Charlotte-based T1 Visions, Inc. (www.t1visions.com) is the early leader in interactive solutions using large format touchscreens for multi-user applications. The company’s proprietary products are currently solid directly to end-users and through furniture and fixture OEMs in a wide variety of settings.

T1 Visions is growing rapidly with strong interest in their products across multiple vertical markets including tradeshows, retail, corporate, education, hospitality, and healthcare. T1’s proprietary software includes highly differentiating, patent-pending features (e.g. multiple web browsers, on-screen keyboards, separate viewing/control screens, integration with mobile).

T1 sells standard products including its inTouch™ Tables and inTouch™ Walls, as well as customized apps. For example, T1’s inTouch Table for the Education & Corporate markets enables the sharing of information, presentations, annotations, connection to tablets or remote sites all via an embedded touchscreen. T1’s inTouch Table is made up of a durable, multitouch screen flush mounted into a customizable tabletop.  The result is a valuable collaboration and engagement platform designed to allow multiple users to view and share information via a natural user interface.

T1Visions’ inTouch Interactive Wall is an innovative product that allows multiple users to interact with a single vertical touchscreen or multiple screens on one large, seamless interactive surface. T1 sells fully-installed products, as well as on-going software licenses, customer support, and advertising. T1 Visions has raised over $5 million in growth equity to date.

Charlotte-based Yodil, Inc. (www.yodil.com) provides business intelligence, data analytics, and operational/management reporting to the insurance industry. Yodil’s SaaS solutions are sold to insurance carriers, MGAs, and agents. The company marries deep insurance knowledge with rich content, adaptable technology, and flexible reporting options to deliver a comprehensive BI and reporting platform.

The Yodil BI platform is a web based offering designed for insurance carriers, MGAs, and agencies of all sizes, lines of business, and levels of BI maturity. Yodil includes reports, scorecards, dashboards, and ad-hoc capabilities that provide business information for management and operational analyses when, where and how the users want it. Yodil delivers hundreds of metrics and KPIs, showing a single version of the truth and helping you understand what drives your business. To accomplish this, Yodil integrates and transforms customers’ data into accessible and actionable BI. The investment in Yodil was led by a private group of insurance industry veterans and terms have not been disclosed.

Scale Finance advised both T1 Visions and Yodil throughout the process of successfully raising growth equity for these fast growing software companies.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 30 professionals serving more than 100 companies throughout the region.

Source: Gary Haber, June 7, 2013

SBA administrator Karen Mills says the organization will be making more money available to investors in early stage companies. Only six percent of venture capital today is going to early stage funding rounds of between $1 and $4 million, which creates the so-called “Valley of Death” for startups, Mills said.

The U.S. Small Business Administration is making more money available to investors in early-stage companies. SBA administrator Karen Mills announced the new funding this week at a G8 session on social impact investing in London.

“All across the country today there are promising startups looking to scale their businesses and to bring innovative, game changing ideas to market. The ability of these businesses to access long-term, patient capital is critical to their success and to the growth of the American economy,” she said in a news release.

She said that only 6 percent of venture capital today is going to early-stage funding rounds of between $1 million and $4 million, which creates a so-called “Valley of Death” for startups.

To help businesses through the valley, Mills said the agency is increasing its leverage from $150 million to $200 million for early-stage funds.

The agency’s next solicitation for its small-business investment company (SBIC) early-stage fund will be opening in the fall of 2013.

The SBA also will increase its allocation to its impact investment fund from $80 million in SBIC leverage to $150 million.

In both programs, the SBA offers low-interest loans to private investment groups and funds.

“By increasing the amount we are investing in both early stage and impact investing, we are expanding the playing field and injecting new energy and momentum into our economy,” Mill said. “Here’s how it works: We provide a 1-to-1 match with private capital, capped at $50 million. Funds participating in the program must deploy 50 percent of total capital in early stage companies. There is a minimum private capital raise of $20 million. All investment decisions are made by the private fund managers,” she said in an open letter.

She added that 70 percent of venture capital in the nation goes to just three states: California, New York and Massachusetts. And fully 40 percent of all venture capital in the nation goes to just Silicon Valley.

“There are enormous opportunities for investors and venture capital funds to finance innovative early stage firms outside of these traditional start-ups hubs. The market is less crowded and the field is ripe with outstanding entrepreneurs with experience across a broad array of growth industries,” she said.

For more information about early stage funds and the new solicitation, go to the SBA website.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 30 professionals serving more than 100 companies throughout the region.

Source: Firas Raouf, OpenView Partners

Did you have to re-read that headline a few times? I admit, it might seem a bit confusing coming from a venture capitalist.

But here’s the truth: there are plenty of expansion stage financing alternatives to VC money. In fact, there are myriad sources of capital that — depending on time, how it’s used, and the company’s needs — are better options than venture capital.

As most startup and expansion stage company founders know, debt needs to be a big part of your overall financing strategy.

But not just any debt. The key is to study the various forms of financing available to you and understand when, how, or if you should use each one.

In this post (as the headline indicated) I want to discuss Venture Debt, a concept that’s excellently explained and broken down in this document from Leader Ventures, a California-based Venture Debt firm (for the record, I don’t know Leader Ventures and can’t qualify them as a company).

Let’s start with a quick definition of Venture Debt.

To summarize Leader Ventures’ document, it’s a form of financing that, when utilized properly, can reduce dilution, extend a business’s runway, or accelerate its growth.  All with limited cost to the company itself.

In short, it offers a balance between flexibility and dilution for venture equity-backed companies that lack the assets or cash flow for traditional debt financing. Venture Debt is often structured as a term loan that amortizes over time and is complementary to equity financing.

Here are a few other Venture Debt basics:

• The typical term rate for financing is three years.
• It’s mostly available to late stage startups with significant assets or cash flow, or expansion stage businesses that have already secured one round of venture capital.

It’s important to note that Venture Debt is different from another common form of debt financing — Convertible Debt — because it can be used like equity, includes warrants, and generally is paid back by monthly payments on principal and interest over the life of the loan. On the downside, interest rates for Venture Debt tend to be higher than Convertible Debt. (10% ore more, compared to 3-5%)

When does Venture Debt make sense?

Again, it largely depends on your company. But as Leader Ventures points out, it’s generally a viable option in these scenarios:

• When a company wants incremental capital to accelerate growth without taking equity.
• In conjunction with, or following, an equity round to provide additional capital without increasing dilution.
• To add runway and enable the company to reach additional milestones, allowing it to raise its next equity round at a higher valuation.

On the flip side, it’s a very bad idea to take on Venture Debt when you’re cash balance is low and the business is in a weak financial position. The terms will likely be unfavorable and debt payments may amount to more than a quarter of operating expenses.

As Leader Ventures also mentions, if your company has stable revenue streams and accounts receivable then you might be better off looking into A/R financing — which is generally cheaper and less burdensome.

Is Venture Debt really a good idea?

It depends on who you ask. One opinion comes from Fred Wilson, who tried to answer that question on his blog, A VC, in July.

Venture Debt, Wilson writes, is a perfectly acceptable source of financing if it’s a bridge to a sale or an IPO, or if it’s used to fund an acquisition or some other value-enhancing transaction. Quite simply, Wilson writes, Venture Debt is only a good idea if the company — rather than the investors backing it — possess the creditworthiness for the loan and can absolutely pay it back.

In my opinion, Convertible and Venture Debts are two additional tools in the overall toolbox of funding options. They should only be used once your company has reached operational stability. That means your distribution model needs to be pretty baked. It means that you have budgeting and forecasting processes that are accurate and reliably predict the future performance of the company. It means that you have to have an experienced CFO who knows how to evaluate debt proposals, knows how to pick the right option, and knows how to manage debt on the balance sheet.  It means that you have the full support of your investors to fund you if your cash balance drops. It means that you should see a clear path to another funding event,whether the next VC round or an IPO (an exit is never predictable, so don’t count on it).

Check out the full document from Leader Ventures, which includes definitions of specific Venture Debt terms, some of examples of when it’s best used, and an opinion on its purpose from another respected VC.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides professional CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices in Charlotte, NC, the Triangle, the Triad, Southern Pines, and Wilmington with a team of more than 30 professionals serving more than 100 companies throughout the region.

What is the best price for your products or services? It isn’t based on how many customers you have, how many salespeople you employ, the standards in your industry — or even what you’ve charged in the past.

The best price is the amount customers will pay that effectively earns your company the maximum profit. It might be significantly higher than what you’re charging now.

To help determine your optimum price tag, here are five critical Cs of pricing:

1. Cost. This is the most obvious component of pricing decisions. You obviously cannot begin to price effectively until you know your cost structure inside out. That includes both direct costs and fully loaded costs, such as overhead, trade discounts and so on.

And it means knowing those cost structures for each item or service you sell - not just on a company-wide or product-line basis. Too often, managers make pricing decisions based on average cost of goods, when in fact, huge margin variations exist from item to item.

Traditionally, businesses have priced their goods and services based on their costs. But cost is often irrelevant in the buying decision of the purchasers. They never even know the cost. Understanding this basic, yet all important principle, is essential to determining the real profit opportunities in your business.

Your company’s gross margin potential is illustrated using the following model:

2. Customers. The ultimate judge of whether your price delivers a superior value is the customer. Are your customers willing to pay more than you’re charging? The information you need to know is:

• What is your customer’s expected range — the highest and lowest price points?
• Within that range, what is your customer’s acceptable range – the highest or lowest he or she is willing to pay?

When you consider pricing strategy, ask your clientele for their input. Two simple questions: What do you think this product or service is worth? Would you have bought it at another price?

3. Channels of distribution. If you sell through “middle men” to get to the end-users of your products or services, those intermediaries affect your prices because you have to make their margins large enough to motivate them. You must also consider the expenses that intermediaries add. Make sure these third parties add value to the relationship between you and your customers.

4. Competition. This is where managers often make fatal pricing decisions. Every company and every product has competition. Even if your products or services are unique, make sure that you think carefully about your competitors from the buyer’s point of view (the only opinion that matters). If you’re not sure about how your customers evaluate you in terms of alternatives, pick up the phone and ask a few.

5. Compatibility. Pricing is not a stand-alone decision. It must work in concert with everything else you’re trying to achieve. Do you believe a fast-food hamburger chain can sell $10 filet mignons? Is your pricing approach compatible with your marketing objectives? With your sales goals? With the image you want to project?

Those objectives have to be explicitly stated. For example, let’s say your production goal is to even out the process so you can better control inventory. The last thing you want is a pricing strategy that forces seasonal spikes in demand that result in stocking problems.

Before making a final decision on what to charge for your products and services, examine these five critical Cs of pricing. With the right price, you’ll generate enough fuel to power your business.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 30 professionals serving more than 100 companies throughout the region.

Source: John Lauber, LauberCFOs

Most business owners have some way of intuitively understanding how their company is doing. That insight could be based on any number of factors, including new orders, shipments, machine hours, labor activity, etc.

In effect, those are key performance indicators – information that owners and managers rely upon to keep their companies on track toward specific goals. As a company grows and the owner gets busier or as business conditions change, it’s important to formalize those indicators.

There are numerous financial and operational factors that can be viewed as key performance indicators, including:

• Revenue
• Orders
• Time to ship
• Labor hours
• Machine hours
• Inventory turns
• Accounts receivable statistics
• Backlog
• New customers acquired
• Staff turnover
• Returns
• Working capital

Each of those areas has subsets and circumstances unique to an industry and to a specific business within that industry. Key performance indicators should reflect a company’s goals and be quantifiable and actionable. The goals become the benchmark against which ongoing data is judged and responses considered. 

Along with company-wide key performance indicators, departments can have their own indicators based on their roles in reaching the company’s overall goals.

The structure that conveys key performance indicators can be in the form of written weekly activity reports or flash reports, spreadsheets, charts or some other numbers-based overview.

Dashboards offer quick review

While those forms are valuable, today’s technology offers an even quicker way for time-pressed executives to review current information – the computer screen dashboard. Like the dashboard on a car, a computer screen dashboard can offer company owners and managers a quick look at current business conditions, and allow them to make adjustments based on the numbers.

The best dashboards use graphic displays that allow the user to quickly grasp the situation and determine what steps could be taken in response to the information.

Like any business activity monitoring, dashboards can provide information tailored to the specific needs of a particular business or to replicate the data the business owner intuitively followed during a less formal stage of the company’s life.

Data is real-time

One of the great benefits of dashboards is that information is pushed to them from the underlying financial systems so data and charts that are displayed are always real-time.

A dashboard can relay financial statistics as well as information on activities and processes within the operation. Since the dashboards are intended for a quick overview, it’s best to select a limited number of key indicators that you find meaningful. In this case, less is better. Too much information can make dashboards overbearing and, over time, ignored.

Key performance indicator dashboards can be built as a custom software application or acquired as an available product or web-based subscription service.

While dashboards can be convenient, what really matters is the consistency of information a business owner or management team receives. Through that consistency trends can be observed, allowing proper responses.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 30 professionals serving more than 100 companies throughout the region.

Anytime a company makes the transition from the startup phase to the expansion stage, there are going to be growing pains.

The simple truth is that as companies expand, they naturally become more complex and begin to face an entirely new set of problems. And that reality is something Rand Fishkin, the co-founder of SEOmoz, is very familiar with. Since founding one of the most popular search engine software companies online back in 2004, SEOmoz has experienced explosive growth and encountered a host of new challenges and opportunities.

The lion’s share of that growth has occurred since April 2012, when the company successfully raised $18 million in venture capital. While securing that capital was difficult in and of itself — the company tried and failed to do so for several years before succeeding — the rapid expansion that it made possible resulted in many other even greater obstacles.

In this podcast, Rand Fishkin opens up on the challenges and transitions that accompany small business growth with the transparency and candor that makes his blog such a must-read for entrepreneurs. Sharing his own experiences guiding SEOmoz from a small startup to a wildly successful software company, he outlines how the company has changed since securing its latest round of funding as well as how his own approach to leadership has evolved. In addition, he explains:

• How companies can prioritize the challenges they face during as the transition out of the startup phase

• Which aspects of the startup mentality no longer apply for those founders who go on to lead growth companies

• How to ensure that your company maintains a thriving company culture and a healthy pace of innovation as it continues to scale

For more insight into the leadership required to guide your company through small business growth, listen to the full podcast –

http://labs.openviewpartners.com/seomoz-rand-fishkin-small-business-growth-challenges/

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 30 professionals serving more than 100 companies throughout the region.

With the financial advisory support of Scale Finance, Trident has closed $6.5 million of senior debt through First Bancorp.  Steven Baldelli, Trident Marketing’s CEO observed “we operate a very complex business model, and our job was to provide clarity, simplicity, and a financially sound plan.  We are extremely pleased with the outcome and First Bank’s decision to support our strong growth”. Managing Director Gerhard Renner serves as Trident’s CFO and commented “this is a perfect example of Scale Finance’s model at work – our Chief Financial Officers leverage the expertise of our capital markets group, and work hand in hand with the entrepreneurs to ensure we present a comprehensive and compelling case to our financial partners”. 

This funding expands Trident’s balance sheet enabling the Company to capitalize on growth opportunities, expand working capital, and make capital investments.

About First Bancorp

First Bank was established in Troy, North Carolina built on a commitment to care for customers like no other bank, providing genuine community bank service and helpful solutions from local bankers who care about doing what’s right. With more than 77 years of dedicated service, that commitment has not wavered. First Bank proudly serves 29 counties in North Carolina, with locations in South Carolina and Virginia, for a total of nearly 100 full-service branches and is the fourth largest bank headquartered in North Carolina with approximately $3.2 billion in assets.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 45 professionals serving more than 100 companies throughout the region.

Source: Tien Anh Nguyen, Research & Analytics Team, OpenView

For quickly growing startup or expansion-stage software companies, raising venture capital should be cause for celebration. Champagne bottles should pop, high fives should ensue, and every stakeholder should salivate over the ways in which the business can leverage its cash infusion to scale and drive future growth.

And while most investments start that way, it isn’t long before some companies’ euphoria gives way to disaster.

Unfortunately, starting from the notorious “Webvan” of the dotcom bubble, the high tech “deadpool” is infamously littered with many examples of ventures that either had no business accepting outside capital, or had issues that couldn’t simply be solved by more money. That many startups fail is not ground breaking news, of course, because venture-backed startups are risky investments and have a very high rate of failure, by definition.

The more relevant issue is why they fail. In my experience, it happens for five simple reasons:

1. The product isn’t a must-have in the long run

A lot of nifty, trendy software startups produce nice products that appeal to early adopters. They’re good enough in the first few years, but they might not translate into mainstream appeal as the business begins to scale. And if you haven’t cornered your market or your customers can’t live without your product, then what’s the point of trying to grow bigger with outside capital?

2. The technology architecture isn’t scalable

It’s one thing to support a handful of customers early on. It’s quite another to support thousands (or millions, if you’re Facebook or Instagram) of customers. Unfortunately, far too many businesses assume that their technology can scale with their customer growth. When something inevitably goes wrong and they aren’t prepared to deal with it, that seemingly small issue can sink the entire business.

Imagine what would have happened if Instagram hadn’t been able to support the million new Android users it received in just 12 hours last April. Instead, the popular photo sharing application handled the influx seamlessly and signed a $1 billion acquisition offer with Facebook less than a week later.

3. The business model isn’t sustainable

It’s not uncommon for unprofitable companies to receive very significant outside capital investment (see: Groupon, Pinterest, and Twitter) that let them continue to operate unprofitably for a long time. And while unprofitability isn’t necessarily an issue in the startup and early growth stages, not having a profitable economic model in place for the product you plan to sell is a huge problem.

A lot of founders think that the only reason they aren’t making money is because they aren’t selling enough of their software. But if the economic model that supports the business is ultimately unprofitable, then that assumption is a fallacy. As you sell more of an unprofitable product, after all, you’ll simply be more unprofitable.

4. The senior management team is inept

For almost any business, bad management is bad management. If you haven’t assembled a forward-thinking senior management team that can set the right course for your business, then the company is doomed. Moreover, good management at one point in the company’s lifecycle can be totally inappropriate (or even bad) management at another stage in the company’s growth. So it is essential that the company’s management is always looking to upgrade itself, and be wary of complacency. Ultimately, no amount of outside capital can rectify a senior management team’s failings, as it is the senior team that decides its own fate.

5. The company doesn’t know what it wants to be

Given the right execution and strategy, almost any company can scale once they have avoided the previous four pitfalls. But what is it trying to scale to? Do you want to be a platform? Are you strategically acquiring customers in the hopes that the business will eventually be bought out by a competitor? Too few companies ask themselves what they want to be when they grow up. They lack a vision for the future and, as a result, misappropriate the capital they receive from outside investors. Before they know it, the money’s gone and their investors aren’t willing to pony up any more.

The good news? Failure doesn’t have to be a death sentence.

Twitter is a perfect example. The social network had several catastrophic outages earlier in its early development, largely because the product wasn’t scalable and the competitive landscape was stiff. But the company swallowed its pride and was quick to admit its shortcomings, digging itself out of the aforementioned pitfalls before it was buried for good.

That’s the real key to scaling, after all. Yes, raising venture capital can help you grow your company. But building a great, big business has far more to do with execution and vision. Cash should simply be used to support those two things, not as an alternative to good management and strategy.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 30 professionals serving more than 100 companies throughout the region.

Source: Michael Jacobs, Jacobs Capital and professor at UNC’s Kenan-Flagler Business School

The old adage “it’s lonely at the top” applies nowhere better than to running a private company, where CEOs make daily decisions about disciplines in which they have no background.

Having worked with more than 200 private-company owners over the past 25 years, it is my observation that the most-underutilized resource for private companies is a “real” board of directors. Owners who want to maximize the potential of a company and fully enjoy the experience of running a business need to surround themselves with a seasoned, diverse complement of business minds that meet on a regular basis.

Most business owners have complete autonomy. In fact, the primary reason many started their own company is that they don’t want anyone looking over their shoulder. However, not only is running a business too complex for any single individual, it is no fun to make decisions in a vacuum over an extended time period.

Business owners succeed because they are really good at something. It might be science, medicine, manufacturing or sales. But that “something” is rarely business itself. The Achilles heel of most business owners is that they don’t know what they don’t know.

It is not an admission of failure to acknowledge that you need help making key business decisions. In the 1980s the board of Coca-Cola, one of America’s most successful companies, was comprised mostly of marketing experts, with a sprinkling of lawyers and doctors who were buddies of the CEO. Coke’s stock had been dormant for years. Roberto Goizueta emerged from an unlikely background – head of the R&D department – to take the helm at Coke. The chemist questioned everything about the business despite its great success, and he reconstituted Coke’s board with experts who knew what he didn’t know. Over the next decade Coke stock grew 10-fold, dwarfing the S&P 500, largely the result of implementing new financial strategies his prior board had never considered. Today Emory University’s business school is named after Mr. Goizueta, because he knew what he didn’t know and built a board to supplement his skill set.

What should your board look like?

The key to constructing a successful board is to assemble a diverse set of business skills that are complementary, not redundant. You need at least one person who has significant knowledge of corporate governance. Unless there are people in the room who know what a board is supposed to do and how boards function most effectively, you will have the blind leading the blind.

You also need someone with knowledge of the specific industry and its competitive landscape.

You need an expert in finance. Most private-company CFOs are really controllers. You should have a board member that knows all aspects of the capital markets and has worked on transactions. Even if you don’t immediately need to raise equity, borrow money, make an acquisition or sell your business, some day you will.

The backgrounds of the other board members depend on your business and your personal skill set. Recruit directors whose competencies are in areas where yours are the weakest.

Except in rare instances, employees should not serve on the board. They can attend board meetings to present and discuss, but there should be times when the directors are free to discuss management issues without management (except the owner) present.

Likewise, every company should have a competent lawyer and accountant, but they should not be on the board. Public companies are prohibited from selecting their accountant and lawyer to serve on the board for a reason. They have a different role as paid advisers.

Your board should meet at least four times a year. Otherwise, directors can’t get to know the company and its management team, limiting their ability to offer insightful advice.

While it may be counter-intuitive, the best boards have even numbers of members. A board decision should never be determined by a single vote. If a solid majority of the board is not convinced a path is the right one, you shouldn’t go down it.

Your directors should receive some compensation. The amount and form depends on the size of your business, its financial resources and its stage of development. If you have the right directors, their sage advice is probably worth many times what you pay them.

Consult your board between board meetings. Directors are a resource 365 days a year.

Studies show that private companies with true boards outperform those without. What is not commonly known, though, is that business owners who have true boards of directors enjoy their jobs more—it is not so lonely at the top.

Source: Michael Jacobs is CEO of Jacobs Capital and a professor at UNC’s Kenan-Flagler Business School. He served as director of corporate finance and corporate governance policy at the U.S. Treasury Department and is the author of Short-Term America.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 30 professionals serving more than 100 companies throughout the region.

Source: Society of Actuaries, recently published study

Under the sweeping Affordable Care Act (ACA), which passed in 2010 and was upheld by the Supreme Court last year, the healthcare system in the United States will be overhauled and millions of uninsured Americans will become covered.

The ACA has numerous provisions — some that have already taken effect and some major changes scheduled to kick in next year. Among the provisions are:

• Restricting insurance companies from denying coverage, excluding individuals with pre-existing conditions, or charging more based on a person’s health status.
• Creating state health insurance exchanges that will cover uninsured individuals and those currently covered under state high-risk pools.
• Requiring large employers to offer health coverage to full-time employees or be charged a penalty.
• Imposing a tax penalty on individuals who do not buy sufficient health insurance coverage.

How will the ACA affect your individual healthcare costs — and the cost for employers providing healthcare coverage? Recently, some predictions were made in a new study published by the Society of Actuaries, a professional, educational and research organization.

The study, which focused on the individual (non-group) market, predicted that by 2017, insurance companies will have to pay an average of 32 percent more for health coverage claims on individual polices. The increased costs will come from the changes in composition of the people being covered by insurance.

Those increased costs could be passed on to certain parties in the form of higher premiums.

Other predictions from the study, titled “Cost of the Future Newly Insured under the Affordable Care Act:”

• Moving from the group market to the individual market -A significant number of people currently insured through state-sponsored high-risk pools or through the temporary Pre-Existing Condition Insurance Plan high-risk program will move into the individual market. In other words, more sick people will be covered. In states that operate a high-risk pool, the impact of these higher-cost individuals has been spread over a wider pool through approaches that vary by state.

  “Under the ACA, the impact of these members’ higher costs will be concentrated in the individual market,” the Society of Actuaries study states.

• Employer coverage - A number of people currently insured under employer-offered plans will move to the individual market, either because employers stop offering coverage or because the people perceive more value in the individual market than in their employer-provided plan. According to the Society of Actuaries research, even small shifts from the employer-provided market will have a significant effect on costs in the much smaller individual market.

• The individual market size – Currently, most people don’t buy insurance as individuals. But the size of the individual market will more than double, the study predicts, driven in part by people who are below 200 percent of the federal poverty line coming into the market. “This group of people are considered to be ‘good risks’ and are generally expected to bring down average costs. But other changes in composition of the individual market will drive average costs up,” the Society of Actuaries states.

  Specifically, shifts of currently insured people from high-risk pools, the employer market, and previously uninsured persons who must pay for individual market coverage, “will overwhelm the expected lower costs anticipated by the influx of newly-insured persons in the exchanges receiving federal benefit and premium subsidies,” according to the Society of Actuaries.

  As a result, the underlying claims cost of insurance in the individual market will increase by an average of 32 percent nationally, when compared to what it would have been without the reform law.

• State differences -The change in individual market costs will vary substantially across state lines. This can be attributed to factors including whether the state has a high-risk pool, demographic/ income differences in populations and underwriting practices.

  States that are currently low cost could see increases of up to 80 percent, while states that are now high cost could see double digit decreases.

  • Top 5 State Increases – Ohio – 81%, Wisconsin – 80%, Indiana – 68%, Maryland – 67%, Idaho – 62%
  • Top 5 State Decreases – New York – 14%, Massachusetts – 13%, Vermont – 13%, Rhode Island – 7%, New Jersey – 1%

Note: After the study was released, White House officials disputed its findings stating that it was speculative and didn’t address all financial aspects of the law. In response, a Society of Actuaries spokesperson said the study did not attempt to address all factors affecting cost increases. The goal was to look at claims — described as the “most important driver of health care premiums.”

Divorced Couple Cannot Become “Legally Separated” for Health Coverage Purposes

In a new case, a state appeals court in Alabama overturned a trial court’s move to amend a couple’s divorce decree to make them legally separated so the wife could continue to receive healthcare benefits.

Facts of the case: Robert Daniel Leverett and Debra Edmondson Leverett were divorced in 2012. They agreed that the wife, who is disabled, would continue to receive health coverage under the husband’s insurance plan through the U.S. military.

However, as a result of the divorce, the plan terminated the wife’s coverage because its eligibility rules did not allow former spouses.

At that point, the wife asked the trial court to amend the divorce decree to make the couple legally separated so she could continue to receive medical benefits. The court made the request.

The state appeals court overturned the change, stating the trial court had exceeded its discretion in substituting a judgment of legal separation for the previously entered judgment of divorce”…There was no legal basis for the trial court to frustrate the intent of the parties to be divorced simply to accommodate the wife’s desire to maintain military health-care benefits,” the court stated.(Leverett, Ala. Ct. of Civil Appeals, 2111042, 3/22/13).

 About Scale Finance

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