Want to Master Your Financials? Here’s How to Start



financial-success

Financial expert Jim Zielinski tells us how to get on the right track toward success.

Is careful examining and monitoring a magazine’s financial operation the FUN part of publishing? Probably not—at least for most of us.

Financial expert Jim Zielinski consults with niche media companies, large and small, about the best way to understand their financials.

Once you see what effective reporting of your numbers can do for your media company, you’ll see your business in a whole new light. On a product-by-product basis or overall, taking a deep dive into the numbers can tell you where to invest, where to cut, and where to allocate resources.

We asked Jim to give us some pointers on steering your media business in the right direction:

Niche Media HQ: Why do you think some niche magazine publishers find it hard to know exactly what their financials say? What are 3 steps they can take today to understand their financials better? [Read more…]

Preparing Your “Maximum Return” Financial Package for Selling Your Media Company



We often discuss with an owner the Six Keys to achieving the highest and best valuation. These involve: 1) employee talent, 2) operations, 3) financials, 4) products, 5) all-important market perceptions, and 6) the components of valuation. Today we’ll explore Key 3:  Finances.

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Here is Michael’s Key #3 on how to prepare the financial package before you your media company.

        1.  A successful presentation may require adapting your financial reports, and including ample explanatory notes and reconciliations.

Like so much in life, in selling a business, you get one chance to make a great first impression.  So, make sure you are making that impression accurately, while also accentuating all your positives.

In particular, financial statements for a niche media business often need to be organized differently to be effective in a sale.  For example, owner-operated businesses prepare annual financials for tax purposes; however, these do not illustrate profitability very accurately.  And, financials usually do not provide metrics on a divisional or product basis.

Be prepared to provide P&Ls by business unit or by asset, with relevant comparisons to prior years.  Moreover, if like many owners, you spend a lot of time in December pre-paying expenses for the coming year, be sure to categorize these pre-paid items clearly.  Your pro forma analysis can attribute these costs to their proper periods.  This will correct your annual operating profit (or “EBITDA,” more on that later), to its appropriate level.

Alternatively, niche businesses held within larger groups are typically charged a pro-rata portion of corporate overhead and shared central services.  This charge is applied pro rata according to the division’s share of total revenue, share of total costs, or share of total full-time employees. Thus, by overstating costs, divisional financial reports usually misstate a business’s true profitability. Your financial package can thus start with a parent company’s internal books and records, and include a pro forma analysis that normalizes any pro rata charges in a consistent manner. This approach can qualitatively improve your perceived valuation.

In the preceding examples, your objective is to set forth a meaningful illustration of a business’s earnings prior to interest, tax, depreciation, amortization and unusual or non-recurring charges, or “EBITDA.”

However, you will not find a line item for EBITDA on GAAP or tax financial statements, because EBITDA is not a concept recognized by GAAP. Moreover, a CPA will usually not wish to calculate EBITDA for you, as it may incorporate certain industry-specific judgments.

The EBITDA analysis is nevertheless an important part of your presentation. By making the right adjustments to your financials, consistent with industry practice and custom, you can describe the true profitability of your business.

          2.  Always practice “Aggressive Truth Telling”.

There will be potentially negative costs, trends, or adverse issues in every deal. However, a seller always gains significant credibility with purchasers by proactively disclosing such problems, and clearly explaining any judgment calls an owner has made in his or her company’s favor.  We call it “radical transparency,” or “aggressive truth telling”.

In a recent transaction, an owner included under “Sales” a very large amount received from a business interruption insurance policy, after a flood.  The owner felt that excluding this amount would unfairly penalize his business.

We explained that insurance proceeds in respect of lost sales do not really represent “sales.” To include these in revenue could impair a seller’s credibility, or could well lead to a complaint or litigation after a closing.

Instead, by disclosing separate line items for sales and then for “business interruption insurance proceeds,” we were able to assure the purchaser that all relevant information had been disclosed.  The purchaser could thus rely in part, but not in full, that such sales would return the following year.  The transaction closed successfully – including a partial escrow, which the seller ultimately received in full.

Also, owners sometimes include family members on a company’s payroll, a practice that the IRS typically permits, because the Service generally accords latitude to family-owned enterprises.  However, it is important to disclose family relationships, particularly if these persons have different last names.  And it is critical to explain clearly the job responsibilities of such family members, and whether these persons will be essential to the business after a closing.

As part of your “aggressive truth telling,” it is also important to explain whether an owner has personal responsibility for specific sales accounts, and to understand that a buyer may fairly apply a P&L charge for any sales commissions required to maintain and expand this book of accounts.

Aggressive truth telling is a better policy in all things.  And, in practical terms, your deal might not close if a buyer learns shortly before the closing that “house accounts” actually depend on an owner’s longstanding relationships.

            3.  Provide realistic and credible projections.

It’s important to prepare reasonable forward-looking forecasts with revenue estimates that your leadership team can meet or exceed. Credible projections can signal confidence and ambition. Ideally, these projections should be created by your leadership team themselves.  At the same time, projections should be conservative, so that during the sale process, you can consistently advise potential purchasers that targets have been met or exceeded.

Moreover, whether or not you the owner wish to remain with a business post-closing, it is important to have a business strategy plan illustrating the potential your business can achieve. Owners often have a relatively unstructured list of initiatives they could pursue — if only they had greater marketing resources.  Now is the time to illustrate initiatives on which your team could execute, assigning levels of potential revenue to each new project.  A strategy plan will illustrate clearly that your key employees are optimistic and ambitious, and ready to execute a ten-point growth plan under a new owner.

 

Editor’s Note: Stay tuned for Michael’s upcoming Thursday post on Key # 4: Products. You won’t want to miss it!

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272b211More about this blogger: Michael Alcamo, President of M.C. Alcamo  & Co., Inc., serves owners of digital niche media companies in originating and advising strategic business and asset sales.

 

 

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Niche Media has created super niched-out events specifically for magazine publishers for over 12 years, including the upcoming Niche Digital Conference this fall in Nashville. We’ve helped pave the way for the era of boutique events that connect specific audiences and provide great educational, friendly and super-fun environments! Plus, Carl Landau – Niche Media’s Grand Poobah – just launched a blog all about creating and marketing targeted events.  blog.NicheEventNation.com  Check it out!

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