Month: May 2018

Protecting What’s Rightfully Yours

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

 

Asset Protection

Asset Protection is a type of planning intended to safeguard one’s assets from creditor claims.

Aaaaaand most of you have already tuned out.

That’s the challenge.

It’s really difficult to write about complex legal topics in a way that makes sense.

I mean… Creditor? Safeguard?

They aren’t quite on the level of, “hippopotomonstrosesquipedaliophobic” (the fear of long words).

But still.

We don’t use those words in our daily life, so when the brain reads them it has a tendency to shut down.

I guess that’s why I’m here.

 

Please don’t absquatulate, I resolve to disambiguate this axiom.

 

Let’s Try Again

Asset Protection is a type of planning that helps you protect your assets from someone trying to get them.

So… A bank vault provides asset protection?

Well, yes. But that’s not the kind of Asset Protection I’m talking about.

I’m talking about Asset Protection in the world of lawyers, judges, and juries.

 

So tell me, who would try to come after your assets by using lawyers, judges, and juries?

Someone that’s suing you would, right!?

 

Right… But Kelton, I’m a good person. I’m not going to get sued. So does that mean I can stop reading?

No.

There are over 100 million new cases opened in the United States each year (fun fact: that’s over 95% of the WORLD’S lawsuits). Out of those, how many times do you think the person getting sued said, “Yeah. This isn’t a surprise. I’m a bad person. I was planning on getting sued.”

Probably not too many.

GOOD people get sued all the time in this country. Life happens. Mistakes happen.

 

Asset protection is about putting your assets – your cash, your investments, your property – inside the right vehicles so that even if you make a mistake, nobody can take them!

 

Wait, what? Are you saying there are places I can put my money so that – no matter what happens – people cannot sue me and take it?

Yes. That’s exactly what I’m saying.

 

Asset Protection Vehicles

Here are some basic Asset Protection vehicles to be aware of:

Personal Exemptions

Homestead: In Wisconsin, each single individual is protected for up to $75,000 of home equity. For a married couple, this means $150,000 of home equity is “untouchable”.

Life Insurance / Annuity Contracts: In Wisconsin, each single individual is protected for up to $150,000 of cash value in life insurance and annuity contracts. For a married couple, this means $300,000 of cash value is “untouchable”.

Retirement Benefits: In Wisconsin, effectively ALL value that is allocated to qualified retirement accounts (401k, IRA, Pension, Disability Benefits, Profit Sharing Plans) is protected.

Irrevocable Trusts: In Wisconsin, effectively ALL assets that are gifted / sold / held by an irrevocable trust are protected.

 

There are many other strategies that can be utilized, but explanation of those strategies requires too many big words.

Regardless, the point has been made.

 

The Catch

When something sounds too good to be true, it usually means there is a catch.

This time, the catch is fairly straightforward: You cannot move assets around after you have committed the act that leads to a potential lawsuit.

Meaning, you can’t hit someone with your car, and then transfer all your assets into an irrevocable trust. It doesn’t work that way.

You need to do things ahead of time. Just like you can’t buy a better homeowner’s policy after your house burns down.

 

Common Asset Protection Clients

These are the people who are most likely to be the target of a lawsuit, and therefore benefit the most from diligent asset protection planning:

  • Medical Professionals
  • Financial Professionals
  • Lawyers
  • Architects
  • Engineers
  • Recipients of Large Inheritances
  • Business Owners
  • Signors of Personal Guarantees
  • Officers of Public Companies
  • Owners of Boats, Airplanes, etc.
  • Real Estate Investors
  • Independent Contractors
  • Celebrities
  • Wealthy Spouses
  • Children of Wealthy Individuals

 

Conclusion

When you put together an asset protection plan with Epiphany Law, you get an expert opinion on where you should put your assets to achieve maximum protection.

Better yet, you get a list of action items and a due date for completion.

We say, “Hey, Mr. Client. In the coming year you should focus on putting the maximum amount possible in your fully protected 401k and IRA account. Then next year, you should come back and meet with us about creating an irrevocable trust to put your family cottage in.”

Nobody can do everything all at once. But everyone can take palatable, bite-sized steps toward protecting more of their assets.

 

Give us a call or shoot me an email if you have more specific questions!

Thanks for reading! To subscribe to our weekly content, you can enter your email on our homepage. You can also follow me on Instagram (@kelton.official), where I regularly post links to new blogs, as well as random pictures of my life.

What can “The Office” teach us about Non-Compete Agreements?

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

 

 

Fans of NBC’s hit show “The Office” will enjoy this one.

“I quit.”

Midway through Season 5, Dunder Mifflin’s fun-loving, crass, brilliant, idiotic, borderline-bipolar boss (Michael Scott) shockingly and abruptly hands in his two week notice.

The episode closes with Michael announcing: “You have no idea how high I can fly.”

For the first-time viewer, it’s an altogether jaw-dropping moment.

 

What happens next is a case study in why ALL companies must have Non-Compete, Confidentiality, and Non-Solicitation agreements in place for their key employees.

 

The next episode opens with Michael playing out his remaining two weeks as Regional Manager. Within the first 8 minutes of the episode, his persona spirals from taunting coworkers with his “I don’t give a f*** because I’m outta here” attitude – to legitimate fear when he finds out that the job market is bad – to utter desperation as he scrambles to steal company information and poach employees in an ill-advised attempt to start a rival paper company.

The episode culminates in a scene where Michael is literally sitting on the floor of the office – just out of sight of the interim boss – begging his former coworkers to join him on his new business venture. Nobody obliges and eventually Michael is escorted from the premises.

The camera shifts to receptionist Pam Beesly, who – for a brief moment – seems to contemplate all of her life’s decisions. Never a risk taker, Pam experiences a moment of impulsivity as she gazes upon an office that has just experienced major upheaval. As if sealing her own fate, she mutters, “Oh no…”, before standing up and running after Michael.

In that moment, the Michael Scott Paper Company is born.

As the remaining episodes of Season 5 play out, Michael Scott Paper is able to undercut Dunder Mifflin’s prices and steal away dozens of clients.

 

Let’s tie this into real world insights.

 

The Agreements

The opening remarks indicated that all companies should have three Agreements with their key employees. That might be a little aggressive. I’ll soften my stance:

All companies should understand what these agreements do, and consider the benefits of implementing them.

What are they? I repeat:

Non-Competition. Confidentiality. Non-Solicitation.

In theory, they can all be standalone documents. In reality, most companies mash them together, wrap a neat binder around them and call the whole deal an Employment Agreement.

 

If we pick it apart, here’s what each section says:

 

Non-Competition

Mr. Key Employee, by signing this agreement, you are specifically restricted from:

Owning;

Managing;

Working for;

Associating with;

(Fill in the blank);

Any business that is substantially similar to our company, and operates within ___ (fill in the blank) miles of our current location.

 

Confidentiality

Mr. Key Employee, by signing this agreement, you are specifically restricted from:

Using or disclosing our proprietary information (including customer lists, pricing methods, vendors, etc.)

 

Non-Solicitation

Mr. Key Employee, by signing this agreement, you are specifically restricted from:

Encouraging company employees at (fill in the blank) location;

Encouraging company employees who you had direct relationship with;

Encouraging (fill in the blank)-level employees of the company;

To terminate employment with the company or otherwise solicit such individuals in a way that would diminish that employee’s service to the company.

 

Conclusion

These restrictions generally become effective upon the employee’s official hire date and may last up to 24 months after termination (depending upon a bunch of legal factors).

 

Would these agreements have stopped Michael Scott from starting his own company, while stealing clients and other employees in the process? Probably not. His character embodies .1% critical thinking.

BUT it is likely that any one of them would have given his former employer, Dunder Mifflin, legal recourse to shut the company down the moment he started it.

Having all three is an iron-clad no-doubter. Point. Set. Match. Game. Game Over. End of Game: Dunder Mifflin.

 

In the end, I wouldn’t rewrite a single line of “The Office”. It is one of the single greatest comedic masterpieces ever created.

But unless you want your business to become the inspiration of the next great comedic masterpiece, I recommend protecting yourself. The Agreements are a good start.

 

Give us a call or shoot me an email if you have more specific questions!

Thanks for reading! To subscribe to our weekly content, you can enter your email on our homepage. You can also follow me on Instagram (@kelton.official), where I regularly post links to new blogs, as well as random pictures of my life.

 

 

Private Equity

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

 

The business model of a private equity firm is easy enough to understand. Right?

Per Investopedia.com: “Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity. Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and to bolster and solidify a balance sheet.”


Uhhh… What?

Don’t worry, I got your back.

 

Here’s how it all begins: A group of individuals (collectively, the PE firm) raise money by presenting an investment strategy to other companies (financial institutions, for example) and wealthy individuals.

 

Once money is raised, the investment period closes. The PE firm takes the money they raised and – following the core investment strategy – buys businesses.

 

Once a business has been purchased, the firm uses their expertise to manage the business for a period of time (5-ish years) before selling it (either back to the management team or to an entirely new party). If they’ve done their job successfully, the value of the business has grown, and they have a net profit to take home to their own investors.

 

*PE Firms usually want to buy a majority stake (over 50%) in the businesses they acquire. Why? Simple: They want to call all shots.

 

Example:

XYZ Equity is a new PE Firm. Their core investment strategy includes the following:

  • Industries:
    • Niche manufacturing
    • Business services
    • Food processing and packaging
  • Company Characteristics:
    • Enterprise values ranging from $5 to $50 million
    • Stable and consistent cash flow
    • Midwestern location or focus

XYZ Equity conducts multiple presentations of this core investment strategy in front of potential investors. Thanks to the soundness of their strategy and the experience of their consultants, they raise $10 million in the initial round.

XYZ Equity goes shopping for companies that meet their criteria.

XYZ Equity buys a 100% stake in AB Drilling, Inc., a niche manufacturer of Deep Sea Drilling Equipment in central Indiana, for $3.5 million.

It’s an ideal acquisition for XYZ Equity, because one of their senior consultants previously owned a profitable heavy-equipment manufacturing company, and two more of their consultants have extensive engineering backgrounds.

Over the course of 2 years, XYZ Equity invests another $1.1 million to grow the company, and successfully flips it to a competitor for $7.6 million. A $3 million gross profit!

 

Appealing to a Private Equity Firm

 

So that’s all fine and dandy, but the real question is… How do you – the small business owner – take advantage of Private Equity as a resource to sell your company?

It depends.

All of these PE firms are looking for something a little different.

Lucky for you, I did the research. Here are the criteria for six PE firms that work with Wisconsin businesses:

 

Mason Wells

Lubar & Co

Progress Capital Group

Lakeview Equity

PS Capital Partners

Blackthorne Partners

Minimum Size

$5 million EBITDA

$5 million EBITDA

$500k EBITDA

$5 million Enterprise Value

$10 million Annual Revenue

$1 million EBITDA

Geographic Focus

Midwestern US

Midwestern US

Within 2 hours of Milwaukee, WI

Midwestern US

Upper-Midwest US

Southeastern WI

Facilitate MBO?

Yes

Yes Yes Yes Yes

Yes

Will Accept Minority (<50%) Ownership Stake?

No

Yes No Yes Yes

Yes

Industries:            
   Building Products

X

X     X

   Construction  

X

       
   Consumer Goods

X

X

 

X

X

 
   Energy

X

X

X

     
   Engineering

X

X

     

X

   Financial Services

X

X X X

 
   Food

X

X   X

X

 
   Healthcare Products

X

X

X

     
   Healthcare Services

X

X

       
   Niche Manufacturing

X

X X X X

X

   Packaging

X

    X

X

 
   Real Estate            
   Retail            
   Specialty Distribution

X

  X X  

X

   Specialty Services

X

X X X X

X

 

*Keep in mind that these are general guidelines. In many cases, PE firms have the ability to remain flexible with their investment criteria. It is recommended that business owners contact a PE firm directly to discuss any potential investment opportunity.

 

Meeting the initial “screening” criteria of a Private Equity firm is just the beginning. Moreover, ALL Private Equity firms are seeking companies that meet the following requirements:

  • Strong, experienced management team
  • Positioned for future growth
  • Limited customer concentration
  • Non owner-dependent
  • Competitive advantages
  • Solid strategic vision
  • Stable financial history
  • Quality reputation
  • Realistic expectations

 

Epiphany Law’s Exit Planning Program is designed to prepare a business for sale. It is designed, specifically, to help a business become more attractive in the eyes of a 3rd party buyer – like a Private Equity firm! It addresses each of those ^ criteria, and many more.

 

Your first step is completing a State of Readiness assessment, which offers an unbiased opinion on the preparedness of YOUR COMPANY for a transition / sale. If you’re ready, great! Keep up the good work until it’s time to hit the ‘eject’ button. If you aren’t, we will recommend ‘next steps’ to get you where you need to be.

Give us a call or shoot me an email if you have more specific questions!

Thanks for reading! To subscribe to our weekly content, you can enter your email on our homepage. You can also follow me on Instagram (@kelton.official), where I regularly post links to new blogs, as well as random pictures of my life.