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Retained Earnings Reinvestment - Scott Geller

14/12/2020

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Scott Geller of Capitis Advisors, LLC - “The CFO Perspective”

Retained Earnings Reinvestment

INTRODUCTION
I have 20 years of experience in the finance realm that started with the Federal Reserve Bank as a bank examiner, moved on to 7 years at a Fortune 300 insurance company, and then a 60 person spin-off technology firm under the Allianz umbrella of companies. I was with the spin-off from day zero all the way until the unfortunate end when I had to close down the business. I am now a financial consultant serving primarily as a fractional or part time CFO for companies that range from start ups to young and scaling to established with stable growth. I take over from the accountant as a lean cost effective option for Profits Engineering, Cash Optimization, Strategic Acceleration and Executive Partnering committed to your success. Please contact me at scott.geller@capitisadvisors.com.

PROBLEM STATEMENT/SHOW OBJECTIVE
As a business owner or leader, you've created a successful company despite all the factors pushing against you and have now generated retained earnings in the business. Now what and what can you do with these new found "riches?" The first step is to congratulate yourself on creating a success and generating enough annual earnings to build up equity within the business. The next step is to determine how much to retain for a rainy day versus investing internal or external the company versus paying yourself. 

WHAT YOU NEED TO KNOW
  1. Calculate your profitability throughout the business
  2. Retained Earnings
    1. Definition is A = L + E so Assets less Liability = Equity or what you own
    2. Earnings Available
    3. Options to use the Retained Earnings
      1. Keep it for a rainy day
      2. Reinvest in the company - growth, reinvention and innovation, people
      3. Invest in yourself
      4. Invest outside of your company
    4. Slicing the Pie
  3. Assess the results
    1. ROI from Investment
    2. Hurdle Rate: if the investment made where it has the hugest rate of return, what must this investment equal or exceed?
    3. Payback Period: amount of time it will take to recover the costs for build, test, improve, release?
    4. Rate of Return: when the investment reaches full capacity, what does it return beyond the investment?
    5. Total Life Cycle Value: how long will the investment run before it is discontinued?

WHAT YOU NEED TO DO
  1. Retained earnings to reserves
    1. Know your financial projections
    2. What is your covered runway? 4 months ... 9 months ... 18 months
  2. Reinvesting in your company
    1. Buy, Rent, or Lease?
    2. Impact on Working Capital
    3. Appreciating or Depreciating
    4. Generates Revenue
    5. Finance or Lease
  3. Strategy for Reinventing the Business
    1. Excellent rate of return compared to bank financial instruments.
    2. Great way of 'hiding' money.
    3. Don't let short term issues destroy long term plan.
  4. People
    1. Reward employees
    2. Need for new skills that will also drive value or sales
    3. ESOP
  5. Owner Compensation
    1. Paid yourself to date?
    2. Salary comparable to other owners?
    3. Actual vs Planned Compensation to Date
    4. Personal loans to company
    5. Take Your Dividend?
  6. Reinvention Financial Forecast
    1. Reinvention Projections by Phase
  7. External for other companies
    1. Competitors
    2. Similar companies
    3. New market, capabilities, sales channel, other
    4. Know your reason and what you are getting ... what is the strategic rationale?
    5. Anything else available?
  8. Slicing the Pie
    1. Reserves for a 6 to 12 month runway answering the tough questions
    2. Can I afford to fairly compensate myself & reinvent the business?
    3. External opportunities

PREVIOUS SHOW
: Finding Efficiencies in Revenue

NEXT SHOW: Conduct Business Valuation for Sale ​
​

F3.11.3NA

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