Getting Your House In Order In Advance (Thinking About Discretionary And Personal Expenses)

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As we have discussed elsewhere, the cash your business generates – particularly in the 12 months leading up to a sale – is critical to how much an investor will pay for your company.  This means you should be evaluating discretionary expenditures carefully before you make them.

Sellers often have their businesses absorb personal expenses.  This is an accepted perquisite of business ownership and buyers will usually credit your business’ cash flow (for determining purchase price) for any of these expenses that the business won’t be responsible for after the closing.  So while you don’t need to eliminate all of these in the year up to the closing, if you run a significant amount of tax expenditures through your business you may create some tax risk that may complicate your negotiations with buyers who won’t have any tolerance for paying pre-closing income or payroll tax.

True business expenses, however, can be more complicated.  Buyers generally won’t agree that “discretionary” bonuses paid every year should be credited to your cash flow for valuation purposes, but the matter gets less clear when thinking about expenses such as:

  • true one-time “stay” or retention bonuses
  • non-routine trade show expenses (such as for shows that happen every 3 years)
  • large holiday parties or anniversary celebrations
  • significant marketing expenses (web site revamping, advertising, etc.)

Should you make these expenses in the year or two preceding a sale?  Let us help you make – and characterize – these sorts of choices in a manner designed to ensure that you’re not hurting the company’s sale value when trying to do right by your employees and your company.

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Ben C. Paramore

Financial & Operations Team Leader

Ben is a forward–thinking, strategic financial leader with an operations perspective who has built a 30+ year track record of success combining financial and business operations acumen. He has a history of building successful finance departments by leveraging strong leadership and relationship skills. Ben is a versatile business leader with a passion for developing people and taking companies to the next level. He is as much a people-person as a numbers-person and a lifetime  learner who strives for continuous improvement. Standout characteristics include  the following.  

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Joe DeMartino

Machining Executive

C-level Executive and author, Joe DeMartino has more than 30 years of experience in the Aerospace & Defense and Building Material Supply industries. He is currently CEO of Precision Holdings, LLC and has served in other executive leadership roles as COO, President, or EVP with such companies as Barnes Aerospace, GKN, and LMI Aerospace as well as managed a successful consulting practice for the past 7 years. Highlighting his record of transformational management include leading diversification and significant global growth at 5 companies, bringing a high-tech business from start-up to maturity, driving multiple M&A ventures, directing major integration and rationalization of acquired businesses, and orchestrating 2 successful turnarounds as well as holding Board positions with 2 organizations.

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Growth and Scaling:  Joe is currently leading a major strategic turn-around of a private equity owned business, pivoting to aerospace, maintaining market diversity and has grown substantial backlog in the past 2 years. He catapulted a divisions of a Tier 1 supplier  from $5M to $50M business in <6 years with >23% EBIT, leveraging cutting-edge composites and an innovative, high-tech strategy to capture a long-term sole source agreement on Lockheed Martin’s F-35 program (F135 engine). He developed the business case, secured investment commitment, and penned a partnering deal with Northrop Grumman on the B-21 Strike Bomber program. He effectively positioned LMI, through strategic and operational improvements, to substantially grow revenue at 10+% CAGR and help ready the business for sale.

Innovation:  At GKN Aerospace, Joe developed and led incubation through high-rate production of first-time “smart” composite components and assemblies, critical on the F135 engine application. This resulted in a long term, sole source 9-figure contract. At DOW-UT, he designed, developed, and managed the first composite rotating fan platform for Pratt & Whitney and GE commercial engines. This IP-rich application led to a high-margin annuity generating millions of dollars of revenue over >25 years.

Turnaround:  Hired to turn around LMI following the Valent acquisition, Joe transformed operations and positioned the company for double-digit growth. In 2 years, he implemented a Center of Excellence-based organization and optimized operations, realizing >$9.5M YOY cost savings. He achieved wrap rate improvement of 5 to 30% by streamlining operations and closing 5 facilities while expanding a machining facility and the Mexico operation. A major cost reduction initiative resulted in substantially improving working capital, reducing inventory by >10%, improving free cash flow, reducing debt ratio (8.0 to 5.5), and slashing costs by >$17M.

 

 

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Rick Bloom

Executive Team Leader

Rick is currently a director and Chief Executive Officer of WestMountain Gold, Inc, a publicly traded precious metals exploration company overseeing the Terra Project in a remote part of Alaska.  He was most recently the President, CEO and CFO of Support.com, Inc., a publicly traded leader in outsourced call center and direct-to-consumer tech support services business and continues to serve as a director.  

Previously, Rick served as Executive Chairman of Arcata LLC, a web-based marketing execution services company, and was President and Chief Operating Officer of Renaissance Acquisition Corporation, a publicly traded special purpose acquisition company.  Rick also served as Chief Executive Officer and Vice Chairman of Caswell Massey, a branded personal care consumer product company with an online and catalog division as well as retail stores throughout the country.  Prior to that, Rick was President, CEO, and COO of Marietta Corporation, a maker and marketer of personal care and household products for the country’s largest consumer product companies with production facilities throughout the country.   

Rick is currently a director on the advisory board of and operationally active with PakLab, a Southern California based contract manufacturer of prestige personal care products. For over a decade, Rick has also been a director of NexCore Group, LLC, a national healthcare real estate developer, operator and property manager.  Rick served as a director of Glide Rite Corporation, a national field-service operator that provides equipment repair and maintenance services to the country’s largest retailers.  He also served on the board of AmeriQual Group, the nation’s largest producer of meals ready-to-eat for the United States military and was a Founder, director and Managing Director of Imperial Capital, a successful Beverly Hills based, full-service investment banking firm focused on raising capital, research, sales and trading and asset management.  Rick was also the developer, a director and President of Mountain City Casino Hotel, at the time, the largest casino hotel in Colorado.  Prior to that Rick worked for investment banks Dabney/Resnick and Donaldson, Lufkin & Jeanrette (DLJ).

Rick earned a BS summa cum laude in Economic Science from The Wharton School, University of Pennsylvania.

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Bill Carley

Packaging Sales Leader

Thirty five years’ experience in sales, operations, and marketing in the packaging industry, particularly in the personal care and household products sectors.  Broad knowledge of rigid and flexible packaging, labels, and contract manufacturing.  Also a member of The Source Alliance, a network of experienced senior Executive Recruiters for the Packaging Industry.

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Rick Barnhart

Aerospace Commercial Leader

Former President of the Aerospace Segments of Barnes Corp. and Kaman Corporation, Rick has over 30 years of experience dealing with every major aerospace OEM in the U.S. and Europe.

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Jerry Ruhl

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Referred to as among the best plastics processing experts in the industry.  Former senior processing engineer at NYPRO and Westfall Technik.

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Matt Read

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Michael O'Donnell

Packaging Sales Leader

A highly skilled Sales/Marketing Executive who facilitates supervises and initiates significant sales and marketing solutions to support strategic business initiatives and process improvements. My management experience includes national and international responsibilities in consumer products in food and beverage.  A resourceful executive has extensive experience leading, motivating, and developing diverse teams to successfully create, execute, and implement sales and marketing solutions.    

Held mid to senior-level sales and marketing positions with Anheuser-Busch, Nestle North America, Marietta Corporation, Mountain Valley Spring Water, Veri-Soda, Rao’s, and DE Nigris. Been instrumental in reducing operating costs, improving sales efficiencies, consolidating unprofitable channels, and making significant contributions to revenue growth and profitability. Spearheaded numerous customers’ teams to enhance long term business relationships.

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Jim Berklas

M&A Leader

Twenty five years of M&A and most recently co-founded medical device manufacturer Westfall Technik, Inc.

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Kevin Stevens

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Commercial expert in packaging and industrial operations, Kevin is the former President & Managing Director of Bilcare Research inc. and EVP Sales at Mold-Rite Plastics.