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Understanding Private Equity: What You Need to Know

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StrategyDriven Managing Your Finances Article | Understanding Private Equity: What You Need to KnowIf you are looking for an alternative investment method, you might want to consider Private Equity investment. This involves investing in capital, also known as equity, that is not publicly listed or traded. The parts of a company that are available to be invested in are not publicly owned, quoted or traded on a stock exchange. Deciding if private equity is the right method for you can be tricky as it mainly comes down to your feelings on opportunities on a case-by-case basis. However, understanding function that private equity investments play and the opportunities they can offer businesses and investors alike will help you make these decisions further down the line.

Why Do Companies Opt for Private Equity?

The purpose of private equity is to raise additional funds in order to bring about a positive change in the company being invested in. This can cover situations such as growing a business (which requires ‘growth capital’ for expansion or development); financing operational changes such as restructuring to make the business more profitable; financing acquisitions of other companies; or delisting a public company in order to give it private status. The latter gives a company the opportunity to focus on long-term growth without the pressures of quarterly earnings reports. Private equity also offers businesses access to funds where they would be unable or unwilling to source financing from traditional sources such as business loans.

What Are the Different Types of Private Equity Funding?

  • Leveraged Buyouts involve buying out a company, improving it and then selling it on for profit. This is the most common example of private equity.
  • Distressed Funding is where money is invested in troubled or even bankrupt companies and turning them around by making necessary changes or selling off assets such as machinery, patents or property. This type of funding is also referred to as ‘vulture financing.’
  • Venture Capital is a form of private equity in which private investors (sometimes referred to as ‘angels’) provide capital to entrepreneurs. An example of this is the television program Dragons’ Den.
  • Real Estate Private Equity commonly involves funding commercial properties and Real Estate Investment Trusts. This type of funding involves higher minimum capital in comparison with other types of private equity funding and involves longer investment terms too.
  • Fund of Funds is the most accessible form of private equity. It primarily involves investing in mutual funds and hedge funds, which offer the opportunity to invest where you may not be able to meet the minimum capital alone.

What are the Benefits and Disadvantages for Investors?

For the investor, private equity offers the opportunity to invest in early-stage companies and ideas such as with venture capital opportunities. As with any investment opportunity, there are significant risks involved in private equity, but it presents the unique opportunity of funding companies and innovations that align with your personal interests. Using investment insights in order to gain full understanding of the opportunity at hand will be of vital importance for many private equity investors. Many people see private equity as an opportunity to invest in improvement and believe that firms seeking private equity are more likely to give higher returns due to their drive for growth.

Just for Entrepreneurs: How to Choose the Right Financial Adviser

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StrategyDriven Managing Your Finances Article | Financial Adviser | Entrepreneurship | Just for Entrepreneurs: How to Choose the Right Financial AdviserWhile most entrepreneurs know their industries well, many are not experts when it comes to money. To help entrepreneurs succeed financially at work and in life, they need both a great CPA and a trustworthy financial adviser. Ideally, with the right people, one firm could serve both roles. It’s possible, in my opinion, to work with two different firms, but coordination is essential to keep critical information from falling through the cracks.

What are the characteristics of the “ideal” adviser? To me, it’s all about trustworthiness, the existence of a solid process, and a holistic approach that considers all aspects of an entrepreneur’s life and business.

Defining “Trustworthiness”

How do you know whether your financial adviser is trustworthy? The perception of trustworthiness is subjective, but to me, it’s more than just likeability. It’s also more than friendship, or a reputation based on a referral from a friend, boss, relative or coworker. By “trustworthy,” I mean an adviser who isn’t considering his or her wallet when offering guidance: a person who always puts the client’s agenda first.

It’s true that some financial advisers are required to place their clients’ interests before their own because of the fiduciary standard established under the Investment Advisers Act of 1940. However, that standard only applies to certain types of advisers in specific situations, all of which the layperson is usually unaware. Finding an adviser who is required to meet the standard is one thing; finding an adviser who embraces the standard as a mindset, and who structures fiduciary processes to support the standard, is ideal. Look for an advisory firm accredited by the Centre for Fiduciary Excellence, or CEFEX. CEFEX-certified firms voluntarily undergo annual audits to verify their adherence to best-interest standards. This is supplemental to regulatory or government oversight.

Why Process Is Important

Your financial well-being is a big-picture scenario. All of the moving parts need to work together, and your adviser needs to be confident that his or her process compensates for blind spots and avoids errors. In his book, The Checklist Manifesto, author Atul Gawande discusses the difference between someone with “aptitude,” (the natural ability of a person to be able to accomplish a certain skillset) vs. “eptitude” (the application of knowledge correctly and consistently). High-performing advisers demonstrate eptitude by having strong processes in place to identify and understand your needs, and monitoring those processes to make needed adjustments. Any adviser should provide a great deal of clarity about what you can expect from the relationship. In addition, he or she should be skilled and confident in connecting your business growth with integrated and holistic wealth management that includes tax, financial and investment strategies.

It’s important to understand that a good process informs strategies, which determine the tactics you and your adviser will take toward your financial well-being. Entrepreneurs know that complexity (and sometimes, chaos!) can be the rule in getting a business off the ground. Having a trustworthy adviser who can guide you through these types of situations will help you sleep better at night.

The Need for a Comprehensive Approach

Entrepreneurs have far different financial situations than those with regular, salaried jobs, yet most advisers provide only investment consulting. Entrepreneurs need more. A financial professional suitable for an entrepreneur should ask such questions as: What was your objective in setting up the company? Was it just to have an exit strategy sale? Was it to provide a service to your clients on an ongoing basis, and then to ensure that continued as your legacy? Do you want to help your employees save for retirement, and how? Who, if anyone, are you grooming to take over your business? How can you minimize the impact of taxes that diminishes your wealth over time?

An adviser who can go beyond investment consulting has to have a very different mindset than the average adviser. The shift is from that of a master-builder, as Gawande describes in The Checklist Manifesto, to a more collaborative mindset. In premodern times, as the great cathedrals of Europe were constructed, the master builder held all of the necessary knowledge in his head and directed huge teams, but the projects were not collaborative. Today, complex large structures involve a team of architects, engineers and others who work together in constant communication. The financial services industry is on the cusp of a similar shift. Instead of working with one “perfect” adviser, entrepreneurs should look for firms with diverse master-builder teams who collaborate with, and on behalf of, the client to find creative solutions that work well for the inherent complexity of entrepreneurs and their businesses.

Choosing the right adviser is well worth the time and effort, even for the busiest entrepreneur. With the right person to watch your financial back, you’ll have the freedom to focus on what really matters to you: your family, your goals, and your company.

About the Author

StrategyDriven Expert Contributor | Wayne B. Titus III, CPA/PFS, AIFAWayne B. Titus III, CPA/PFS, AIFA founded AMDG Financial and AMDG Business Advisory Services in 2002 based on his 15 years’ experience at two large accounting firms working with Fortune 50 clients. He dove into entrepreneurship to make a bigger impact on people’s lives. As a fee-only fiduciary adviser, his loyalty is to his clients: he places their interests ahead of his own or his firm’s. With assets of more than $150 million, AMDG Financial integrates tax, financial and investment strategies to help clients make financial and life transitions successful on purpose. The company’s credo is, “From financial wisdom, better stewardship.” His latest book is The Entrepreneur’s Guide to Financial Well-Being (Lioncrest Publishing, March 2019). To learn more, visit amdgservices.com.

IT Expenditure: What Should a Realistic IT Budget Look Like in 2020?

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StrategyDriven Managing Your Finances Article | IT Budget | Entrepreneurship | IT Expenditure: What Should a Realistic IT Budget Look Like in 2020?Every business needs to have an IT department of some sort, whether on-site or remotely, in order to keep their company afloat. So much relies on computers that if they suddenly stop working, your business stops moving.

That being the case, it’s not uncommon to see much of a business’s finances go directly into making sure their IT services continue to run smoothly. But how much do you really need to be spending on an IT budget – and how much are you already spending?

There are limits to how much you should be putting out for the services you receive. This article goes in-depth with how your 2020 budget should look like for your IT software and troubleshooting needs, so you won’t spend any more than necessary. Read on to find out more!

Your IT Budget Will Increase Most at the Beginning of the Year

New year, new you – and new business. Your company is bound to shape up and adopt the “out with the old, in with the new” rhetoric. That most likely also means you’ll be getting rid of old hardware and software and investing in new tech.

Of course, this is bound to bring up the IT bill initially, as the purchasing and the installation of new equipment will be added to the tab. In most cases, however, it will pay for itself in the long run, so the initial purchase shouldn’t be seen as something scary.

Streamlined Operations Will Save You Money

As technology gets better, it becomes easier to use the software to our advantage. These streamline operations will allow you to not only better serve your customers, but will save you money as well.

There will be minimal confusion on what you need to conduct B2B and B2C interactions as well as in-house operations, and the lack of complexity will free up the IT department from working on the small stuff and allow them to focus on what really matters.

Internet Is Faster at Relatively the Same Price

Businesses need internet, and it’s good to know that each year companies are able to make their services faster. It’s even better to know that, due to competition, the internet is still being sold at the same price – or in some cases, even less.

This is good news for you as that means you get better services without the higher price, allowing you to place the money you’ve saved onto other important aspects of your business.

To make sure you stay up to date on how much you’re spending on IT needs, you’ll want to use an organizational tool such as a NetSuite price cheatsheet to make sure you know where every penny goes!

Stay Driven. Be Successful

You know what you should be spending on your IT budget for your computer needs, so now you’ll be able to watch your money flow and still get things done. But that’s only the beginning of what you need to know to help your business succeed.

At StrategyDriven, we help focused and goal-oriented business owners like yourself take on the competition and succeed in their field. We offer help from all angles, including formatting and executing business strategies, management and organizational programs, and more.

Ready to get started? Click on any of the tabs on our site to learn more about what we have to offer you. We’re sure that we can help your company to win!

Top Investment Strategies for 2020

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StrategyDriven Managing Your Finances Article | Top Investment Strategies for 2020In 2020, there are hundreds of investment strategies out there. When it comes to the stock market, people have a wide range of strategies that work for them, especially if they want to earn a large amount of money. For property investment, there are two main strategies you should consider, and these are geared towards buy to let opportunities. As a potential investor looking to learn more about how to invest in property and the best strategies to take, you may want to keep reading to learn more about the property market and investment strategies that have proved successful in the past.

Understandably, you will need to choose an investment strategy according to what suits your lifestyle and financial situation at the time of investment. Do your research and keep in mind that if you’re knowledgeable in the area you want to invest in, you’re sure to reach your goal within no time. Before investing, remember that property investment is a lucrative opportunity. Still, it does come with risks (as does every investment), which means you should consider what you’re doing with your extra cash before purchasing a property.

Hands-off investment

Any investor out there who is looking for an investment which can continue making money without the added hassle of managing and organising a property, a hands-off investment may be the perfect strategy for you. A hands-off investment involves purchasing the property but allowing it to be a passive, side income which doesn’t interfere with your daily life.

Those who invest using this type of strategy often have a full-time job or a business they focus on during the day, and every so often has to consider their investment when they need to get something fixed. If you choose this strategy, you will most likely need to hire a property management company who will take care of tenanting, dealing with issues and anything else related to your property.

Hands-off investment gives you the freedom to make money from an investment without having to play an active part in the show – instead, you simply reap the rewards through rental repayments and capital appreciation of your property/unit. RWinvest specialises in the hands-off investment strategy and encourages investors to take this approach so that their investment doesn’t impact their life overall and leave them feeling stressed. Rather than worrying about your property and anything that could potentially go wrong with it, you can pay a monthly fee for someone else to sort this out for you.

Hands-on investment

The opposite of hands-off investment, hands-on investment involves playing an active role within the investment purchase and afterwards, too. Hands-on investment is when an investor becomes a property manager, landlord and everything in between. Those investors who work full-time or find themselves struggling for time to relax may want to avoid this investment strategy since it can be time-consuming. This is a popular strategy for investors who have multiple properties and make a large amount of capital from these properties. In doing so, you’re essentially starting your own property portfolio business, and leading the team! This strategy is efficient and works well for many but doesn’t always appeal to everyone, which is why you should consider what will fit in with your life the best.

About the Author

StrategyDriven Expert Contributor | Olivia HanlonOlivia is a content writer for leading property investment company, RWinvest.

Unsecured Business Loans: A Comprehensive Guide

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StrategyDriven Managing Your Finances Article | Entrepreneurship | Unsecured Business Loans: A Comprehensive Guide

Have you ever felt the need to apply for some sort of business funding? If yes, then I am sure you must have gone through a million options before you came to the right conclusion about your loan. For any business, whether it is a big or small business, funding can actually make a huge impact. Getting the loan that suits your business best is very important. There are various types of loan options available for you to choose from but one option that can really work for you faster is an unsecured business loan. Here is a comprehensive guide that can fully educate you about an unsecured business loan.

What Is It?

What exactly is an unsecured business loan? If we look at the basic definition then this is one type of loan that actually does not in any way require the business owner to pledge any sort of asset or collateral against the debt they receive. The usual protocol for when you get a loan from the bank is to secure any sort of leverage that the business has to the lender to ensure some sort of guarantee. Unsecured business loans are a sort of financing option for those businesses that do not have or do not want to put up collateral for the loan. Through this type of loan, they can still access it and use it in their business in their own way. To get this type of loan all you need to do is apply for financing and also have a good credit score. It is the easiest way to raise funds for your business.

Types Of Unsecured Business Loans

There are certain types of unsecured business loan options out there that you can pick and choose according to the needs of your business in every way. The time period and the amount of loan can be huge indicators for the type of unsecured loan that is the most viable option for you. With options like term business loan, the candidates are mainly given a large amount, which can be repaid over a period of one to five years. This is a type of unsecured loan that is best used to pay off substantial one-time purchases. Another option that works best for short term financing resolutions is an unsecured business line of credit that is indeed a more adaptable finance choice, which is perfect for numerous purposes. Rendering to your long term and short term financing needs, you can check which type of unsecured business loan works best for your company.

Reasons For Need

The question of the need for this type of loan is very important. Identify the clear and concise need for an unsecured business loan that you are going for. An unsecured business loan can have many uses in your company. See whether you want the loan to increase the size of your inventory or to improve the cash flow of your business. Some businesses even require this type of loan to increase the quantity of their staff. Every business has different needs for using an unsecured business loan. Many business owners might get a unique opportunity for which they might need extra funding. In that case, they then go for an unsecured business loan as it can help them in completing whatever they want. Many companies that want to create a good credit rating so that they can prepare their business for a much bigger loan in the future also use this type of loan.

Selection For Lenders

There are many lenders who actually offer an unsecured business loan. When opting for this type of loan make sure that you actually look into all the options for lenders that you have. The reason for this is that many lenders tend to vary and have a different interest rate that they give. Work your options and see what kind of lender best suits your needs and gives you the most favourable conditions for the loan. Times have changed and now when you need a loan the only option available is not your bank anymore. There are various online sources that also offer safe and secure lending procedures that you can go through. As the application procedures for banks and institutions like these have tightened up, people are looking for alternative lenders. You can go for alternative commercial finance lenders or peer-to-peer lenders according to the terms and conditions that suit you best for your unsecured business loan.

Things To Consider Beforehand

There are various things that you must consider before you go for an unsecured business loan. Things like the time period when you need the funds matters a lot. Some places might offer you funds pretty quickly while some actually take their sweet time. When exactly you need the funds needs to be clear so that then you can work according to your timeline. Another very important factor is that make sure that you are absolutely aware of all the terms and conditions of the unsecured business loan that you are about to acquire. The reason for this is that if there are certain conditions that are unfavourable then you should know about them from the get-go. You may be required representing certain financial documents to get your loan approved also. These are things you must know beforehand so that you can work around them before you actually do get the loan. Once you have gotten that loan then there is no going back so make sure you are mindful of such things in the beginning.

May Require Personal Guarantee

The level of risk attached to an unsecured business loan is much higher than a secured one. Thus, it is possible that you may be required to give some sort of personal guarantee against the debt you are to obtain. This means that in the case that your business is not able to pay back the loan it has gotten then the holder of that loan must take a personal responsibility to pay that loan back. The structure of a personal guarantee can vary from lender to lender. Apart from a good credit score the lender will look into your situation and see if you will be able to take a personal guarantee against your loan. This is done to put the lender at ease and lower their level of risk as well.

These are the main and basic principles that are attached to an unsecured business loan. This type of loan can actually be very beneficial to give your business the boost that it needs to move forward. Just make sure you are fully aware of an unsecured business loan before you actually go for it.

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