My good friend and attorney colleague, Steven A. O'Rourke http://www.calcorplaw.com is a very sharp corporate and business lawyer. He is a guy that other attorneys go to when they want to debate the law. But he is also a guy that entrepreneurs and business owners should go to when they are concerned that they are thorough and accurate because Steve strives to be both. We often kick around concepts that affect the entrepreneurial community and below, I want to share another piece of work that Steve produced as a result of a recent conversation that we had.

 

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You invested $150,000 for a one-quarter share in RiskyTech, Inc., your cousin's great idea. But RiskyTech hasn't "gone public", been acquired, paid dividends, offered you a job, or even sent a birthday card. What have you gotten into and what you do about it?  

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This article is the fifth in a series by my colleague and friend Eric Shaw of http://www.nycreditinc.com. Eric is one of the top credit analysts in the market. I regularly go to Eric to help me analyze client issues and for assistance in making a variety of business decisions. Not to mention, Eric is a rock star when it comes to networking. This article concludes what we began two weeks ago (http://tinyurl.com/db9bqm):

 

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PAYMENT GUARANTEE TOOLS Even if your company can't get all the credit information it needs from a customer, there are approaches that may allow you to do business with that customer and still reduce the risk of not getting paid. Consider the following techniques… 

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Two years ago, I was asked by a company to help them find some capital. Before I could fully agree to the engagement, however, I had to make an evaluation of the company and its prospects because my batting average is critically important to me, and the only way that I can keep my batting average high is by selecting only deals that I know that I can do.

 

This particular company was very interesting. They were in the business of prepaid credit cards or gift cards that could be used at malls and other shopping environments. The company received cash in advance and held it in trust until the customers spent it at the malls of their choice.

 

But this deal had "hair" on it. It was not a clean or easy deal, and it was not going to be a slam dunk. That's because it was difficult for a lender to get their arms around the collateral. It was difficult to explain it, and it was difficult to understand it. And what was more difficult was the CEO of the company. 

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One of my good friends is Harvey Goldstein, CPA. He is one of the best known CPAs in southern California and for 42 years, Harvey ran what became one of the region's preeminent CPA firms, with over 200 professionals. There aren't many business situations that Harvey hasn't seen and there isn't much business advice that Harvey hasn't dispensed. But one of his gems is a little story about a business owner who was having the usual types of business troubles. If you have business troubles or cash flow issues and would like help from one of the best, feel free to contact Harvey and tell him that I sent you. For more info, go to: http://www.upyourcashflow.com. For now, enjoy this first chapter of Harvey's book, The Hot Dog Syndrome.

 

Chapter One: Ron Alexander, Entrepreneur

 

It was 6:00 a.m., Thursday. Ron Alexander put his pillow over his head, trying to hide from the screaming alarm. It was time to get up, but facing this new day was not a pleasant thought. Ron's business was having difficulty and heading downhill.

 

Several years ago, Ron had concluded that working for someone else was not his cup of tea. He was confident he could make more money in his own venture, and decided to go into business for himself.  

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My kids have been asking what exactly is going on with the economy and what exactly happened that made the situation so bad, so fast. They are really referring to what the tipping point was that caused this entire iceberg to turn over in September 2008.

 

I try to explain it to them as simply and succinctly as I can and somehow, by boiling it down into terms that even my 7th grader can understand, it helps me to understand the situation a little bit better too. I don't need to speak in 7th grade language, but I think that for purposes of this example, simplicity goes a long way.

 

I have several friends who provide financing against invoices and accounts receivable. These two types of financing are called accounts receivable financing and factoring. Both of them use invoices as a form of collateral to advance funds to companies for sales that they've already made but where they won't collect the money until later. The smaller factoring and accounts receivable companies get their money from larger financial institutions. They use a facility called a rediscount line. They pay a modest rate of interest and then they loan the money out that they have on their line to their customers at a higher rate and make the spread. I know several companies that operate in the $100 million dollar category (meaning that they have lines of credit of approximately $100 million dollars that they can loan out to a wide variety of borrowing companies that make up their customer base). 

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At the end of the day, how much money you make is always about how much value you deliver to the person who has engaged your services. It may not be a perfect formula, but more or less it works out this way every time. The more value you deliver, the more money you make. If you don't make too much, you must not be contributing much value to the organization or people that you are servicing.

 

In the extreme, think about a movie star like Tom Cruise. He makes tens of millions of dollars per film and obviously he delivers that much value to the public around the world. He delivers it in $10 increments, which is two hours of enjoyment for millions of people. Contrast that with Wall Street investment bankers who deliver tens and millions of dollars in value in a single transaction, because they take a small slice of the value of the deals that they transact.

 

Take a hard look at the way you deliver value. Take a hard look at how much value you deliver. Take a hard look at how many people you're delivering that value to. The trick is to deliver more value to more people, because more people and more value equals more money to you. 

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My good friend and attorney colleague, Steven A. O'Rourke http://www.calcorplaw.com is a very sharp corporate and business lawyer. He is a guy that other attorneys go to when they want to debate the law. But he is also a guy that entrepreneurs and business owners should go to when they are concerned that they are thorough and accurate because Steve strives to be both. We often kick around concepts that affect the entrepreneurial community and below, I want to share another piece of work that Steve produced as a result of a recent conversation that we had.

 

Beginning of Contributor Comments:

 

You can reduce exposure to legal liability by learning the differences and interplay of the different legal regimes that apply to shareholders, directors and officers, respectively. When a prospective client asks me to create a corporation for which he would be (an) owner, an officer and (a) director, he usually states his purpose as wanting "personal immunity" As a matter of professionalism, I always assure the client knows the general law before I start preparing documents. 

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This article is the fourth in a series by my colleague and friend Eric Shaw of http://www.nycreditinc.com. Eric is one of the top credit analysts in the market. I regularly go to Eric to help me analyze client issues and for assistance in making a variety of business decisions. Not to mention, Eric is a rock star when it comes to networking. He has a lot to offer and I would like to bring it to my readers over the next several weeks. This article will be continued next week:

 

Beginning of Contributor Notes:

 

It is always tempting to sell to a customer who promises to pay promptly. Unfortunately, even so- called "good" customers delay payment and some default on trade credit. The unpredictable nature of today's business climate wreaks havoc on the finances of even the best-run businesses.

 

It is possible, however, for sellers to protect themselves from customer credit problems. It just requires a bit more work than was the case in earlier years. 

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Earlier today, some crazy guy flew by me on a Los Angeles freeway. First, he was in the far left lane. He cut in between everybody, moving himself to the far right lane. He zigzagged again to the left so that he could try to gain some time and pass all the other cars. I couldn't figure out if the guy was really in a hurry or if he just liked playing games and driving dangerously.

 

The ironic part of the story is that when I got to the off-ramp where I needed to get off the freeway, guess who was in front of me? It was the same crazy guy that zigzagged and nearly drove 20 people off the road.

 

There is a life lesson in this and a business lesson as well. There just aren't any short cuts. This guy risked his own life, not to mention the lives of countless other drivers on the Los Angeles freeways and at the end of the day, he didn't save one second. He had to get off at the same traffic signal as I did, and had to wait for the signal to change before either one of us could move. So what did the guy gain? Did he feel better as a result of his actions? Did he gain any time? Did he make any friends? In what ways is this driver better off? 

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I was having lunch with a group of filmmakers this week — I make it a habit to meet with several filmmakers a month, partly to see what deals they're working on and partly to provide education and mentorship to these individuals who work hard to make their Hollywood dreams come true.

 

These weren't "wannabe" filmmakers. These were sophisticated people — people who had advanced degrees. One was a CPA who prepared the private placement memorandum for his production company so that they could produce their latest film. Another was a 20 year veteran of the studios who now wanted to work independently. But what everybody had in common was the extreme frustration that comes with raising capital. 

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