daily blog

The stock market is crashing. Government bailouts are rampant. The political climate is uncertain. Credit has all but disappeared for ready buyers if you can even find one. Yet, your dreams of retirement remain. What can you do? There is an answer that you may have overlooked. By understanding the power of an ESOP you could be well on your way to your retirement in the next 90 days.

An ESOP (Employee Stock Ownership Plan) is a tax-advantaged vehicle that enables you to sell your business to your employees. This program was established by Congress in 1974 and today there are about 12,000 ESOP owned companies. Many business owners have either never heard of an ESOP or have a misunderstanding of how it works. Here are some common misconceptions along with solutions to your dilemma.

My employees can’t afford to buy my company and they are not “ownership material.” In reality, an ESOP doesn’t cost your employees anything. The ESOP is created which buys your stock. Your employees are beneficiaries of the ESOP. The ESOP distributes stock to your employees’ ESOP accounts each year based on their percentage of the overall payroll. The employees continue to perform their regular duties and answer to management as they currently do. They do not have general voting power or control of how the company is managed. An employee’s ESOP account is like a free retirement account that they earn by loyal service to the company. When they retire or leave after becoming vested they take the value of their account with them. Many companies with “blue-collar” employees are ESOP-owned.

I want to retire in the next few years. Who is going to run the company? The beauty of an ESOP is that you can “have your cake and eat it too”. An ESOP allows you to create a definite exit strategy while letting you remain in the control of the company for as long as you like. As Trustee of the ESOT you continue to run the company as you do right now and you continue to draw a salary. You are still the boss even though you don’t own the company. Your goal will be to work yourself out of a job so you can begin your retirement. That is accomplished by either grooming one of your senior employees to take your place or by hiring a qualified replacement as a manager. That can happen within months if you’re anxious to leave or you can stage the transition over several years. The bottom line is that it is always your choice.

Who is the buyer? That’s the great thing about selling to an ESOP. You don’t need a buyer. The ESOP is the entity that is created to buy your stock. You can create your exit strategy today by enlisting the help of Dynasty Capital Advisors. They specialize in setting up an ESOP and they take care of all the details.

Where does the money come from? Now we’re getting down to the real purpose of this article. Typically, specialized ESOP lenders would fund the entire transaction and you would get a big check at closing. One downside was that a portion of that check was pledged back to the lender to help secure the loan. One of the main benefits of an ESOP is that you can take that cash and reinvest it in stocks and bonds and defer the capital gains tax on your sale indefinitely. But, who wants to put their money in the stock market these days? And, since credit has tightened so much in the last year, it’s very difficult to find lenders who will fund 100% of the transaction. Financing is still available for a portion of the transaction depending on the collateral position of the company, but in most cases it’s more attractive for you to be the banker yourself and avoid all the red tape that goes along with dealing with banks these days. This structure allows you to collect the interest income rather than paying it to the banks.

Why should I finance the sale of my own company? Typically, if you were dealing with a third party buyer, it would not make much sense at all. It would be like loaning several million dollars to someone you don’t know and also giving up control of your company. But, with an ESOP, you still control the company, and by remaining in control you can assure that you get paid in a timely manner. You can structure the loan terms however you want, and if the company should have a bad month you have the ability as the lender to delay or defer a payment rather than risk a default on a bank loan. The biggest question to ask yourself is “What would I be doing with the money if I got cash?” If you are truly selling to retire you are likely going to put it somewhere safe to generate retirement income. You could put it in the bank and maybe get 5% interest, but banks aren’t doing so well these days as we have seen in the news, and the FDIC only insures accounts up to $100,000. By leaving your money invested in the company that you have spent a lifetime building, you know that as long as you are in control it is secured by something of value. And, by properly structuring your finance package to include trustee compensation, stock options, and other perks, your rate of return can exceed 30% rather than 5% at the bank.

How long does it take to set all this up? As the banker, you would avoid a great deal of time and expense by not dealing with an outside bank. Dynasty Capital Advisors will analyze your company, prepare a Feasibility Study for the ESOP, prepare all plan documents, coordinate outside professionals such as an independent valuation expert and the Trust attorney, and close the sale to the ESOP in less than 90 days.

Will I get my price? A sale to an ESOP is always at fair market value as established by an independent valuation. This means that you will receive the highest price possible that can be supported by factual data. You don’t have to deal with buyers who will try to beat you down on your price. Dynasty Capital will provide you with a valuation that will come within 5% of the final price for your review at no cost.

How can I find out if this is right for me? Dynasty Capital Advisors will prepare a Pre-Feasibility Study at no cost for you to determine whether an ESOP is right for your company. You will receive a free stock valuation to help you decide if the money is right. You will also receive an Investment Analysis that will show the benefits of financing the transaction. There is no obligation for you to explore the benefits of an ESOP transaction.

Selling your business doesn’t have to be an uncertainty that is dictated by a weak economy or the woes of Wall Street. By using an ESOP as your exit strategy, you can control everything from the buyer to the banker by eliminating both of them. And, you protect your employees at the same time while leaving your company in the hands of the people that have helped build it. This is a process that leaves you in complete control of every decision. Now you can design your retirement on your own terms without having to haggle over the price or play the games so typical in a business sale. Call Dynasty Capital Advisors today and find out how quickly you could be experiencing retirement freedom. For more information about how an ESOP could be the solution to your exit strategy, call Myron Goodrum, Vice President of Dynasty Capital Advisors at 603-785-4331 or email at mgoodrum@dynastycapital.com.

Being not only an admirer of gold but also a gold investor, acquaintances often ask me for me advice. They often tell themselves “I want to invest in gold and silver” but have fear because they don’t know much about gold as an investment. It’s wise to be cautious, and to carefully research the pros and cons of buying gold before rushing out to find some gold coins to invest in. So why buy gold?

First of all, if we look at gold prices history, we can clearly see that gold acts as a wealth preserver. Gold is money. Paper money used to be simply a representation of an amount of gold stored somewhere on your behalf, but in this day and age paper money (or fiat currency) functions separately from gold and it is susceptible to inflation and currency devaluation. Especially if you live here in the United States, the government is constantly spending money it doesn’t have, and the banks are lending out money they don’t have, devaluating our currency so that our buying power is steadily eroding. If you buy gold, however, you will maintain your buying power longterm because gold’s value doesn’t deflate. It’s price fluctuates with supply and demand, but it’s core value remains constant.

Official gold prices tend to increase along with high inflation, and when the stock market drops. They also tend to increase in times of great instability such as wars, when hyper-inflation is a threat. (This is true of commodities in general, but precious metals can obviously hold their value better than a bundle of wheat or a cow that might up and die on you.)

Precious metals are real assets, unlike stocks and bonds, and they react differently to changing economic conditions. Commodities prices tend to increase with inflation. Stocks and bonds on the other hand, tend to perform better when the rate of inflation is stable or slowing. Since 1990, commodity prices have been negatively correlated with the S&P 500. Since commodities are not positively correlated with stocks and bonds, they diversify your portfolio and help reduce risk and increase returns over time.

Precious metals and other commodities are not only a hedge against inflation, but also a hedge against destabilizing events or catastrophes. Commodity prices rise during times of crisis such as wars and stock market crashes. After the Iraqi invasion of Kuwait, stocks dropped while commodities performed well. And during the stock market crash of 1987, stocks dropped by 30% while commodities held steady. There are people out there who horde gold as a way to preserve wealth in some coming cataclysmic event. I would never want to invest in only gold, but these people are right that in the event of catastrophe commodities like gold will be far more useful than stocks or cash (which will likely become unbelievably devalued if there’s a catastrophe of huge proportions). That’s not to say that precious metals are free of volatility. They are equally or slightly more volatile than the stock market, but they rarely drop at the same time as the stock market. In these volatile times with stocks continuing to drop or stagnate, gold is an essential investment. And longterm, with all the government stupidity promoting the devaluation of the dollar, gold will continue to function as a wealth-preserver for the wise.

And despite gold prices skyrocketing, if we adjust for inflation, the prices now are still nowhere near as high as during their peak in 1980. There’s still a lot of room for the price to climb higher. Don`t miss out on this great opportunity.

Paul Jorgensen gained financial independence after years of uncertainty by taking control of his finances and learning to invest strategically

For more tips visit http://the-gold-market.blogspot.com

Introduction— The outbreak of SARS:

Severe Acute Respiratory Syndrome (SARS) is a deadly atypical pneumonia that became publicly recognized at the end of February 2003. It first appeared in the Chinese province of Guangdong in November 2002 and spread to Hong Kong during late February. By mid-June 2003, the business virus had infected around 8500 people worldwide and caused around 800 deaths. SARS has largely affected the greater China area. In mid-June 2003, about 63% of the cases occurred in China, with 85% in China and Hong Kong together. The third largest outbreak has been in Taiwan. business and Singapore also experienced significant outbreaks.
The Economic Impact of SARS:

In economic terms, SARS represents a crisis of confidence and a demand shock that hit East Asia, especially China, hard. This occurred at a time when East Asian growth prospects were already clouded by geopolitical uncertainties and high oil prices, the stalling in technology exports, and overall weak economic growth in major industrialized economies. GDP growth slowed significantly in a number of East Asian economies in the first quarter of 2003.

Fear of contracting SARS influenced the behavior of individuals, making them avoid public places, travel and face to face contact. In Hong Kong, Singapore, and parts of China, schools closed, meetings and conventions were postponed or unattended, while restaurants and shopping malls experienced declining patronage. As a consequence, consumption expenditure and especially the consumption of services fell sharply.

I will show the economic impacts in two aspects: short term and long term impacts.
Short Term Impacts:

In the short term, SARS mainly affects economic growth by reducing demand:

(1) Consumer confidence has dramatically declined in a number of economies, leading to a significant reduction in private consumption spending.

(2) Service exports, in particular tourism-related exports, have been hard hit.

(3) Investment is affected by reduced overall demand, heightened uncertainties, and increased risks. Furthermore, foreign investment inflow may be delayed or reduced in reaction to SARS.

(4) While increased government spending will mitigate the impact, the ability of governments to revive economies facing widespread reductions in private spending is limited.
Long-term implications:

The severe economic impact of SARS struck at the epicentre of growth in East Asia. The spillover effects on the rest of the region emphasised the high degree of regional integration, with countries such as China, Hong Kong, Taiwan and Singapore being highly interlinked with the rest of East Asia in terms of travel, production and trade. This has highlighted how a SARS-induced or similar type of economic shock in one country is readily transmitted to other countries in the region. Any further SARS or similar outbreaks could have long-term implications for regional growth and could potentially hamper moves toward greater integration in the region.

The SARS outbreak also may have long-term implication in terms of investors’ perceptions.

The long term economic impact of SARS will depend largely on whether governments can quickly implement effective public health policies. This will require increased investment in public health and will have implications in terms of increased fiscal outlays. The provision of accurate, timely and transparent information on the nature and extent of any further SARS outbreak will also be important in assisting to contain and reduce public fears and uncertainty.
The Government Economic Measures after the SARS Outbreak
Government Economic Measures of some countries

China P.R

April/May

• Price control/monitoring of SARS-related drugs and goods.

May

• Temporary reductions/waivers of taxes and administrative fees for SARS- affected industries, including catering and hotels;

• Free medical treatment to farmers and poor urban residents who contracted SARS;

• Subsidies and temporary exemptions from personal income tax to medical staff treating SARS patients;

• Interest subsidies for air transport and tourism sectors.
Hong Kong, China
23-Apr-03
• The authorities announced a HK$11.8 billion (US$1.5 billion) economic relief package, representing 1% of Hong Kong’s GDP. The package included the following measures for a limited period;

• Temporary reduction/waivers of taxes and administrative fees;

• A job creation scheme;

• A loan guarantee scheme.

Taipei

April/May

• The authorities announced spending of NT$50 billion (US$1.4 billion) to help meet medical cost and business losses related to the SARS outbreak.
Singapore

17-Apr-03

• The Government decided to implement a S$230 million (US$132 million) SARS relief package, including:

• Temporary reduction/waivers of taxes and administrative fees for tourism and transport sectors;

• Relief measure for airlines.

Malaysia

21-May-03

• The Government announced a RM7.3 billion (US$1.92 billion or 2% of GDP) economic package aimed to assist sectors significantly affected by SARS. Funded from federal budget and contributions from bank and other financial institutions, the economic package included:

• A reduction of bank intervention rates by 50 basis point for cheaper loans;

• Foreign investment guidelines to be more investor-friendly;

• Support for tourism-related industries;

• Promotion of microcredit schemes and cheaper housing loan;

• Support for job training.

How should Governments Respond to SARS and Similar Situations?

Two aspects of SARS warrant government intervention. The first is that the information that needs to be collected and disseminated to effectively assess SARS displays the characteristics of a public good. Second, there are externalities related to contagious diseases in the sense that they affect third parties in ways that are not reflected in market transactions. Public goods and externalities are typical partnership where there are market failures, and government action is needed to correct such failures.
Provision and Acquisition of Accurate Information

The accurate, timely, and transparent provision of information on the nature and extent of SARS by governments is critical for containing the epidemic and reducing public fears and uncertainty. Governments need to work closely with medical professionals to generate and disseminate accurate information about the risks and extent of a disease, and preventative measures available. A balance needs to be struck between alerting people to the risks involved and preventing people from panicking and overreacting. Due to the highly effective channels of information transmission now in place, any apparent lack of transparency in providing information is likely to cause second-guessing and panic among the general population. Governments therefore need to utilize the increasing influence and reach of the modern media to disseminate information so as to ensure rational thinking and sensible actions prevail.
Containing the Disease

The SARS epidemic demonstrates that with the increased flow of people, goods and services, and information across borders, both positive and negative developments can quickly be transmitted within a country and spill over to other countries. Early identification and containment are critical, as any delays will create greater costs later on. As pointed out by Baltimorem (2003), Nobel prize laureate in medicine, targeted and aggressive public health responses need to be combined with a rational evaluation of risks so as to minimize disruption to people’s lives.
Government Budget

The occurrence of sudden, unexpected shocks such as SARS stretches government resources. At the same time, the resulting decrease in economic activity will reduce government revenue. This, together with increased public spending to prevent and combat the disease, will worsen government fiscal positions. In some cases, active stimulus packages may also be needed to revive the economy. The possibility of episodes like SARS emphasizes the need for governments to implement prudent fiscal policies, to accumulate primary surpluses, and to set aside appropriate amounts in their budgets for unexpected contingencies.
Conclusion

It is sure that SARS is a heavy attack for these countries not only in the economy but also in other aspects. However, it is also a good lesson for us to learn from.

The SARS epidemic demonstrates that:

(1) The accurate, timely, and transparent provision of information on the nature and extent of diseases by governments is critical for educating the public about the real risks and reducing public fears and uncertainties. A balance needs to be struck between alerting the public to the potential dangers involved and preventing panic and overreaction to the danger concerned.

(2) Early identification and containment is critical, as any delays will create greater costs later on.

(3) SARS is merely one of many contagious diseases that could potentially flare up. Public policy needs to go beyond SARS to make provisions for all contagious diseases. Efforts need to be put into applying and maintaining the lessons learned from the SARS crisis after it is controlled.

In particular, there is a need to minimize the occurrence of all contagious diseases; to effectively respond to emergency situations; and to strengthen health systems so that they have the ability to cope with similar situations in the future.

(4) The global implications of serious contagious diseases means that governments need to intensify cooperation and coordination. There is a particular need for developed countries and more advanced developing member countries to devote funds toward undertaking collaborative, proactive, and forward-looking research on combating such diseases. Counties also need to commit to collaborative schemes to develop effective policy frameworks and institutional capacity for preventing, reporting, monitoring, and containing all contagious diseases.

(5) The occurrence of emergency situations such as the outbreak of SARS shows that government budgets need to be prudent so that they are capable of handling unheralded public health crises. An appropriate amount of funds should be set aside to cope with such contingencies.

If good strategies can be drawn up from the lessons learned in combating the spread of SARS, the world at large will benefit in the long run.

Many parts of the world are in recession or at least facing a downturn in the economy. At these times, redundancies and cutbacks are announced on almost a daily basis. Like all events, the current economic challenges present the opportunity for learning for current and aspiring business leaders. So what are 5 key lessons from the current recession?

Lesson 1: Take a long term view

Businesses exist or are established with a view to growing and existing for a long time. With so much information so freely available about opportunities to make gains now or the constant focus in the media about how bad things are, it is easy to lose sight of the bigger picture. By keeping a focus on the bigger picture and recognising that the economy generally goes in cycles, you can avoid taking short term decisions which are not in the best long term.

Lesson 2: Don’t put all your eggs in one basket

In business it is important not to put all of your eggs in one basket. It is important to have a portfolio of products and/or services so that you can spread risk and reduce the impact of downturns in the economy. This is exactly what we do when it comes to investing or saving. We have a range of options to spread the risk.

Lesson 3: Continually innovate

Successful businesses don’t stand still. They are continually looking for new products or services they can offer or new and innovative ways of offering what they currently have. In large organisations it is easy to become complacent, to stop looking out for ways to address an unmet need or to believe that the good times will stay for ever. Having different products and services at different stages of the life cycle is important and this requires constant innovation.

Lesson 4: Focus on the way forward

Pick up any newspaper, listen to radio or watch TV and chances you will come across lots of negativity about how difficult things are. While without doubt things are challenging at the moment, there is little point in investing time and energy focusing on what has happened. Time and energy focusing on the way forward is much more productive and beneficial than focusing on what has happened. Make a commitment to focus on how you move forward and achieve even more success.

Lesson 5: Expect uncertainty

Uncertainty is part of parcel of being in a leadership role and it is essential to your success that you expect, accept and prepare the best you can for uncertainty. Regularly look at trends in the area which you operate. Consider what might create uncertainty. Develop your ideas on how you will address the uncertainties if they arise.

Bottom line- The economy will always go through periods when it is strong and periods when it is weak. As a leader you need to prepare yourself the best you can to prosper in both good and bad times. I invite you to take the first step by signing up for my free e-course and monthly newsletter at

http://www.goalsandachievements.co.uk

Duncan Brodie- Goals and Achievements