A page of notes about industry, innovation, disruption, accounting (sometimes) and of course...models.


 

  • 069 07/15/2017

    This post is part of an ongoing effort to cover lower-middle-market private equity transactions for both funds and fundless sponsors. The lower-middle-market is frequently defined as the universe of businesses with $2 million to $10 million of EBITDA, and I have always found it fascinating because it is often where successful founder CEOs interact with private equity firms or fundless sponsors for the first time in an effort to cash out or take their business to the next level.

    This post focuses on a signficant tax advantage that any entrepreneur, fundless sponsor and lower-middle-market private equity practitioner should be aware of known as Qualifed Small Business Stock (QSBS). QSBS is an occasionally overlooked section of the U.S. tax code that can result in incredible tax savings on capital gains. If a transaction is structured properly, it has the potential to save shareholders millions of dollars in the event of a successful exit (sale of the company). 

    The attached PDF file provides an explanation of how QSBS works, and details a hypothetical equity structure. The document introduces legal documents relevant in forming a corporation and defining the equity structure of the corporation. The following additional topics are touched on as well:

    1. The Certificate of Incorporation: The legal document relating to the formation of a corporation.
    2. Equity Structure: A hypothetical equity structure is introduced requiring two classes of common stock and one class of preferred stock.
    3. Shares Outstanding: An explanation is provided for the difference between Shares Authorized, Shares Issued and Shares Outstanding.

     

     

     

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    Download Paper: Fundless Sponsors & Qualified Small Business Stock: An Incredible IRR Boost

    Related: Fundless Sponsor Economics

 



  • 068 05/12/2017

    I recorded the first video for this website in 2013 with a $27 microphone I purchased at Best Buy. Since that time, the technology and software used at ASM has improved significantly, and I thought it was time to update the original recording. 

    In addition to improved audio and video quality, the two videos that replace the original benefit from years of questions submitted by ASM visitors and subscribers.

    I have included Part I of the new recording and the original file in this post to provide an easy comparison. Both of the new videos are presently available free of charge in the video series titled Integrating Financial Statements, and regardless of whether or not the new videos are ever put behind the paywall, the original will remain free at all times.

    New Recording: Building a Three Statement Model (Part I of II)
     

     
    Original Recording (recorded in 2013): Integrating Financial Statements

     

 



  • 067 05/02/2017
    In response to subscriber email traffic, I thought I would post a couple examples of monthly debt schedules. This post includes an Excel template with two examples (available for download at the bottom of this post). The first it labeled "Senior Term Loan," and the second is labeled "Subordinated Notes."

    Senior Term Loan: This example debt schedule provides the option to project interest payments at LIBOR + a fixed rate, and includes mandatory quarterly principal payments. There is a row for the cash flow sweep, but it is included as a manual input in this model (for a dynamic version in please see the leveraged buyout video series).

    Subordinated Notes: This example debt schedule includes a toggle that permits a portion of the interest be paid in kind (Payment-in-Kind or PIK). This feature can be activated or deactivated for any monthly period with a simple "Y" / "N" input.

    Formulas and Functions: As you explore the template, you may notice functions that have not been explained previously on ASM. For a video explanation please see the following:


    Template available for download: Download Template

    Monthly Debt Schedule Examples in Microsoft Excel Financial Templates.

 




 



Models are:
 
A) really boring
B) pretty sweet
C) super important
D) somewhat easy
E) kind of hard
F) fun
G) all of the above

 

 


*Answers a, b, c, d, e, f and g are all correct.