In order to calculate the buyer’s expected return on its equity investment one needs to factor in the nature of the sellers assets (some of which may be used as loan collateral);
the buyer’s likely capital structure to accomplish the specific acquisition; and the financial forecast for the business during the buyer’s expected ownership period.

Remember, most businesses are purchased using a combination of equity capital and (non-recourse) debt as the sources of funds.  It is the expected return on the equity portion of the capital structure that strongly influences investor offering price decisions and, therefore, business valuation from the buyer’s perspective.  When VCs say that they made a five-to-one return on an investment (e.g., 38% per year compounded, over five years) they are referring to the return on their equity investment in a business, not the gain in the business's enterprise value.

Corpfin.Net’s Business Valuation Software

Our Web-based software (www.corpfin.net) computes the maximum purchase price a buyer can offer for a business, given the buyer’s target rate-of-return on its equity investment.  Its starting point is a five-year financial forecast for the business, with a nested application that creates the acquired company’s opening balance sheet showing the buyer’s sources of capital; forecasted financial statements of the newly formed company during the buyer’s ownership period; and
several reports that prove the results of the valuation analysis.

Our software approaches business valuations and transaction pricing as an algebra word problem (i.e., compute a maximize business value, given a number of variables and constraints; and provide a proof).

The elements of our analysis are as follows:

Problem Statement

A financial buyer wishes to purchase a business using both equity and debt to fund the purchase price [or the CEO of a business is preparing to sell the business and is educating himself on how buyers value acquisition candidates.  Comments below view the problem from a buyer’s perspective].

The business has supplied the buyer with a five-year forecast of operations (income statements,     balance sheets, cash flow statements), along with the set of assumptions giving rise to the forecasted financials.  The buyer has modified the assumptions and related forecasts to fit its expectations for the future performance of the business and wishes to make an offer to purchase the business based on the buyer’s forecast and other relevant information.

Using discounted cash flow (DCF) methodology, what should be the maximum amount of the buyer’s offer (maximum enterprise value), given:
  • The buyer’s financial forecast for the business.
  • Current M&A and credit market conditions.
  • The annual pre-tax rate of return required on the buyer’s equity investment and by a provider of subordinated debt, if any.
Solution

Objective Function:  Compute the maximize purchase price (enterprise value) of the business paid  by the buyer to the seller (forecast year-one EBITDA times a derived EBITDA multiple equals the maximum purchase price).

Variables and Constraints (not in order of importance):
  • Buyer’s version of a five-year financial forecast (income statements, balance sheets and cash flow statements) for the business.
  • Auction value of plant, property and equipment (fixed assets).
  • Operating expense adjustments, if any, post acquisition.
  • Amount of purchase price seller will finance.
  • Annual pre-tax rate of return required on buyer’s equity investment.
  • Percent of purchase price provided by common and preferred stock.
  • Preferred stock amount.
  • Annual pre-tax rate of return required by the provider of subordinated debt.
  • Estimated terminal EBITDA multiple the business will sell for at the end of the buyer’s ownership term.
  • Estimated interest rates to be paid on senior and subordinated debt during the ownership period.
  • Intangible asset amortization period (years).
  • Transaction expenses as a percent of the purchase price.
  • Senior loan advance rates for accounts receivable, inventory and fixed assets.
  • Income tax rate for business during buyer’s ownership period.
  • Current maturities of long term debt during buyer’s ownership period.
Proof

Our reports cover not only the business valuation and the details of the estimated purchase and sale transaction, but also the financial performance of the business before and after the sale.  This feature makes our software useful to both sellers and buyers because it acts as a proof of the estimated transaction pricing; capital structure employed by the buyer; and the returns on equity and subordinated debt.

Reports are as follows:
  • A multi-page narrative report that organizes and provides an interpretation of the individual valuation scenario.  The report is organized in a manner to help the user understand and logically describe the key elements and results of the valuation to a third party.
  • A comprehensive statistical report that depicts the valuation result and the financial outcomes achieved by the seller and buyer of the business.
  • The primary financial statements - annual income statements, balance sheets and cash flow statements showing the financial performance of the business prior to and after the purchase by the buyer.  The forecast information is at approximately the same level of account detail as an accountant’s standard year-end report.
  • A financial assumptions report. Our valuation model contains 190 assumptions in total (that’s 35 income statement and balance sheet assumptions for each of the five forecast years, plus 15 assumptions relating to the capitalization and rate of return objectives of the buyer).
  • Two financial metric and performance reports.  The first report is organized into six management sections (working capital; assets; liabilities; profitability; debt; and bank borrowings).  It contains 43 different metrics for each historical and forecast year.  The second report is a subsection of the first report and focuses on debt service metrics that are particularly important to lenders.
The above iteration of our business valuation software solves for maximum purchase price, given a buyer’s required rate of return on its equity investment.  A second iteration computes the buyer's rate of return on its equity investment, given a buyer’s purchase price offer or a seller’s specific price target.

Both iterations’ assumptions can be set to reflect the sale of the business to either a financial or strategic buyer.  See our post, Strategic Buyer Purchase Valuation, for details.

Next Steps

During the question and answer portion of the Webinar mentioned above, Peter Lehrman cautions businesses owners who are in the “acquiring information” stage of preparing for a sale or capital raise to resist pressure to prematurely share financial and other proprietary information about their businesses with M&A professionals.  In our view, Lehrman’s advice concerning confidentiality does not conflict with using tools such as our software to learn more about how one of the most important aspects of M&A transactions (pricing) is derived.

Please contact me (tgf@corpfin.net) if you are interested in learning more about our software and how we might help you, confidentially, apply our business valuation and transaction pricing approach to your specific situation.

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Monday, September 16, 2013

The “Venture Capital” and “First Chicago” Methods for Valuing Private Company Investments

For those who are interested in an in-depth discussion of the “Venture Capital” and the “First Chicago” methods for valuing private company investments, we recommend reviewing Method For Valuing High-Risk, Long-Term Investments The “Venture Capital Method” by Harvard Business School Professor William A. Sahlman and Associates Fellow Daniel R. Scherlis.  The revised article, published on July 24, 2009, is available for download at Harvard Business Review.

For an additional, summary explanation of the methods, please see Valuing a Business: The Venture Capital Method, National Association of Certified Valuators and Analysts (NACVA) 1999, offered by The McLean Group at http://www.mcleanllc.com/pdf/vcarticle99.pdf.

The “Venture Capital” and the “First Chicago” methods, which are considered by many to be the most appropriate methods for valuing private company investments, can be implemented in minutes using the Corpfin.Net’s Web-native Private Equity Placement and LBO Valuation models.     

Friday, January 4, 2013

LBO Valuation Skills

A lot of people visit this blog and my website Corpfin.Net searching for information about leverage buyout (LBO) models, private equity models, and business valuation mechanics.  Both sites provide discussions of those topics and free access to easy- to- use, cloud-based financial models with which to do those analyses.

Unfortunately, many visitors move on from my sites without actually trying the models.  In my mind, reading about financial analysis techniques without actually doing an analysis is about as effective a learning method as reading a golf instruction book and never swinging a club.  In finance, like many other endeavors, the nuances and sensitivities of the game are best realized and understood through execution. 

One of the issues that may be at work for those not trying our models is the lack of a real-world corporate finance deal to analyze and compare one’s results to.  Accounting educators have for years addressed this issue by having students do practice sets (keeping the books for a fictional business through the completion of a one-month or longer accounting cycle) where the correct answers are known and the students mastery of the subject matter can be evaluated.  Unfortunately, as far as I know, no such curriculum is in place for financial forecasting and business valuation skills building. 

Which brings me to the point of this post: 

In the past I was involved as an advisor in the sale of small, privately owned insurance industry claims processing company.  After assisting the client in developing a five-year forecast for his firm, I used the Corpfin.Net LBO model to advise the client on pricing.  The client took my recommendations and (happily) realized that selling price.    

For those who would like to test their LBO analysis skills against an actual result, I propose that you sign-up for a free account on Corpfin.Net and e-mail me at tgf@corpfin.net, asking me to copy my insurance industry client’s forecast to your member directory (the forecast is titled “LBO Valuation Skills”).  Using that forecast, create an LBO valuation (about eight assumptions) and let me know the selling price you come up with.  If you would like a critique of your work, let me know and we will arrange to get together (for free) either on line or through e-mail to go through the details.

I am thinking about recognizing, in some way, those who either do a good job initially in estimating the selling price, or who demonstrate a basic understanding of the subject matter after a critique.  Please let me know if this idea of recognizing basic LBO valuation skills is appealing to you.    


Tuesday, December 18, 2012

Public Company Analysis and Valuation Model - Apple Inc.


Before I buy a company’s stock I like to make my own estimate of its long-term financial prospects and value. 

As part of my analysis I use a company’s historical financial statements (available on the web for free at sec.gov, Google Finance, Yahoo Finance and MSN Money) as a base to forecast earnings potential, cash flow and balance sheet position.

With the exception of sec.gov (which provides for download of historical data into a spreadsheet - no formulas - for selected public companies) the above sites do not provide a means to forecast future operations.  Because of this void, I developed a web-native public company analysis model for use in forecasting both future operations and estimating a company’s intrinsic (fundamental) value.

Let’s consider a financial forecast and intrinsic value analysis of Apple Inc. (AAPL) using our software.  Click here to access the forecast and valuation model.  Please feel free to change the forecast and valuation assumptions to create your personal Apple analysis - just remember to save your changes by clicking the Save button on the relevant pages.

(If you would like to save your work for future use, please sign up for our free public company analysis model membership before you begin your Apple analysis.  Aside from quantifying an individual company’s financial prospects, using the public company model is a great way to practice / learn financial forecasting and business valuation concepts that are applicable to both public and private businesses).

Financial Forecast

Apple’s historical income statements and balance sheets, plus a few assumptions, create the first draft of a five-year financial forecast. The first draft is principally a momentum forecast - a forecast based on my initial sales forecast and Apple’s historical income statement and balance sheet metrics. (This draft is provided “as is” and solely for demonstration purposes, not for trading purposes or advice).

Change any or all of the first draft assumptions to see how the changes impact future results. The output of the model consists of the primary historical and forecasted financial statements - annual income statements, including earnings per share (EPS); balance sheets; cash flow statements; and documentation detailing the key assumptions underlying the forecast.

Intrinsic Valuation

Once a working forecast for Apple is developed, you can perform an intrinsic valuation of the company by clicking on Step 5 of the forecast menu. The purpose of this module is to estimate the intrinsic or fundamental value of the company’s common stock - that is, the value a share should have, based on your financial forecast and valuation assumptions, not to be confused with its current market or trading value.

The intrinsic valuation component analyzes the value of a company based on the theoretical sale of the company to a buyer (at the beginning of year two of the five-year forecast) who re­capitalizes the company, owns it for four years and then sells it. That buyer realizes the operating results depicted in the financial forecast and receives all of its investment return from the future operations of the company.

The intrinsic value estimate is determined by calculating the pre-tax amount the buyer pays to the current equity owners (shareholders), in aggregate and per share, to buy the company. This type of analysis is particularly relevant to public company merger and acquisition transactions.

In order to generalize the purchase and sale transaction across a potentially infinite range of “deal” attributes, the intrinsic valuation analysis assumes that the buyer purchases the assets of the company and pays off all of its liabilities at the closing. Therefore, the owners (shareholders) of the public company receive a payment equal to the enterprise value of the company, less the amount of liabilities assumed and paid-off by the buyer.

The output of the intrinsic valuation component consists of the Estimated Intrinsic Valuation Summary; primary historical and forecasted financial statements -  annual income statements, balance sheets and cash flow statements -  showing the company’s financial performance before and after the pro forma sale by the owners; and documentation detailing the key assumptions underlying the analysis.

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The private company corporate finance models on my website (www.corpfin.net) are just as easy to use as this public company model. Our other models include Start-Up. Established and Early Stage business forecast models; and LBO Valuation, Private Equity Placement and Single-Year models.

In the future I will post analyses of other widely held public companies (e.g. Cisco, Yahoo!, Google, GE, Oracle, etc). If you sign up for our free public company analysis model membership you will be able to save your work on our server, and you will have access to additional public company financial analyses as they are published.

Please let me (tgf@corpfin.net) know your suggestions for other public companies to feature.



Thursday, December 13, 2012

Strategic Buyer Purchase Valuation

Recently I was asked by a strategic buyer to estimate the purchase price of an acquisition candidate which was being sold through an auction run by an investment banking firm.  Based on the financial forecast (unrealistically optimistic) provided by the acquisition candidate, I used the Corpfin.Net LBO model to estimate the purchase price that private equity groups might submit as their first round bids.  The strategic buyer bid that estimated purchase price and made it into round-two of the auction.

As a result of qualifying for round-two, the strategic buyer was given access to the acquisition candidate's management and records and, based on that input and analysis, revised the round-one forecast to fit its (the strategic buyer's) outlook for the business.  The question at that point was: what should the strategic buyer's final bid be, knowing that its investment hurdle rate (required pretax rate of return); sources of acquisition funds; and debt recourse obligations are very different from those of the usual private equity buyer?     

To calculate the suggested round-two strategic buyer purchase price bid I used the Corpfin.Net LBO model and reset the required pretax rate of return target and the cost of those funds.  Specifically, I set the required rate of return on both equity and subordinated debt to equal the strategic buyer's hurdle rate; and set the current-pay interest rate on subordinated debt to 0%. 

The revised required rates of return assumptions reflect the reality that all strategic buyer acquisition funding in excess of senior bank debt is equity investment (due to use of corporate cash and/or debt with recourse provisions to accomplish the acquisition).   

The zero current-pay interest rate assumption on subordinated debt ensures that all cash generated by the acquired business is taxable and either reduces senior debt or is invested with a return equal to the senior debt interest rate.   This assumption eliminates the optimistic assumption in some analysis methods that cash generated by an acquisition's operations is reinvested at the (higher) investment hurdle rate.  

The round-two purchase price bid resulted in the strategic buyer being asked to participate in final sale negotiations.
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Please see the Corpfin.Net LBO model tutorial and our LBO model blog post for additional information about LBO valuation.

If you are a business looking to buy another business please consider using the Corpfin.Net LBO model in your purchase valuation.  If you have any questions about the model, please contact me at tgf@corpfin.net.

Wednesday, November 16, 2011

Start-Up Financial Forecasting

Introduction
Start-up and early stage businesses underperform or fail largely because they run out of money (cash and credit).  In some instances entrepreneurs start businesses that will never generate the profit margins needed to pay for committed fixed assets and recurring operating expenses; and sometimes they run out of money after starting-up because they do not completely explore the possible financial consequences of what appear to be very sound operating decisions.

For example, starting a new retail store and spending most available funds (cash and credit) on fixtures and space improvements can place a great strain on remaining funds to pay employees, suppliers, rent, etc; and to weather the period it takes to build a profitable clientele.  Likewise, growing too quickly relative to a start-up’s available funding - evidenced by too high an investment in accounts receivable and inventory - can cause the same financial strain.

In any case, it is tragic to see promising businesses die, causing family wealth to be decimated, because of financial issues and obstacles that could have been identified and possibly overcome before operating plans were executed.

Financial Forecasting
Businesses are dynamic financial systems.  Changes in financial viability arise because a set of actions (operating initiatives) create effects (balance sheets and cash flow) that, in turn, cause other effects.  A primary task of sound financial management is forecasting the possible financial effects of business initiatives before the initiatives are undertaken and, based on forecasted outcomes, rebalancing choices to best protect the sustainability of the business. 

Forecasted income statements, balance sheets and cash flow statements are the financial dashboards that can assist entrepreneurs in exploring the financial effects (the “what-ifs”) of business initiatives.  Financial managers need to have a feel for the financial effects of business decisions - how decisions are monetized into the dashboards, and insight into the impacts on the dashboards after the decisions are implemented. 

The goal is to identify the unintended financial consequences of planned business initiatives; and to develop action plans, in advance, to mitigate their negative effects.

Forecast Software
If you do not already have a method to produce forecasts for your start-up or early stage business, please consider Corpfin.Net’s  web-based, easy-to-use business financial planning software.  The software helps create five-year financial forecasts, and 12 monthly forecasts for each of the five forecast years. 

Our start-up forecast model is used by businesses that have no operating history.  Our early stage model is used by businesses that have very limited (i.e., less than 12 months) historical financial information. 

Because start-up and early stage businesses have little or no historical financial history, we use SIC code financial data to help create the first draft of a forecast.  The models create a first draft forecast using a few user sales assumptions and the financial metrics for businesses in the primary industry in which the start-up or early stage business expects to compete.  The user can modify that draft’s assumptions to customize the forecast to suit her unique business circumstances. 

The major benefits of using the SIC code data are first, it provides guidance with respect to the profitability and asset investments by mature businesses in the industry of interest; and second, it is a very quick and easy way to get the financial planning process started. 

Our five-year forecasts are documented with eleven reports which include:
  • An S I C extract showing the financial data on which the first draft forecast is based.
  • A narrative report that is organized in a manner to help present the key elements and results of the forecast to a third party.
  • Multiple versions of forecast financial statements (income statements, balance sheets and cash flow statements) and forecast assumptions reports.
  • Comprehensive financial metric reports.
Our single-year model is nested within the five-year forecast models and enables the user to create single year forecasts (i.e., split a single year's forecast into twelve (12) individual monthly forecasts) for any year's forecast.  Reports generated by this model are similar to those documenting the five-year forecast.

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T

Monday, July 18, 2011

Analysis of Carl Icahn’s Bid to Acquire The Clorox Company

On July 16, 2011 the Wall Street Journal published an article concerning Carl Icahn’s bid to acquire the outstanding common shares of The Clorox Company (CLX) for $76.50 per share.  With approximately 140 million shares outstanding (including Mr. Icahn’s current holdings), the bid values the equity of company at $10.710 billion.

I did a forecast of CLX’s future operations, assuming a 3.0% growth in revenues for fiscal years 2011 through 2014; and operating margins of 19.0% in 2011 and 19.8% for fiscal years 2012 through 2014.  

Given that forecast and other assumptions (see link below), I calculated a financial buyer’s estimated pretax rate-of-return resulting from buying CLX in a hypothetical asset purchase in which the CLX shareholders receive pretax proceeds of $76.50 per share.  My buyout analysis indicates that pretax return to be approximately 15%.   The return would be lower if the buyer were required to issue warrants to subordinated debt providers. 

If the financial buyer’s pretax rate-of-return objective were 25%, the estimated purchase price of the shares would be approximately $67.00.  Click here to access the reports related to this buyout analysis at Google Docs. The “Overview” narrative report describes the valuation method and results.

[Note:  If you sign in to Google Docs using your Google account information, Google Docs allows you to view, print and download the buyout analysis reports]

Sunday, March 13, 2011

Buyout Analysis of American Eagle Outfitters (AEO)

On 3/11/11 Bloomberg published an article commenting on the possible attractiveness of American Eagle Outfitters, Inc. (AEO) to private equity investors.

I did a quick LBO analysis of American Eagle assuming 3% annual sales growth; gross margin and operating earnings percents in line with history; and an EBITDA exit multiple of 10.0 four years after the purchase.

Assuming a private equity investor required a pretax rate of return of 25% and made an equity investment equal to 20% of the total purchase price, I forecast the net pretax proceeds to AEO shareholders in this scenario to be approximately $3.7 billion, or about 18% above the company’s current market cap of $3.13 billion as reported by Google Finance on 03/11/11.

Click here to access PDFs of the various buyout analysis reports at Google Docs.

[Note:  If you sign in to Google Docs using your Google account information, Google Docs allows you to view, print and download the buyout analysis reports]

Thursday, January 13, 2011

Private Equity Model and Valuation Basics

Background
Private equity placements are minority (less than majority) investments in the ownership of private businesses that need capital for a variety of reasons, including: to expand operations; to restructure their balance sheets; to enter new markets; or finance major business acquisitions.

Generally, businesses that seek private equity funding generate revenue and operating profits, but are not able to produce sufficient cash flows to support new initiatives, or to borrow needed funds from senior lenders.

Private equity investments can be in the form of ownership units (common stock, preferred stock, partnership units or LLC units, depending on the legal structure of a business); or in subordinated debt with warrants, also referred to as mezzanine capital, which are loans which require periodic interest payments and allow holders to buy business ownership units in the future for a de minimis price per unit. 

Issuing new ownership interests in a business is usually very costly to existing owners in terms of the ownership give up, the likely loss of management’s prerogatives to run the business as they wish, and the potential for additional ownership dilution if the business plan, on which the new equity investment is based, is not accomplished. 

On the positive side, additional equity capital allows a business to pursue opportunities it could not otherwise undertake.  The important issue for existing owners is to weigh all of the costs and risks associated with the issuance of new equity against the potential increase in their personal wealth resulting from accomplishing the business plan that requires the new equity capital.   

Private Equity Valuation
Key metrics in a private equity analysis are the estimated "pre-money" and "post-money" values of a business, and the ownership splits immediately after the equity financing. 

The estimated pre-money value is the value of a business (that is, its enterprise value less its liabilities) before the new equity funding is added to a company’s balance sheet. 

The estimated post-money value of a business is equal to the sum of the pre-money value, plus the amount of new equity investment, minus issuance expenses. 

Subordinated debt with warrants is a hybrid security.  The principal amount of the subordinated debt is not added to the post-money value of a company because subordinated debt is a debt obligation.  It adds identical and offsetting amounts of assets and liabilities to a company’s balance sheet and therefore provides no net change in the value of a company.  While the value of warrants "attached" to subordinated debt are expected to be valuable to subordinated debt investors, their value to a business at the post-money valuation date is immaterial.

Estimated pre-money and post-money values are unique amounts that are derived from the interaction of a large number financial forecast assumptions and investment inputs.  Accordingly, changes to assumptions or inputs will result in changes to both values. 

Building a Private Equity Model
The amount of equity and /or subordinated debt sought in a private equity placement is usually an amount that bridges the gap between a conservative estimate of the amount senior lenders will lend a company and the total funding a company needs to achieve its long-term financial plan.   

We suggest forecasting, by month, the first two years subsequent to the planned private equity placement to determine if the amount of equity capital sought is sufficient to withstand expected monthly variations in net sales and cash flow; and to satisfy intra-year compliance with debt covenants.  Funding and compliance that may appear satisfactory on an annual basis may not be so during yearly interim periods.

Key assumptions and investment inputs used to create a private equity analyses include:
  • The sales, profit, asset and liability assumptions contained in a business’ five year forecast.  Because additional equity capital usually supports higher growth rates than can be accomplished without that funding, it is possible that the original five-year forecast (without the new equity capital infusion) should be adjusted to reflect increased business opportunities.  
  • The amounts, investment types and pretax annual rates of return (RORs) required by new investors on their equity and subordinated debt investments.
  • The EBITDA multiple used at the end of the forecast period to estimate the gross value of a business at that point in time.  That gross value, minus the liabilities of a company retained / paid off by the investors at the end of the investors’ ownership period, is a proxy for the pretax value of all investors’ future interests.  That residual value is the amount that is divided among the original and new equity investors in accordance with their respective percentage ownership interests.
New investors annual pretax rate of return target on common and preferred stock investments is effected by a number of factors, including: the level of competition among investors for private equity investments; the perceived risk associated with an investee’s industry and the likelihood of achieving the forecast results; the rate of return target for the investor’s private equity fund; and possible dilution in ownership percent due to possible follow-on financing rounds. 

Generally, the higher the pretax rate of return required by new investors, the lower the pre-money valuation of a company and the lower the percent of ownership retained by the original equity investors. 

Providers of subordinated debt typically want to earn a total rate of return on their investment in the 20% range, with that return coming from the combination of quarterly interest payments and a share of the sales proceeds when a business is sold.  As such, the higher the coupon rate on subordinated debt, the smaller the share of the sales proceeds paid to subordinated debt holders when the business is sold. 
                 
The EBITDA multiple used to value a business at the end of the five year forecast period is a key private equity valuation assumption.  Like investors’ annual pretax rate of return targets, EBITDA multiples vary over time due to changes is various economic, credit and competitive conditions affecting the market for business investments and acquisitions. 

Private equity models built with spreadsheets integrate some fairly complicated math and accounting routines.  Those who wish to build their own models may find it helpful to review How to Fix Circular Formulas in Excel (http://www.ehow.com/how_4842732_fix-circular-formulas-excel.html).

Corpfin.Net Private Equity Model
If your objective is to generate private equity analyses and valuations, rather than spend your time creating and debugging your own spreadsheet model, our private equity model may be a good fit for you. 

To create a private equity placement analysis with our software a user must first create a five year financial forecast using our forecast model for either an established, start-up or early stage business. 

Our private equity placement model is one of three robust applications nested within our five year financial forecast models.  This design feature means that once you have completed a five year forecast, you are just a few moments and assumptions away from creating a private equity analysis which is supported by eight comprehensive reports.  In addition, our model makes it easy to create and save multiple valuation scenarios, with different operating forecasts, investment return and capital structure assumptions.
  
We approach a private equity placement as if, theoretically, the original investors in a business and the new private equity investors form a new company on the private placement date.  The original investors contribute their business (on a pretax basis), which is valued at its enterprise value less its liabilities.  The private placement investors contribute cash.  From the private placement date through four years of joint ownership, both sets of investors earn the same pretax rate of return on their equity investments.   

From a timing standpoint, our private equity model assumes that a private equity placement investor intends to invest in the business at the beginning of year two (2) of the five year forecast; to maintain his ownership interest for the ensuing four (4) years; and to sell his ownership interest, along with the original owners, when the business is sold at the end of the fourth year.  Again, a key attribute of our model is that both the original and new investors earn the same rate of return on their equity investments from the private placement investment date through the sale of the business at the end of the fourth year of ownership.

With respect to project documentation, reports generated by our model cover not only the details of the estimated private equity transaction, but also the detailed financial performance of the business before and after the financing.  This feature makes our private equity model useful to both original and new equity investors because it acts as a proof of the estimated transaction pricing; and it provides the means to examine the effectiveness of the equity infusion in serving the financial interests of the original equity investors.  Reports in both HTML and PDF formats are as follows:

  • A multi-page narrative report that organizes and provides an interpretation of the private equity analysis.  The report is organized in a manner to help the user logically present and describe the key elements and results of the analysis to a third party. 
  • A comprehensive statistical report that depicts the financial outcomes achieved by original and new equity investors. 
  • The primary financial statements - annual income statements, balance sheets and cash flow statements - showing the financial performance of the business prior to and after the private equity placement.  We forecast information at approximately the same level of account detail as an accountant’s standard year-end report. 
  • A financial assumptions report.  Our private equity model contains 162 assumptions in total (that’s 31 income statement and balance sheet assumptions for each of the five forecast years, plus 7 assumptions relating to the valuation and the rate of return objectives of the new investors). 
  • Two financial metric and performance reports.  The first report is organized into six management sections (working capital; assets; liabilities; profitability; debt; and bank borrowings).  It contains forty-three different metrics for each historical and forecast year.  The second report is a subsection of the first report, and focuses on debt service metrics that are particularly important to lenders. 
For additional details concerning the operation of our private equity model, please see our tutorial at http://www.corpfin.net/newsite/models/tutorial4.shtml

If you have any questions about our private equity or other corporate finance applications, please feel free to contact me at tgf@corpfin.net. 

If you are a friend of a person who is thinking about raising private equity capital, or investing in a private equity opportunity, please send her/him the link to this post.

Tuesday, December 14, 2010

Buyout Analysis of Caterpillar’s Agreement to Acquire Bucyrus International

On November 15, 2010 Caterpillar Inc. (CAT) announced its agreement to acquire Bucyrus International, Inc. (BUCY) for $92 per share.  The transaction is expected to close in mid-2011.

I did a forecast of BUCY’s future operations assuming a 26.4% growth in revenues in 2010 and 8.0% per year for the years 2011 through 2014; and operating margins of 14.8% in 2010 and 17% for years 2011 through 2014.

Given that forecast and other assumptions (see link below), I calculated a financial buyer’s estimated pretax rate-of-return (PROR) resulting from buying BUCY in a hypothetical asset purchase in which the sellers receive net proceeds equal to $92 per share.  The purchase price is based on BUCY’s 82.253 million fully diluted shares outstanding for the quarter ended September 30, 2010. 

The results of the buyout analysis show an estimated PROR of approximately 11.0% on the financial buyer’s equity investment.  The return would be lower if the buyer were required to grant warrants to subordinated debt providers.

The return for CAT would likely be higher due to operational synergies not available to a financial buyer.  That said, if a financial buyer were able to reduce forecasted operating expenses by 10% per year during its four year ownership period, the estimated PROR on its equity investment would increase from approximately 11.0% to 16.5% - still a low expected return for private equity investments.   

Click here to access PDFs of the various buyout analysis reports at Google Docs. The “Overview” narrative report describes the valuation method and results.

[Note:  If you sign in to Google Docs using your Google account information, Google Docs allows you to view, print and download the buyout analysis reports]

Thursday, December 9, 2010

LBO Model and Valuation Basics

Background
A leveraged buyout (LBO) is a type of business acquisition in which a buyer (typically a private equity partnership) acquires a company and uses debt to finance a significant percentage of the purchase price. 

The proportions of debt and equity capital used to finance LBO transactions depend on a number of factors, including:
  • Credit market and general economic conditions.
  • The historical and forecasted operating performance and management expertise of the company to be acquired.
  • The ability of the acquired company to meet forecasted interest and principal repayment requirements.
  • The market value of the tangible assets to be acquired.
  • The buyer’s appetite for financial risk.
In an LBO transaction, the assets of the acquired company are pledged as collateral for debt, and the acquired company (or a newly formed company containing the assets of the acquired company) is the borrower.  The debt is usually in the form of secured bank loans and, if the acquisition is of sufficient size, subordinated debt provided by investment partnerships.

LBO debt is almost always non-recourse to the business buyer, meaning the buyer is not liable if the debt is not repaid by the borrower.  If the borrower defaults on the debt, the lender(s) may seize the pledged collateral, and debt recovery is limited to the amount realized from the disposal of the collateral.

The LBO form of business acquisition is attractive to business buyers because they need to fund only a fraction of the acquisition purchase price.  This funding strategy reduces the buyer’s at-risk equity investment, and enhances his return on investment, if the acquired company performs as expected. 

If the acquired company does not perform as expected, the debt service requirements of a leveraged capital structure can range from very challenging, to a situation in which the buyer’s equity investment is worthless.

LBO Valuation
LBO valuations use the financial structure and analyses techniques employed by LBO buyers to estimate the value a business.  The valuation presumes the business buyer is a “financial buyer” (for example, a private equity partnership) that owns no other company in the acquired company’s industry and, therefore, expects all of its investment return to result solely from the forecasted performance of the acquired company.   

An LBO valuation is typically built on a five year financial forecast of the acquired company’s operations.  The valuation analysis forecasts the operations of acquired company during the forecast period, the debt and other liabilities repaid during the ownership period, and contains an assumption about the multiple of earnings a business will be sold for at the end of the ownership period.  By targeting pre-tax annual rates of returns on equity and subordinated debt investments consistent with those sought by private investment funds, an LBO valuation estimates  the purchase price a financial buyer should be willing to pay for a business to achieve those returns. 

In general, an LBO valuation estimates the minimum current value of a business since buyers who already own similar businesses, and would benefit from operational synergies with the acquired company, will usually pay more for a given business than will a financial buyer.  These synergistic buyers are also known as "industry buyers". 

An LBO valuation model can emulate industrial buyer pricing by adjusting the financial forecast of the acquired company to fit its revised ownership - generally by increasing forecasted sales and/or reducing costs and expenses of the acquired company due to its ownership by a complementary enterprise. 

Building an LBO Model
For those interested in creating their own LBO model, eHow.com provides a helpful narrative titled “How to Build an LBO Model” (http://www.ehow.com/how_5106647_build-lbo-model.html).  eHow.com is an online community (80 million visitors per month) dedicated to providing practical solutions to completing a huge variety of task.

The eHow instructions indicate “the key elements of an LBO model are the three major financial statements (income statement, cash flow statement and balance sheet) as well as assumptions regarding debt levels, repayment periods and interest rates.”

The narrative suggests the following steps to create an LBO model, using Excel as the software platform:
  • Enter an outline of the company’s capital structure.
  • Build the company’s income statement to the EBITDA level, entering at least three years of historical data for the income statement and then use this data to create five years of projected income statements.
  • Enter three years of historical balance sheet data.
  • Calculate historical balance sheet ratios, and use these ratios to calculate five years of projected balance sheet information.
  • Build the cash flow statement.
  • Create a debt pay-down schedule to determine interest expense.  Link the interest expense figure back to the cash flow statement.
  • Calculate the exit value for the business based on a multiple of year five EBITDA.
  • Use the XIRR formula in Excel to calculate the annual return on investment.  Compare the return on investment to the desired rate of return based on the riskiness of the investment.
  • Make sure that the circular references setting in Excel is enabled. Linking the interest expense back to the cash flow statement will create a circular reference, which Excel will not be able to execute unless it is set to manual calculation.
The instructions indicate that a “basic knowledge of finance and accounting will be very helpful in building an LBO model”... and that the difficulty encountered will be “moderately challenging.”

Corpfin.Net LBO Model
If your objective is to generate LBO valuations, rather than spend your time creating and debugging your own Excel model, our LBO model may be a good fit for you. 

How does our LBO model differ from the (bare-bones) Excel model described above?
  • Our LBO model is one of three applications nested within our five-year financial forecast models.  This “nested” design feature means that once you have completed a five year forecast, you are just a few moments and assumptions away from creating an LBO valuation, supported by 8 comprehensive reports.
  • Our software creates an LBO valuation from the perspective of both a buyer and a seller.  We call these perspectives Cases.  Case 1, the most usual analysis, views the business acquisition from the point of view of the business buyer and solves for the purchase price of the business acquisition, given the buyer’s required pre-tax return on its equity investment.  Case 2 views the business acquisition from the point of view of the seller and computes buyer’s return on its equity investment, given the seller’s target selling price of the business.  In instances where parties disagree about valuation, we find that looking at a transaction from both points of view leads to constructive discussions and negotiations. 
  • Our LBO model makes it easy to create and save multiple valuation scenarios, with different operating forecasts, investment returns and capital structure assumptions, for a same purchase and sale transaction.
  • Our LBO model reports cover not only the business valuation and the details of the estimated purchase and sale transaction, but also the financial performance of the business before and after the sale.  Reports, in both HTML and PDF formats, are as follows:  
    •  A multi-page narrative report that organizes and provides an interpretation of the valuation results.  The report is organized in a manner to help the user logically present and describe the key elements and results of the valuation to a third party. 
    • A comprehensive statistical report that depicts the valuation result and the outcomes achieved by the seller and buyer of the business.
    • The primary financial statements - annual income statements, balance sheets and cash flow statements showing the financial performance of the business prior to and after the purchase by the financial buyer.  We forecast information at approximately the same level of account detail as an accountant’s standard year-end report.
    • A financial assumptions report.  Our LBO valuation model contains 183 assumptions in total (that’s 35 income statement and balance sheet assumptions for each of the five forecast years, plus 8 assumptions relating to the valuation and rate of return objectives of the buyer).
    • Two financial metric and performance reports.  The first report is organized into six management sections (working capital; assets; liabilities; profitability; debt; and bank borrowings).  It contains 43 different metrics for each of historical and forecast years.  The second report is a subsection of the first report, and focuses on debt service metrics that are particularly important to lenders.
If you are looking for an easy-to-use, sophisticated, presentation-oriented LBO model, please consider using ours.  You will save a lot of time vs. creating your own model - you will probably complete your first draft of a valuation, with all of our automatically generated reports, in about the time it takes to format the spreadsheet for a bare-bones Excel model. 

Please see our LBO model tutorial at http://www.corpfin.net/newsite/models/tutorial3.shtml for additional information. 

If you have any questions about our LBO or other corporate finance applications, please feel free to contact me at tgf@corpfin.net. 

If you have a friend who is thinking about buying or selling a business, please send her/him the link to this post.

Thursday, November 25, 2010

Commercial Banker Software

Summary
There are many professional development courses aimed at helping commercial bankers enhance their credit analysis and corporate finance skills. 

Unfortunately, the course sponsors do not appear to provide the comprehensive take-away software tools needed to implement the techniques taught in the classes.  If you are looking for such tools, please consider trying ours (see Final Thoughts below).    

Continuing Professional Education (CPE) Courses
Commercial bankers interested sharpening their credit analysis and corporate finance skills have a variety of CPE vendors and course options available to them.

For example, both the Risk Management Association (RMA) and the American Management Association (AMA) offer courses covering commercial banking and corporate finance subjects.  RMA is a professional association focused primarily on education and research for the banking industry. AMA is a world leader in professional skill development for individuals, organizations and government agencies.
   
A sample of RMA courses dealing with credit and corporate finance matters includes the following:
  • Financial Statement Analysis (2 days, Member price $760).
  • Corporate Finance & Business Valuation (2 days, Member price $775).
  • Credit Risk Analysis for Commercial Bankers (3 days, Member price $1,065). 
AMA courses dealing with the same subject matter include:
  • Financial Statement Workshop Seminar (2 days, Member price $1,895).
  • Financial Analysis Seminar (2 days, Member price $1,995).
  • Applying the Tools of Corporate Finance Seminar (2 days, Member price $1,995). 
  • Valuation of Companies: The Practical Aspects Seminar (3 days, Member price $3,595). 
These and other related RMA and AMA courses appear to be rich in practical content; as a group, they provide a foundation in financial statement analysis, cash flow analysis, cash flow drivers, debt capacity and forecasting.  However, after reviewing the course outlines it appears that none of the courses provide students with comprehensive take-away software tools to implement the analyses that are taught. 

There are, of course, workshops and seminars in financial model building offered by various vendors (e.g., AMA’s Financial Modeling and Forecasting Workshop and K2 Enterprises’ Excel Budgeting and Forecasting Techniques), but the courses I reviewed appear to teach model building methodology (Excel) and do not supply attendees with completed models. 

CPE Experience
My personal experience is that CPE courses that provided or specify take-away tools (e.g., finance - HP 12C Financial Calculator; statistical methods - Minitab or SAS software; etc.) to tackle the subject matter of the courses are the ones whose concepts I retained and used.  Those that did not were soon forgotten.  

My general reaction to finance-related CPE courses that do not provide take-away tools is summarized in two rhetorical questions:
  • If I am taking a course to increase my knowledge of a certain subject area, how am I supposed to know, after a one or two day course, all of the issues that need to be incorporated in a spreadsheet model? 
  • What makes the course sponsor think that I have the time, or know or care enough about modeling, to develop my own analyses tools?
A Few Observations About Commercial Bankers and Lending                       
Unlike accountants, commercial bankers are usually not employed because of their spreadsheet development prowess.  Rather, commercial bankers’ success and personal advancement depend on their sales and customer service skills; a thorough grounding in credit analysis and corporate finance principles; and good judgment.  
           
While the analysis of borrowers’ historical financial statements is important in making credit decisions, commercial bankers know that commercial loans are serviced by future operations - which may be very different from past performance.  This is why some bankers create forecasts of their customers’ businesses. 

The forecasting process generates important benefits for both bankers and their customers, including:
  • It complements the traditional credit analysis approach and leads to hands-on insights into expected future cash flow drivers and customer debt capacity.    
  • It quantifies the potential risks and rewards of the customer relationship, and identifies the lender as a value added advisor who has more to offer than money and price.
  • It leads to meaningful discussions with customers about future sales volume, operating margins, inventory requirements, capital expenditures, etc.
  • It provides a very efficient “needs checklist” for marketing purposes, and demonstrates the bankers financial expertise and his interest in his customer’s success.
Mastery of financial forecasting and corporate finance analyses methods (as compared to general principles) is particularly important to those commercial bankers who aspire to become private equity or mezzanine fund principals.

Corpfin.Net Software
Corpfin.Net software is a very efficient web-native tool for use in the analysis of both historical and forecast financial statements, including generating the traditional ratios and other metrics favored by lenders.  Some specific uses of the software include:
  • Generating five-year financial forecasts, and monthly forecasts within year.  The output of the forecast models (in both HTML and PDF formats) include:
    • the primary financial statements - income statements, balance sheets and cash flow statements. 
    • several pages of documentation detailing the key assumptions underlying the forecasts. 
    • a narrative report that organizes and provides an interpretation of the forecast results. 
    • actual and forecasted financial ratios and other important metrics.
  •  Determining debt capacity and coverage.
  • Credit facility structuring.
  • Demonstrating to customers and prospects the role of debt and equity in capital structures.
  • In depth modeling and analysis of proposed transactions such as business acquisitions; LBOs and MBOs; sales of businesses; and business recapitalizations. 
Unlike spreadsheets, the Corpfin.Net software is designed to be a fast, presentation-oriented planning, analysis, and valuation tool suitable for CEO/CFO-level collaboration. 

Final Thoughts
If you are intending to take a credit analysis or corporate finance CPE course that does not provide take-away tools, or if you are looking for corporate finance-oriented software to accomplish some of the tasks outlined above, please consider using Corpfin.Net. 

Our software is fast, easy to use, and fully integrated (our financial forecast models integrate seamlessly with our corporate finance analyses models).  Accentuating these positives is its Web-native design and sharing function, which give team members the ability to collaborate using a common platform.  

If you would like to tryout our software located at www.corpfin.net on a no-obligation basis, please send me a note at tgf@corpfin.net. 

If you are a client or friend of a banker, please send her/him the link to this post.

Friday, November 5, 2010

A Marketing Approach for Accountants

In their excellent book The Trusted Advisor (Free Press, 2000), Messrs. David H. Maister, Charles H. Green and Robert M. Galford provide a roadmap for earning the trust and confidence of business services clients and, as a result, the opportunity to achieve personal success in advisory professions.

In Chapter 18, “The Role of Trust in Getting Hired”, the authors suggest that it is the service provider’s professional obligation to keep an eye out for improving a client’s business, and that the service provider should not let getting paid stand in the way of contributing ideas for improvement.  The authors believe that such behavior contributes to the loss of new work and damages the client relationship.

Although I was unaware of this book until last year, I have practiced this marketing approach with success during my several years in the SMB (small and medium-size business) financial advisory business.  As the authors state and I have learned, “if given any choice at all, clients prefer to buy based on a sample.”

For many years I used spreadsheets as the tool to create macro (top level) analyses to start a discussion with SMB clients and prospects on topics such as operating and financial goals; mergers and acquisitions; bank credit facilities; capital raisings; etc.  While this marketing approach was effective, it was unpaid and I hated the preparation time (opportunity cost) involved in conforming old sheets to new situations; the endless proofing and presentation anxiety (nits) associated with the process; and the inability to instantaneously create and present alternative scenarios during (not days after) client and prospect meetings.

My frustration with the spreadsheet method led me to develop the corporate finance software located online at http://www.corpfin.net/.  I designed it to fit my need for fast, web-native (always available), presentation-oriented planning, analysis, and valuation tools for use in CEO/owner level marketing and collaboration.

Accountants
Virtually all of the clients I have worked with over the years have had established relationships with accounting firms.  Those firms performed annual audits or reviews, prepared tax returns, did estate planning for the owner(s), provided stock brokerage services to management, etc., but they were not hired to participate in lucrative advisory projects I or someone like me was hired to do (e.g., bank financing preparation, sale or purchase of a business, private equity capital raises, etc.).

In some instances I suspect the accountants did not want the business because they were not comfortable with the projects’ subject matter.  In others, I know that the accountants wanted the business once it surfaced, but they were not interested enough to contribute ideas on the topic before their clients were compelled to act.  Their clients recognized this “us too” response and hired someone else - firms like mine.

My view is that one of the reasons why the “interested” accountants failed to provide ideas before their clients looked elsewhere for assistance was the accountants’ lack of an efficient process to analyze possible risks and opportunities relating to the future of their clients’ businesses.

Opportunity
Because of their client relationships, professional status and financial expertise, accountants have a substantial first-mover advantage when it comes to helping clients identify financial risks; formulate plans and approaches to realize the clients’ future goals; and convert this assistance into opportunities to provide various types of paid advisory services.  Success in these activities not only improves the accountants’ billings, but it also positions the accountants as a resource on a broader range of financial matters, which in turn may lead to additional service opportunities.

Since one of the topics business owners care most about is the future success of their companies, a logical first step for accountants in pursuing additional service opportunities is to take a forward looking view of their clients’ businesses.  That forward look, and iterations of it, can be explored using the standard dashboards of finance - forecasted financial statements and performance metrics.

The statements and metrics generated do not necessarily have to be shared with clients - their purpose is to provide the accountants with insights into financial risks and opportunities that the clients may be facing so that the accountants can begin an informed conversation with the clients on those subjects.  Even if the issues are outside the scope of the accountants’ practices, by identifying the issues the accountants can refer, with permission, their clients to others who can provide the needed services.  By doing so, the accountants gain the goodwill of their clients and strengthen their professional referral network.

What would be an example of a client risk that an accountant may discover by looking forward?  Suppose a client tells the accountant that his plan is to increase sales by 20% next year.  The accountant models that sales gain and determines that a sales increase of that size will probably cause the client to exceed, at some point in the year, the borrowing limit of his current bank credit agreement.  Identifying that financing risk and explaining why it might happen could lead to a paid project to help put a data package together for use in negotiating a larger credit facility now - before the client is faced with a credit crisis, wonders why he was not warned of the risk, and hires a firm like mine to fix the problem.

There are several other finance-related topics on which accountants can provide ideas and insight that can lead to paid advisory assignments, if the accountants take a forward looking view of their clients’ needs.
  • For undercapitalized clients, accountants can model/analyze intermediate and long-term financing/ownership alternatives, including the sale of additional ownership interests and related ownership dilution.
  • For clients whose ownership group is approaching retirement age, the accountants can review with clients the principal drivers of business value and important aspects of sales of businesses such as pricing, transaction terms and tax planning.
  • For smaller clients who limit their planning to the current fiscal year (e.g., some QuickBooks-using clients), the accountants can provide assistance in creating multi-year financial forecasts in order to help align the clients’ financial objectives with their strategic vision, and to demonstrate the implications of financial decisions on operating flexibility and owners’ wealth.
  • For start-up businesses (either for clients or as a volunteer resource) the assistance could entail helping entrepreneurs develop reasonable multi-year financial performance goals for their business, and helping to determine the debt and equity capital needed to achieve that performance.
If accountants are uncomfortable initiating conversations with their clients about forward looking financial risks and opportunities, they can prompt that discussion by providing clients with the tools to do their own analyses and inviting users to contact the accountants for assistance.  Many firms have taken a somewhat related path by providing various types of (less strategic) calculators on their websites.

Final Thoughts
I have prepared all of the macro-level analyses described above (and then some) using, in chronological order, thirteen column ledger paper, electronic spreadsheets and the software located at http://www.corpfin.net/.  The problem with the first two tools is they are too time-consuming (and therefore too expensive) and too non-standard to be the foundation of a sustained marketing/client collaboration program.

The third tool is professional grade, very fast and standardized.  I designed it specifically to create forward looking macro analyses of financial issues that my experience indicates are of the most interest and importance to business decision makers.  Both accountants and their clients will benefit handsomely from its use.

If you would like to discuss the ideas contained in this post, or would like to tryout our software located at http://www.corpfin.net/,  please send me a note at tgf@corpfin.net.  If you are a client or friend of an accountant (accounting firm), please send her/him/them the link to this post.