October 2023 - MPL Law Firm

The Buck Stops Here

I have owned a few businesses in my time (including my current role as a Partner with MPL). When I first entered the world of business ownership, the one thing I noticed quickly was that I was fully responsible for everything (including taking out the trash) that went on in the business. That does not mean that I did not hold my staff accountable. However, if there was ever an issue and it came to my attention, I knew that ultimately it was up to me to get it resolved.

A lot of business owners don’t always grasp that concept. Even worse, many will default to blaming someone else. I can tell you pretty much across the board that when you do that, you lose a lot of credibility. All the key players in your business are looking to you for leadership. As President Truman made famous, the “Buck Stops Here” is something a business owner needs to understand and embrace if they want to be successful.

Below are some interesting articles that talk about accountability and responsibility as a business owner.

Here are a few other items of interest:

The latest from David Barnitt @ Attract Capital
- Will the Real Private Equity Groups Please Stand Up – YouTube
- The Unexpected Wisdom of Acquisition Financing
Webinar | Americans with Disability Act Updates: Hot ADA Title III Updates and Lawsuit Trends (nfib.com) (11/1 @ 12pm)
Year-End Tax Strategies (eisneramper.com) (11/20; 12-330pm EST)

As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com), Brad Leber (bleber@mpl-law.com) or anyone in our office with questions or comments.  

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.

Lenders of Last Resort

Over the last few weeks, we discussed private financing options for companies that are typically in growth mode. On the other side, there are situations when businesses need money in the short term or have little to no credit history. While it’s not always the case, business owners have no other option than to use the “lenders of last resort”. Below are a few of these alternative forms of financing.

Private Third-Party Loan – This type of loan is where you are literally borrowing from another individual or entity with terms and conditions that a commercial lender would provide; Rates are higher than normal and the terms can be a bit more onerous; Typically, business borrowers go down this path if they have poor or no credit history;
Hard Money Loans – This financing option can take the form of using your business assets as collateral for a short-term loan; Asset-backed loans would be an example of this type of structure (e.g., you pledge your accounts receivable); a business may also use this type of loan to bridge the gap on a project until a traditional commercial financing option can be secured (e.g. construction projects);
“Tony Soprano” Loan – The last option is to go and ask your local loan shark. I would not recommend that path as the collection provisions may be a bit painful.

All kidding aside with option number three above, businesses pursuing the “lenders of last resort” are usually in some type of financial hardship or provide products or services that are high risk. As always, whatever financing you are pursuing, be sure you consult your professional business advisors.

Here are a few other things that may be of interest:

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.

Series A Funding — “Put On The Big Boy Pants”

You have taken the time to build the business concept and prove your product or service offering is in fact real. Lots of money has been spent, both yours and likely some seed or angel investor funds. What’s next? As I was told by many great coaches and mentors, it’s time to “put on the big boy pants”. However, what does that mean? Usually (actually always) you need capital to get to the next level. This is where Series A Funding comes into play.

Series A Funding occurs when a company reaches a point where it needs money to expand its operations through hiring, purchasing inventory and equipment and whatever else is required to accelerate revenue growth. Funding typically comes from sophisticated and well-established venture capital and/or private equity firms in the form of preferred equity. The preferred equity usually has rights that are superior to common equity holders.

The bottom line is that if you have reached this stage, the work does not slow down, but accelerates. Moreover, you now have a lot more at stake because of the new stakeholders. Below are some great articles on Series A funding:

Next week, we will wrap up this series on some other forms of private investment options for businesses. As always, if any of these options are of interest to you, please make sure you chat with your professional business advisors.

Here are a few other things that may be of interest:

Sales Slowdown: After active 2022, M&A market is seeing much less activity in 2023…though, that may change – The DAK Group
3-Part Framework: How to decide to sell your business or expand? – The DAK Group
Data Driven Change Management (eisneramper.com) (10/25 2-3pm EST)
Year-End Tax Strategies (eisneramper.com) (11/20; 12-330pm EST)

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.

Convertible Debt – Is it Debt or Equity?

What is convertible debt and why is it used? Is it debt or equity? Well, it’s a little of both.

Essentially, convertible debt is a loan where the lender can exchange the principal and accrued interest for equity at a predetermined valuation. It is commonly used by start-up companies that are in growth mode (i.e., they have a proven product or service offering and are generating revenue but need capital to grow). The conversion feature is added as a way for private third-party lenders to benefit from the continued growth. However, the underlying debt terms are in place to protect their interests.

The key terms for a convertible debt offering will include the following:

Interest Rate – the cost of the money that is being borrowed
Maturity Date – when the underlying debt matures
Discount Rate – the discount to the future valuation of the company where a bondholder can convert the debt into equity
Valuation Cap – the upper limit on the price at which the debt converts into equity

If you are interested in learning more about this type of growth capital, check out some of the articles below:

Next week, we will discuss a Preferred Equity (or sometime referred to as a Series A).

Here are a few other things that may be of interest:

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.

Understanding SAFEs (Simple Agreements for Future Equity)

Baseball’s regular season is closing out and the playoff teams are set (yes, it’s another Red October in Philly!). This week, let’s review SAFEs (I know this is a stretch, but what can I say).

SAFE’s stand for Simple Agreements for Future Equity. It’s an agreement between an investor and a company that gives the investor future rights to buy equity at an agreed upon price. Investors will sometimes receive other rights like an advisory board seat, information updates, etc. They were originated by the Y Combinator as an alternative and more simplistic way for start-up companies to obtain funding, versus a more traditional convertible debt method. Below are some good articles on this private third-party funding instrument:

If this investment vehicle is something you are considering as a start-up business, please make sure you are working with business counsel that is well versed in this process. Next week we will talk about convertible debt.

Here are a few other things that may be of interest:

ERTC Update: IRS Red Flags the Employee Retention Tax Credit (stambaughness.com)
The Winning Perspective of Mezzanine Debt – YouTube (The latest from David Barnitt @ Attract Capital)
webinar | Workplace Safety in a Violent World (nfib.com) (10/4 12-1pm EST)
Year-End Tax Strategies (eisneramper.com) (11/20; 12-330pm EST)
Data Driven Change Management (eisneramper.com) (10/25 2-3pm EST)

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.