Accounting for Startups

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There is no better feeling like bringing home a newborn baby for the first time, the first and most common thing you will probably do is to check if your baby is healthy and well. You may perform several tests like checking their breathing patterns and heart rate, and then compare it to the typical rate for newborn babies. As time goes on and your child ages, you’ll learn new methods for checking your child’s health and condition. This can include their mental, physical and emotional health and development.

This can be compared to when you just started a business, your accounting needs will grow as your business grows and become more and more complicated. Brian Hamilton, the chairman of financial information company Sageworks has mentioned that one of the most common mistakes new entrepreneurs make is that they feel that they don’t need an accountant or that accountants aren’t necessary until their business has grown to mature a bit more.

Bran Hamilton has stated “Most businesses are very simple, and the vast majority of them are sole proprietorships.” This results in the mindset that their primary focus should be to increase revenue and gain new clients. “In most cases, you don’t need an accountant on day one. If I’m going to start, for example, a landscaping company, I’m not going to count money until I make money.”

There are a variety of available accounting systems, including Xero, Peachtree and QuickBooks, all of which can assist the new business owners in handling accounting related affairs such as recording sales and expenses and their growth over time. Developers of tax-preparing software like Intuit ensure that sole proprietors submit their Form 1040 along with a Schedule C attached.

At some point, the questions get asked “If you’re running a fairly simple business, why do you need an accountant on the first day?” You might need an accountant for advice, because you usually need advice once you get going. Accountants handle more than just your business’s financial information, they can provide strategic advice regarding how best to run your business from a financial point of view. Also, if you decide to obtain a loan or purchase property to expand your business, accountants can provide invaluable advice.

However, it is important to understand that an accountant is needed most during different stages of the business cycle, and can also depend on the type of business. The most common strategy for new business owners is to start a business and run straight for new clients and sources of revenue.

Brian Hamilton says, “A lot of the time, entrepreneurs and others seem to have a kind of checklist in their head about what ‘real’ businesses do and have. They think that all businesses ‘need’ an accountant, a lawyer, a business plan, to be incorporated. All they’re doing is setting big obstacles to getting the first customer.” The best approach in simple terms is to gain new clients and then look for an accountant.

To determine how well a business is performing, private-company owners will consistently check a few key financial metrics. The most common being sales as that is what determines the revenue of a business. For most, tracking sales is simple and shouldn’t require extensive analysis unless your business is offering credit to customers or is project-based. Just by recording your business costs and revenue from all sources it will allow you to keep track of your profit.

In order to determine your profitability, there are two key factors to keep an eye on.

Gross margin: This is a company’s revenue minus total costs directly involved in producing the product or delivering the service, divided by revenue. This shows what percentage of sales is left over after direct costs, and it’s an important measure of efficiency. Examining this can guide you on when you need to adjust prices or volume in order to keep more of what you sell.

Net margin: This is a company’s net profit measured against sales and takes into account all expenses related to the business (such as bank fees and other general overhead). This margin tells you how much of every dollar in sales your firm is keeping after all expenses are paid.

Other metrics become more important to understand and track as the business grows. The best time to start tracking such metrics depends entirely on which stage the company is in, and the type of company. However, when it comes to new companies and are developing the ideas behind their company, the key metric they track is sales.

 

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Miami Bball Upsets No. 8 Florida

The Miami Hurricanes basketball team has gotten its season off to an upbeat start. The Hurricanes are sending a clear message to the rest of the ACC with this win over the defending SEC champs. No. 8 Florida looked to be on the way to a comfortable win over Miami when Angel Rodriguez caught absolute fire, guiding the Hurricanes to a 69-67 win over the Gators.

Angel Rodriguez scored 24 points, none bigger than those that came on a falling-down, hand-in-the-face 3-pointer with 16 seconds remaining, and Miami overcame a 15-point deficit to upset No. 8 Florida 69-67 on Monday night.

With the game on the line and his confidence soaring, Miami’s Angel Rodriguez asked for the ball. “Angel Rodriguez was sensational,” Larranaga said. “He’s going to do whatever is necessary to win.”

The Hurricanes scored 48 points in the second half as Rodriguez took over. The former Kansas State guard hit three consecutive 3-pointers that helped Miami take the lead with 1:45 left. His free throw tied it with 1:13 remaining. But his fifth 3 of the game was the dagger that ended Florida’s school-record, 33-game winning streak at home.

Rodriguez scored 20 points in the final seven minutes of the game — including five threes, plus three free throws when he was fouled while shooting another three — to rally the Hurricanes back from a deficit that reached as much as 15.

Florida had a final chance to send it to overtime, but Michael Frazier II missed a jumper at the buzzer.

Eli Carter led the Gators with 21 points, including 16 in the second half. Florida was down four players in the game, including starting forward Dorian Finney-Smith.

Florida’s real problem was its second-half defense. Coach Billy Donovan ripped his team last week because of shaky defense, saying the Gators weren’t “remotely close” to deserving their lofty ranking.

It showed Monday. The Hurricanes shot 65 percent in the second half and 70 percent from 3-point range.

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Individual Investors Take a Bigger Role in Private Equity Space

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Wall Street’s private equity firms are raising an increasing share of their capital from individual investors, according to a new report published by Triago, a private equity advisory firm. Triago gathers its data from funds it works with or has knowledge of, and extrapolates from there.

Typical private equity firms have traditionally depended on pension funds and other institutional investors to raise capital. These institutions are compatible with private equity because they can afford to lock away their capital for as long as a decade, the time frame often required.

However private equity firms are seeing an opportunity to raise capital from individual investors in order to fund their deals. According to Triago, in the first 10 months of this year, individuals with more than $1 million in investable assets provided 10 percent of the capital raised by private equity firms globally. By contrast, such wealthy individuals provided just 6 percent of the industry’s capital in 2008.

Institutions are still the primary source of private equity capital, but some of the biggest firms now view individual investors as a potentially lucrative source of additional assets under management. When private equity firms gather more capital, they can earn more in management fees.

This shift comes at a time when institutional investors are wielding significant leverage, Triago noted in its report. Major institutions can sometimes demand, for example, that their money be placed in separate accounts that charge lower fees. Individuals, for the most part, have no such bargaining power.

Private equity firms have established “well-oiled partnerships” with brokerage firms in order to raise capital from individuals. Demand appears to be extremely robust. As an example, Blackstone, the biggest private equity firm, is using its partnership with Morgan Stanley to raise capital from individuals for a new energy fund.

Another major firm, the Carlyle Group, is introducing a new way to give individual investors direct access to a selection of its private equity funds. That program, called Carlyle Private Equity Access 2014, is intended to recur annually.

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Florida Reaps Sliver of US Venture Capital

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Florida reaped just a tiny sliver – about a third of 1 percent – of the U.S. venture capital pie in the third quarter, according to statistics released Friday. In the state, $36.7 million was invested in six deals. That’s down considerably from $113.9 in 13 deals last quarter and the lowest total since the first quarter of 2013.

Florida companies receiving dollars in the third quarter were: Sancilio & Company ($20 million); LensAR ($7.85 million); Informed Medical Decisions ($5 million); OBMedical ($2.1 million); Neoreach ($1.5 million); and Contactus.com ($300,000).

Next quarter’s Florida numbers are likely to look off the charts with reports that Google Ventures and Andreessen Horowitz are involved in a $500 million round for Broward-based Magic Leap, the cinematic reality company founded by Rony Abovitz, cofounder of Mako Surgical. Magic Leap closed a $50 million Series A round in February.

So far in 2013, $232.3 million has flowed into Florida-based companies.

Nationally, venture capitalists invested $9.9 billion in 1,023 deals in the third quarter, according to the MoneyTree Report from PricewaterhouseCoopers LLP and the National Venture Capital Association, based on data provided by Thomson Reuters. Quarterly venture capital investment declined 27 percent in terms of dollars and 9 percent in the number of deals, compared to the second quarter when $13.5 billion was invested in 1,129 deals.

The third quarter is the sixth consecutive quarter of more than 1,000 companies receiving venture capital investments in a single quarter. With more than $33 billion invested through the first three quarters, total venture investing in 2014 has eclipsed total venture investing in all of 2013, which totaled $30 billion.

“The emergence of non-traditional investors, including hedge funds and mutual funds, is contributing to the increase in venture investing this year. Another factor that can’t be ignored is the changing nature of our economy, where startup companies are disrupting entrenched industries and, in some cases, creating new industries altogether,” said Bobby Franklin, president and CEO of NVCA, in a statement.

“Another factor driving the strong investment levels is the increasing prevalence of mega deals, deals exceeding $100 million, which we’ve seen over the past few quarters. We’ve already counted more than 30 mega deals in 2014 compared to only 16 in all of 2013,” said Mark McCaffrey, global software leader and technology partner at PwC.

The biggest deals were Vice Media ($500 million); Palantir ($165 million), Houzz ($165 million), Box ($158 million) and Lookout ($150 million). Next quarter Magic Leap will likely be joining the top five list.

MoneyTree Report results can be found at www.pwcmoneytree.com and www.nvca.org.

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Bramson and Electra Butt Heads Again

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Edward J. Bramson, the managing member of Sherborne Investors Management, already made a play earlier in the year to get three seats on the board of Electra Private Equity. His request for the seats was rejected. But that didn’t stop him from trying again.

Ian Brindle used to be the chairman of Pricewaterhousecoopers Britain but he is now seeking a seat on the board at Electra

Ian Brindle used to be the chairman of Pricewaterhousecoopers Britain but he is now seeking a seat on the board at Electra

This time, he is only after two seats on the board of the prestigious private equity firm, one for himself and one for a friend and associate, Ian Brindle. Brindle once was the chairman of PricewaterhouseCoopers in Britain and has long been an associate of Bramson. To get them he has employed some rather grand tactics.

He sent a letter to all of Electra’s shareholders last week and said, in not so many words (or maybe in more) that if they wanted to see a gain of over one billion pounds, they should remove the current director Geoffrey Cullinan and vote to have himself and Brindle join the board. Electra did not hesitate to fire back. The Electra chairman, Roger Yates said, “We are surprised that Sherborne’s letter demonstrates considerable misunderstanding of how Electra works. Exuberant and unsubstantiated claims are no substitute for Electra’s consistently superior track record. Your board aims to continue this record without the destabilizing efforts of Mr. Bramson. The board of directors of Electra strongly urges all shareholders to vote against the resolutions.”

It is true that Bramson did not outline anywhere in his letter a plan to raise the value of the shares the billion pounds that he claimed he could, but that might not stop investors from voting him in anyway. After all, an investor should theoretically care less about who makes the money as long as they make it (barring criminal activity, of course). And one billion dollars is a lot of money.

Curious members of the public will have to wait until October 6th, the date of the next shareholders meeting, to see what happens.

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How Good Will the Rangers Be?

The New York Rangers look like they could repeat the terrific season they had last year!

The New York Rangers look like they could repeat the terrific season they had last year!

Last season, the Rangers almost lifted the coveted Stanley Cup above their heads and brought it back to New York for the first time since 1994. Sadly, the LA Kings took the trophy all the way to the West Coast. What can New York fans expect from the coming season? Can they repeat their incredible run to the playoffs?

The Rangers will almost certainly remain strong contenders for the cup as many of their star players, including Rick Nash, Ryan McDonagh, Martin St. Louis, and of course, the indefatigable Henrik Lundqvist will be returning to the squad for another season. The difficulties will now lie in who the supporting players will be.

During the off-season, Derek Dorsett was traded, Anton Stralman, Brian Boyle and Benoit Pouliot signed with other teams and Brad Richards was bought outright. This leaves many holes to fill for the Rangers management team, especially considering the teams propensity to play four lines throughout most games. So, who would the managers pick? They want to maintain their quickness on the ice but with so many players leaving, that could prove to be a tall order.

The Rangers eventually decided to pick up about seven new faces during the off season spending close to their 17 million dollar cap. This means that the team will be inexperienced, but with that amount of money and the smart scouting the Rangers have shown these past couple seasons, the young players will be skilled. The coaches and staff agree; Jeff Gorton, the assistant general manager remarked, “The thing that’s most exciting is we’re still a relatively young team.”

The Rangers will have to do some work early in the season testing out different combinations of lines to see what is best. But, despite a few predictable growing pains early in the season, the Rangers should be poised to make another great run in the National Hockey League. Maybe hoping for the cup to come home to New York in 2015 is not such a distant dream after all.

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Lincolnshire Management Feels the Heat

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T.J. Maloney and the private equity firm he controls, Lincolnshire Management, are under scrutiny once again. The last time one may have heard about Lincolnshire was in 2011 when they ran into some trouble after gaining $99 million in a lawsuit. Trouble is not something you expect when you have a courthouse win of that size and to add to the surprise of the predicament, it arrived from an unexpected source to boot. Lincolnshire’s investors themselves filed a suit against the private equity firm arguing that they were not given their fair share of the legal gains. That case seems to have been more bark than bite, however, as the case remains pending to this day.

The S.E.C. took action against Lincolnshire Managment

The S.E.C. took action against Lincolnshire Managment

This time around, the Securities and Exchange Commission is the one bringing the suit and they have managed to do more than just bark. In fact, Lincolnshire has agreed to pay 2.3 million dollars to settle with the SEC. The charges stated that Lincolnshire had improperly allocated expenses between two funds that it controlled. Both of these funds were acting as owners in what, in the eyes of the SEC, was the same company. Lincolnshire, for one reason or another, decided that it would exchange resources between these two companies as if they were the same. For example, one company, Peripheral Computer Support paid the entire payroll and 401(k) administrative expenses for employees of both companies.

Now, this would not be an issue if both companies decided to do this to their mutual benefit. The issue arises when one company clearly suffers while the other profits from such a relationship. As the co-chief of the asset management unit in the enforcement division of the SEC Julie Riewe said, “Lincolnshire’s decision to integrate two portfolio companies owned by separate private equity funds resulted in the misallocation of expenses between the two companies. Advisers that commingle assets across funds must do so in a manner that satisfies their fiduciary duties to each fund and prevents one fund from benefiting to the detriment of the other.”

Because the SEC could prove that Computer Technology Solutions – the name of the other company – was benefiting and Peripheral Computer Support was suffering, or perhaps because Lincolnshire did not want the SEC to look any deeper, Lincolnshire agreed to pay the damages and settle the dispute. Hopefully, Lincolnshire doesn’t have any more run-ins with the law for a few years, their reputation could use a break.

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