Lung cancer is one of the most common malignancies in both genders. In terms of new cancer cases each year, it ranks second only to breast cancer in women and second to prostate cancer in men. There are approximately 170,000 new lung cancer cases annually, and each year about 160,000 deaths are attributed to it.
As a result, says Dr. Jay M. Lee, Surgical Director of the Thoracic Oncology Program at the David Geffen School of Medicine at UCLA, “Lung cancer is the deadliest malignancy and the leading cause of cancer-related mortality in both women and men.”
Smart Business spoke with Lee about lung cancer, how it is detected and what steps can be taken to reduce the odds of getting this form of cancer.
What are the different types of lung cancer?
Lung cancer is a malignancy where cancer cells grow in the tissues of the lung. There are two major types of lung cancer, nonsmall-cell lung cancer (NSCLC) and small-cell lung cancer (SCLC). NSCLC is much more common and accounts for 80 percent of lung cancer cases. By the appearance of the cancer cells under the microscope, several histologic subtypes have been classified for NSCLC. The common subtypes include adenocarcinoma, squamous cell carcinoma, large cell carcinoma and carcinoid tumors.
What are the possible signs of lung cancer?
Lung cancer can be present with no symptoms, particularly in its early stages. However, when symptoms do occur, they can include nonspecific and often subtle symptoms such as:
- Chronic cough
- Hemoptysis (coughing up blood)
- Unexpected weight loss or loss of appetite
- Difficulty breathing
- Bronchitis or pneumonia
- Chest pain or discomfort
Because these symptoms are also present in other lung problems, you should consult your doctor to find out the cause of the condition.
How is lung cancer detected?
Patients with suspected lung cancer are detected in two scenarios: 1) The onset of symptoms prompts a visit to the doctor or 2) in the case of asymptomatic individuals, a routine examination and radiologic testing leads to the finding of an abnormal spot [tumor] in the lung. In both situations, the doctor will evaluate a person's medical history, assess risk factors and obtain a family history of cancer. The doctor will also perform a physical examination and may order a chest X-ray or a specialized X-ray called a chest CT scan. Although the radiologic studies allow the detection of abnormal spots in the lung, they do not provide tissue confirmation of lung cancer. Therefore, to make a diagnosis of lung cancer, the doctor will need to obtain a sample or biopsy of the lung tumor. If you are diagnosed with lung cancer, the doctor will do further radiologic testing to find out whether the cancer has spread outside of the chest and to other parts of the body.
This information will help the doctor stage the lung cancer and plan the most effective treatment.
How can lung cancer be treated?
Individual treatment plans are generated on the basis of several factors, including the type of lung cancer, stage and the overall health of the patient. Treatment strategies may be used in varying combinations to treat or palliate lung cancer. There are three main treatment modalities: surgery, chemotherapy and radiation therapy.
What steps can one take to decrease their chances of getting lung cancer?
The most common risk factors associated with lung cancer development are smoking, secondhand smoke, radon exposure and asbestos exposure. Smoking cigarettes or cigars is the most common cause, resulting in almost 90 percent of lung cancer cases. Secondhand smoke is also a risk factor and is attributed to about 3,000 lung cancer deaths annually. Thus, smoking cessation and avoidance of secondhand smoke are obvious lifestyle modifications to reduce cancer risk.
Radon is a natural radioactive gas and a known lung cancer carcinogen and cannot be seen, smelled or tasted. However, its presence in your home or workplace can pose a danger to your health. Radon has been shown to be the leading cause of lung cancer among nonsmokers, accounting for approximately 20,000 lives annually. Testing for excessive levels is encouraged.
Asbestos is a mineral fiber that was once used in building construction materials. Although its use has been banned, asbestos can be found in older homes, in pipe and furnace insulation materials, paints and other coating materials. It’s a well-known carcinogen that can cause lung cancer and mesothelioma. Avoidance or safe handling of asbestos fibers is important.
DR. JAY M. LEE is Surgical Director of the Thoracic Oncology Program at the David Geffen School of Medicine at UCLA. Reach him at JaymoonLee@mednet.ucla.edu or (310) 794-7333. For more information, visit www.lungcancer.ucla.edu.
Typically, nonpublic companies obtain an audit of their financial statements only if it is required by a third party, such as their financial institution, other lender or investor. However, there are a number of reasons why obtaining audits can be beneficial even if there is no third-party requirement.
One example, says Don Carobine, CPA and vice president of Gumbiner Savett Inc., is when a growing company requires outside funding in order to finance future plans and goals. “Having audited financial statements at least one year prior to this need will ease the process when negotiating with financial institutions, other lenders or investors,” he explains.
Smart Business spoke with Carobine about the advantages of regularly conducting audits, how often they should be obtained and the new audit standards.
What advantages can a nonpublic company gain by regularly having audits?
A company may have future plans to go public or be acquired by or merge with a public company, which will require the audit of three years’ balance sheets and two years’ income statements. Having regular audits beginning at least two years prior to the year a company plans to go public will ease the process and ensure the company is ready. The decision to obtain audits may also go hand in hand with the owner’s individual life plans. That is, after working hard to build a valuable business throughout his or her career, an owner may want to slow down and enjoy a certain quality of life. Having several years of audits in place will ease the sale process when the time comes and help ensure a top-dollar sale price.
Another reason owners may want to obtain audits is to provide them with a level of comfort that the internal accounting records are accurate. Finally, a good auditor will learn about the business and operations of the company and provide valuable advice to the owners that may include more efficient and cost-effective ways to operate, ways to improve upon internal controls to ensure accurate reporting, and ways to minimize taxes through keeping up with ever-changing tax laws.
How often should audits be conducted?
Audits are typically conducted on an annual basis at the end of a company’s fiscal year. There are situations where an audit may be helpful at an interim period, such as when a company is sold, but such a scenario would be dictated by circumstances. A company may want to consider having a review performed during interim periods, such as quarterly or semiannually, if it would be beneficial. A review is smaller in scope than an audit and includes inquiries and analytical procedures.
Does a company’s size or rate of growth affect how audits should be conducted?
Yes. Auditors consider many factors when determining how they will conduct an audit, including the company’s size and rate of growth. The first phase of an audit is planning. The auditor learns as much as possible about the business, operations, internal controls, current year developments, risk areas and possible areas of fraud concern, among many other things. Obtaining this knowledge helps in the determination of how the audit will be conducted.
How important a role do audits play in identifying and reducing risk?
Audits are performed on historical information. That is, they are performed after the fact. Although auditors may identify areas of risk during the course of an audit and provide recommendations for reducing such, a company should not rely on the audit process for identifying and reducing risk. Instead, company management should develop a customized system of internal controls over financial reporting that is appropriately designed and that takes into consideration risks that have been identified by management. These internal controls should be monitored periodically through compliance testing to ensure their design is effective and that they are operating as intended. In addition, the internal control structure should be revised when changes occur at the company, such as the addition or deletion of personnel, a change in accounting software or the addition of a new line of business.
Are there any new audit standards of which companies should be aware?
There are eight new statements on auditing standards that were issued by the American Institute of Certified Public Accountants last year that are effective for the upcoming audit season. They are referred to as the risk assessment auditing standards and require that, among other things, the auditor obtain a more in-depth understanding of a company’s internal controls and that the controls be tested by the auditor before arriving at conclusions as to the design and effectiveness of a company’s internal controls during the audit. This will require that companies provide their auditors with more in-depth documentation of their internal control system than they may have in the past. Management should begin discussions with the company’s auditors now to learn what will be expected of them in relation to these new standards for their next audit.
DON CAROBINE is a CPA and vice president of Gumbiner Savett Inc. Reach him at firstname.lastname@example.org or (310) 828-9798.
Competition runs rampant in the retirement services sector. Banks, mutual fund companies and insurance companies are all vying for a slice of 401(k) business.
However, not all retirement plan providers offer the same level of commitment when it comes to making sure employees are well-versed in eligible plans.
After all, getting employees to participate involves more than merely letting them know a plan is available. Education is an important component that providers should bring to the table.
“Commitment to the education process is key,” says Frank Ricchiuti, vice president and retirement plan consultant at Comerica Bank. “A successful 401(k) plan usually has good participation levels. Education is the driver to good participation.”
Smart Business spoke with Ricchiuti about what functions a retirement plan provider should be responsible for, how often a retirement plan should be reviewed and how service providers can assist in employee education.
What are some key factors to consider when looking for a retirement plan provider?
The wish list is obvious: competitive pricing, quality investments, efficient service and great technology. Unfortunately, this reads like every providers’ marketing brochure. Some plan sponsors know what they want; many know they have a problem but don’t know how to fix it; and some don’t know what they don’t know. So the combination of product marketing and not knowing enough to cut through the spam makes it very difficult for a plan sponsor to identify and evaluate those key factors.
What functions should a retirement plan provider be responsible for?
The three main components are record-keeping, administration and investments.
The less obvious but equally important issues are compliance oversight, ongoing due diligence of the investments and the level of commitment toward participant education (preferably live meetings). These services do not totally relieve the plan sponsor of fiduciary obligations, but they can certainly assist the employer to make prudent decisions in selecting a provider.
Once in place, how often should a retirement plan be reviewed?
This is a huge fiduciary liability issue, and many plans have now established investment policy statements for guidance in this regard. Investments move in and out of favor, so they should be reviewed at least annually.
Larger plans review their investments quarterly, which may be the result of a very specific investment policy. We also believe that plans should have an administrative review to measure the overall efficiency and competitiveness of the program in a fast moving industry. We find that many of our clients are not being offered these reviews by current service providers.
How can a company encourage its employees to participate in retirement plans?
This varies by employer. A high-tech company or a law firm does not have the same issues educating participants as a manufacturing company has.
Employers concerned by productivity and thin profitability margins are often reluctant to make 401(k) plan enrollment meetings mandatory. We also see successful 401(k) plans where enrollment meetings are presented in other languages (e.g. Spanish) with enrollment materials to match.
The new Pensions Protection Act brings a potential solution to the problem automatic enrollment and auto deferral increase options we expect plan sponsors to consider in the future.
How should employees be educated about retirement plans?
Ultimately, it is the fiduciary responsibility of the employer to provide that information. The employer achieves this by partnering with effective resources.
Those resources can be the actual service provider and/or a good broker or consultant who will focus on developing and driving an effective ongoing action plan. Multiple tools are available now with more being developed all the time. We’re seeing live workshops with worksheets and pencils in hand (even PDAs); seminars to existing participants on different investment-related topics; Webinars; Internet-based education and financial planning models; and user-friendly investment options that promote asset allocation through target retirement date funds. The key is choosing the right team, because a dedicated retirement plan consultant can make all the difference.
FRANK RICCHIUTI is vice president and retirement plan consultant at Comerica Bank. For a no-obligation assessment of your current retirement plan, reach him at (714) 433-3235 or email@example.com.
Hypertrophic cardiomyopathy is a heart condition for which there is presently no cure. The severity of symptoms varies greatly among individuals, but in some cases the affliction can lead to death.
Screening high-risk patients is the best way to avert potential fatalities, says Dr. Michael S. Lee, the Associate Director of Interventional Cardiology Research and Assistant Clinical Professor of Medicine at UCLA Medical Center. “Hypertrophic cardiomyopathy is a complex disease that may have catastrophic consequences. Patients may have debilitating symptoms, which severely affect their quality of life,” says Lee. “Someone, especially young athletes, who may be viewed as a picture of health may suddenly die without any warning.”
Smart Business spoke with Lee about hypertrophic cardiomyopathy, how it is diagnosed and what treatment options are available.
What is hypertrophic cardiomyopathy?
Hypertrophic cardiomyopathy is a condition in which there is excessive thickening of the heart muscle or hypertrophy. The heart muscle may thicken in normal individuals due to hypertension or prolonged athletic training. However, in hypertrophic cardiomyopathy, muscle thickening occurs without an obvious cause. Microscopic examination of the heart muscle shows myocardial disarray or irregular, disorganized alignment of muscle cells.
How common is this condition?
Hypertrophic cardiomyopathy is a relatively common genetic cardiac disorder, which affects about one in 500 adults in the general population.
What causes hypertrophic cardiomyopathy?
The cause of hypertrophic cardiomyopathy is not fully known. Although the majority of cases are inherited, others have either no evidence of inheritance or there is insufficient information about the individual's family to assess inheritance. More than 400 genetic mutations have been identified in patients with hypertrophic cardiomyopathy, most of which are genes that encode contractile proteins of the cardiac sarcomere. The condition usually passes from one generation to the next in affected families, and generations are not skipped.
What are some common symptoms?
Hypertrophy more commonly develops in association with growth and is usually apparent by the late teens or early twenties. While some patients are asymptomatic, others may experience chest pain, shortness of breath, fatigue, palpitations, light-headedness, dizziness, and blackouts. Other complications include arrhythmias (like atrial fibrillation and ventricular tachycardia), and endocarditis (or infection of the heart).
However, the most devastating manifestation is sudden death, which may occur with little or no warning.
How is hypertrophic cardiomyopathy diagnosed?
Hypertrophic cardiomyopathy may be suspected because of symptoms, a murmur, or an abnormal electrocardiogram, but the diagnosis is made by an ultrasound scan of the heart called an echocardio-gram. Family screening of first-degree relatives will also identify children and adolescents with the condition.
What are the treatment options in patients with hypertrophic cardiomyopathy?
Although there is no cure, treatment options are available to improve symptoms and prevent complications. Medications like beta-blockers and calcium antagonists can reduce symptoms. Anti-arrhythmic drugs like amiodarone can be used to reduce the risk of sudden death. Patients should also take antibiotics before invasive procedures like teeth cleaning to prevent an infection of the heart valves called endocarditis.
If severe symptoms persist despite drug therapy, surgical myectomy (removal of muscle) can successfully relieve symptoms in patients whose left ventricular outflow tract is narrowed and causes obstruction of blood flow. Another option for patients with severe symptoms is non-surgical myectomy, in which a small amount of alcohol solution is injected into a minor branch of the coronary artery that supplies the upper septum, thus destroying this part of the heart muscle.
The best way to prevent sudden death is to screen and identify high-risk patients for sudden death and implant a defibrillator, a small device under the skin in the chest, which records and delivers an electrical shock when normal electrical action is absent. Patients may be advised not to participate in competitive sports or other strenuous physical effort.
DR. MICHAEL S. LEE is the Associate Director of Interventional Cardiology Research and Assistant Clinical Professor of Medicine at UCLA Medical Center. Reach him at (310) 825-8811.
Enterprise value is an amount that represents the entire economic value of a company. In essence, it is a measure of the takeover price that an investor would need to pay in order to acquire a firm. Calculated by adding a corporation’s market capitalization, preferred stock and outstanding debt together and then subtracting cash and cash equivalents, enterprise value is a more accurate reflection of a company’s takeover cost than market capitalization alone.
In order to increase enterprise value says Lou Savett, managing principal of the strategic transaction services group for Gumbiner Savett Inc., it is important to position your company for future earnings growth. “The way to increase earnings is by taking a hard look at your marketplace and seeing to what extent you can expand it,” he explains.
Smart Business spoke with Savett about enterprise value, the importance of having a strong management team in place and how to best preserve the value of a business when in the selling process.
What steps can a company take to increase its enterprise value?
First of all, a company has to make a determination about where they fit in the marketplace. There are wholesalers, retailers, manufacturers and service companies, each of which has a separate group of component ingredients that make them more or less valuable. Underlying all of that is the fact that the enterprise value of a company is almost always determined by some version of discounted future cash flow. If you are able to diversify your market, if you are able to get into areas where there is less price resistance, if you are able to get into rapidly expanding marketplaces, then you are increasing enterprise value because the future cash flows will be greater than they are now. We also know that pricing multiples change with regard to the future components of the company’s vision. If you are not growing then you are unlikely to get a high multiple. If you are growing very rapidly, in a way that people believe will continue, you might get a multiple that is two or three times higher.
What is the main driver that affects the enterprise value of a business?
The main driver will always be earnings and the question will always be: What sort of future earnings will a prospective buyer be convinced can be attained? The higher this number is the better off you will be. Philosophically speaking, there are only two ways to increase a business. One way is to sell the same product to more people. The other, is to sell the same people more products. You need to do both of those things. Wells Fargo Bank, for example, recently bought an investment banking group and a national insurance brokerage company, expanding the services that they can sell to their clients.
How can a strong management team increase enterprise value?
A company needs to take a hard and sincere look at its management. Generally speaking, when we walk into a company there is usually one key person. If you ask that person, he will quickly tell you that the company is what it is because of his efforts. If you tell that to a prospective buyer the pricing multiple will be reduced nobody wants to take a chance on the genius being there forever. On the other hand, if you can say we have a management team that through thick and thin can run this company for its highest and best purposes then the amount of enterprise value goes up.
What role does enterprise value play in succession planning?
Enterprise value comes to the fore with any type of exit strategy because it accurately predicts what the person or group who is exiting will get in the way of benefits. When you do your succession planning, you want to build your enterprise value up to a certain point. For example, let’s say that your succession planning is to put together an Employee Stock Ownership Plan. Your contributions to the plan are in percentages of your capital stock, so if the enterprise value keeps going up, you put less shares in the plan and keep more for yourself. You will get a bigger bang for your buck tax wise if you continue to increase enterprise value while you’re in the midst of succession planning.
How can a business owner best preserve the value of their business when in the selling process?
We advise our clients when they’re in the selling process to bring together their core management group and get them involved in the selling process. If you don’t do that people will get scared that their job doesn’t have a future and either leave to a competitor or make other plans that aren’t in your best interest as a seller. As you move forward in the selling process it is important to determine what to tell your customers and vendors and when to tell them. All of this has to be handled very delicately. If you don’t, and something goes wrong in the selling process, you’re going to lose a lot of value.
LOU SAVETT is managing principal of the strategic transaction services group for Gumbiner Savett Inc. Reach him at (310) 828-9798 or firstname.lastname@example.org.
Since the 1980s, leveraged financing has become more widespread in the middle market. By increasing the amount of debt relative to equity, companies can enhance the return on equity. Of course, there are significant risks, and not every business is well suited for this type of financing.
“Leverage can increase returns to equity, but it can also cut the other way if things don’t work as planned. The art is determining how much is too much and how much is just right,” says Edmund Ozorio, senior vice president of Comerica Bank’s Western Market.
Smart Business spoke with Ozorio about financial leverage, the risks involved and current market terms and conditions.
What is leveraged financing?
The generic term ‘leverage’ refers to the amount of debt relative to either the value of a company’s assets or its cash flow. Today, the term ‘leveraged financing’ is generally understood as debt financing in excess of the value of a company’s assets. This means that debt is replacing part of what is traditionally funded with equity.
Because debt is cheaper than equity, the average cost of capital is lowered and the return on equity goes up. Since nothing is free, this increased return comes with increased risk. The trick is to use the ‘Goldilocks’ amount: just enough to get the increased return on equity, but not so much that a minor downturn causes payment problems.
How can a company determine if it is a good candidate for leveraged financing?
The best candidates are businesses with reliable cash flow over a fairly broad spectrum of scenarios. While nobody can predict the future, banks look at likely projection scenarios and past performance under various economic conditions.
The best candidates have a strong market position and barriers to entry, meaning their products will continue to sell even in a moderate downturn and are difficult to displace by competitors. Branded products are common examples of this type of business. Other good candidates include businesses with low fixed operating costs.
Less attractive are businesses that are highly cyclical with high fixed costs, or those that consume large amounts of capital due to growth.
When is leveraged financing used?
Common uses center around changes in equity structure. The most frequent example is an acquisition, when a new owner borrows against the cash flow of the company in order to buy out the former owner.
Leveraged financing is also used to fund distributions to owners and equity holders for other outside investments. Over the past several years, banks have seen many business owners increase the leverage on their operating businesses to provide the equity for commercial real estate investments or to finance unrelated businesses that might not qualify for financing on their own.
What are some common mistakes, and how can they be avoided?
The most common mistake is taking on too much leverage relative to the level of reliable cash flow. In today’s fast-paced and highly competitive marketplace, businesses can be affected much easier and faster than ever before. The debt structure has to leave some buffer for drops in revenue and cash flow. This means one of two things: either less leverage or debt structured in such a way that there is some flexibility in repayment terms.
One of the best ways of achieving a fairly high level of leverage is a combination of bank debt and mezzanine, or subordinated, debt. The bank debt generally amortizes early and the subordinated debt later.
What terms and structures are commonly used?
Commercial banks will usually want keep the company's bank debt at three times cash flow or less. Subordinated debt lenders might provide an additional one to two times cash flow. There are extraordinary circumstances that might increase or decrease these levels by as much as 50 percent. Banks may also require that the amount of financing in excess of asset values amortizes more quickly than other debt.
On rare occasions when the business has a very strong model and cash flow but extremely limited hard assets, the analysis is based on the value of the intangibles and amortization is set accordingly.
The terms are a function of the risk involved. While premiums for leveraged financing have come down over the past few years, it remains more expensive than traditional financing. The spread over comparable rates for debt fully covered by assets will generally range from 1 percent to 4 percent. Fees might increase by a quarter to one-half. Some lenders will also take warrants instead of part of their fees, lessening the cash drain on the business.
EDMUND OZORIO is senior vice president of Comerica Bank’s Western Market. Reach him at email@example.com or (619) 338-1512.
While nearly everyone has the occasional heartburn, if the burning sensation caused by acid in your esophagus persists, you could have GERD. The disease may be more common than you think.
Gastroesophageal reflux disease, commonly referred to as GERD, is a condition where the contents of the stomach come back up into the esophagus. The regurgitated liquid usually contains acid produced by the stomach. While your stomach is designed to handle the acid it produces, your esophagus is not.
“Between 10 percent and 15 percent of the population in the United States experiences GERD on a monthly basis,” says Dr. Mary Maish, assistant professor of surgery and surgical director of the UCLA Center for Esophageal Disorders.
Smart Business spoke with Maish about GERD, the symptoms associated with this disease and how it can be treated.
What causes GERD?
There are some known causes as well as many unknown causes. One thing that can cause GERD is a hiatal hernia, which is when part of your stomach pushes up into your chest. The esophagus extends from the neck through the chest and into the abdomen. In normal people, the stomach stays in the abdomen. For people with a hiatal hernia, the top portion of the stomach herniates, or pushes its way up into the chest, which is abnormal.
Another cause is that as we age our tissues tend to become more lax. The laxity in the diaphragmatic muscle does not provide the same sturdiness or strength that it needs to keep the stomach in the abdomen.
Also, patients that are very obese are more prone to GERD. Large amounts of fat put pressure on the stomach and can cause a hiatal hernia. Carbonated liquids, caffeine, alcohol, spicy foods and heavy fatty meals can also exacerbate reflux.
What are some of the symptoms associated with this affliction?
Heartburn occurs in about 80 percent of the patients with GERD. They may also have epigastric pain, chest pain, changes in their voice and respiratory symptoms such as recurrent bronchitis, recurrent pneumonia or a persistent cough. Other possible symptoms include ear, nose and throat issues like persistent dental caries, recurrent earaches, persistent sore throats and hoarseness. Gastrointestinal symptoms may include bloating, gassiness, nausea, vomiting and diarrhea.
How is GERD diagnosed?
There are a number of objective tests that can be used to diagnose GERD. A barium swallow allows us to not only look at how the esophagus is moving, but also helps us determine whether or not there is reflux of material from the stomach back up into the esophagus. Manometry testing consists of a small catheter placed in the nose, down the esophagus and into the stomach where it measures pressures along the esophagus. Most importantly, it measures the pressure of the lower esophageal sphincter that connects the esophagus to the stomach. If the pressure is low then we know that the patient is likely to be experiencing a lot more reflux than an average person who has normal pressure.
A pH probe test measures the total amount of acid that is dispensed over a 24-hour period of time. There are normal amounts of acid that come up from the stomach into the esophagus in every individual, but this test will measure how much acid, based on the pH, that someone is being exposed to. Finally, an endoscopy allows us to look at the lining of an esophagus and determine if there are any complications from GERD.
How is it treated?
Patients with mild GERD, or occasional reflux, are generally treated with acid inhibition medicine, or what we call proton pump inhibitors. These medicines include Prilosec, Nexium and Prevacid. It can also be treated intermittently with H2-blockers such as Pepcid, Tagamet and Zantac.
If complications persist, what surgery options are there?
If the symptoms are persistent and severe, or if there is any indication of complications from reflux then surgery can be considered. The type of surgery that we recommend is called a Nissen fundoplication. During this surgery the top part of the stomach is wrapped around the bottom part of the esophagus in order to create a new valve because the old valve is not working properly. The procedure is done laparoscopically with minimally invasive techniques and generally there is only a one- or two-day hospital stay.
DR. MARY MAISH is assistant professor of surgery and surgical director of the UCLA Center for Esophageal Disorders. Reach Esophageal Center Coordinator Rebecca Allegretto, RN, MBA, at firstname.lastname@example.org or (310) 825-6167 or through the Web site www.esophagealcenter.ucla.edu.
This method of financing is ideal for seasonal inventory peaks, long inventory turnovers and offshore inventory. For example, a company may qualify to borrow up to 100 percent of the value of the imported goods and not repay the loan until the receivables are collected from the customer.
“An important consideration is how long the company has been in business. Ideally, it should have a minimum of two to three years of business experience,” explains Cassie Stiles, first vice president of international trade services for Comerica Bank. “Also, we’re looking for positive financial trends and a strong balance sheet.”
Smart Business spoke with Stiles about trade cycle financing, who it’s geared toward, and how a company can benefit from this type of financing.
What is trade cycle financing?
Trade cycle financing provides sales cycle financing to companies that are importing and/or exporting. For example, from an importer’s standpoint, raw materials need to be purchased, products must be manufactured and delivered and payment must be collected. For the exporter, there are pre-export working capital needs, transit time and payment collection.
Trade cycle financing takes a company through the entire sales cycle and enables it to obtain financing through the life of the transaction.
Who is this financing method geared toward?
Trade cycle financing is geared toward importers and/or exporters with a proven track record. It is not an appropriate financing mechanism for a start-up company. It is more suitable for a mature company and by mature, I mean at least a couple of years in business. As far as the size of a business goes, this type of financing method is not usually practical for a very small company. Sales generally need to be more than $5 million for it to be cost-effective.
How can a company benefit from this type of financing?
My biggest concern when I’m talking to companies and trying to identify their needs especially small and mediumsized companies is that they don’t always recognize the length of their sales cycle. They tend to think that they just need to buy the merchandise. They forget about the collection cycle. This type of financing can smooth out a company’s cash flow requirements.
What payment mechanisms are available?
There are four basic payment mechanisms used internationally: cash in advance, open account, letters of credit and documentary collections.
All of these can be used in trade cycle financing. Factors that influence which method is used include where the supplier/buyer is located, the length of the relationship between the buyer and seller and the value of the merchandise.
What role does insurance play with trade cycle financing?
Exporters want to be able to extend open account terms to their foreign buyers. In many instances, a bank will not be able to finance these foreign receivables. Through an insurance policy from either Ex-Im Bank (Export-Import Bank of the United States) or the private insurance market, the commercial and political risk of these foreign receivables can be covered and the receivable can be financed.
For our importer clients, we are able to use an insurance policy to support their purchase order financing needs for up to 180 days. This enables them to import the raw materials to their facility (either in the U.S. or a foreign location), manufacture the product, sell the product, get paid for the product and then repay the bank.
The other type of insurance used in trade transactions is cargo insurance. This covers the merchandise from warehouse to warehouse.
CASSIE STILES is first vice president of international trade services for Comerica Bank. Reach her at (619) 338-1502 or email@example.com.
stretch their equity investment dollars. Venture debt lenders, including some banks, provide a company with a loan and the borrower can then use the funds to build its business.
If used properly, it can be a boon for the company and shareholders alike. By leveraging capital provided by venture capitalists with venture debt provided by banks and other venture debt providers, a company can potentially enhance its valuation.
“Typically, venture debt is used for early-stage and emerging-growth companies that are backed by venture capitalists,” says Bonnie Kehe, senior vice president and regional managing director for Comerica Bank’s Technology & Life Sciences Division.
Smart Business spoke with Kehe about venture debt, how it is typically structured and why it has become so popular lately.
What is venture debt and how can a business use it?
Venture debt augments the equity raised by the venture capitalists and enhances potential return to the investors and management team by lowering the overall cost of capital. The funds can be used for equipment purchases or growth capital, enabling venture-backed companies to reserve equity dollars for a sales ramp, product development, clinical trials and so on. Quite often, venture debt can lengthen the time between equity rounds, thereby enhancing valuation.
Only several federally regulated commercial banks in the country provide this type of financing. There are also numerous non-regulated venture debt funds in the market today. In addition to providing venture debt facilities, commercial banks are able to provide working capital loans that can be used to finance asset growth. Typically, venture debt lenders do not provide working capital lines of credit.
How is venture debt typically structured?
It can vary, but venture debt facilities typically are structured as two- to five-year loans. There is normally a drawdown period ranging anywhere from 2 months to 18 months, in which a company can take the money down as it needs it while it pays interest only. At the expiration of the drawdown period, there is a monthly amortization of principal plus interest of between 24 months and 48 months. Pricing on these types of facilities depends upon several factors including the competitive environment and level of risk. The costs will typically include a percentage above prime, closing fees and a warrant kicker.
What do venture debt providers look for when deciding whether to lend to a company?
One of the most important underwriting criteria for a lender is the quality and makeup of the investors. Are they known to the venture debt provider?
If the venture debt lender knows the investors and is confident of investor support, this will often help dictate terms. Lenders must be confident that investors are not looking for third parties to shoulder the investment risk. We don’t want to fund a company that’s bumping along with nowhere to go; there needs to be a high potential for growth.
We look at how much cash the company currently has and how long it’s expected to last. How the debt will be repaid is another factor. Will it be through additional equity rounds or with future cash flow? The strength of a company’s management team, its ratio of debt to equity and where the money will be used are also important considerations.
What are the risks associated with this type of debt?
There are risks to the lender as well as the debtor. At the end of the day, it’s debt. Unlike equity, it must be paid back at some future point. If a company is burning more cash than it had originally projected, its ability to retire the debt becomes questionable.
The lender must be relatively confident that the borrower will be able to raise the necessary equity and/or generate sufficient cash flow to amortize the debt as structured.
How can these risks be minimized?
First and foremost, it is important to ensure that the company is adequately capitalized and that venture debt is being used for the right reasons. Also, it is important that the borrower is doing all the right things: the right management team is in place, the right investors are on board, and they are hitting their key milestones.
Why has venture debt become such a popular option with companies recently?
The availability of venture debt has skyrocketed in recent years due to the proliferation of venture debt funds/players in the market. This is due primarily to excess liquidity in the capital markets. Limited partners and investors with liquidity to invest have helped fuel the venture debt industry.
BONNIE KEHE is senior vice president and regional managing director for Comerica Bank’s Technology & Life Sciences Division. Reach her at firstname.lastname@example.org or (714) 433-3266.
An effective health management plan, points out Stephen J. Peck, president of Kapnick Insurance Group (Benefits Division), takes a proactive approach. Not only can such a plan positively influence employees’ lifestyles while increasing productivity, but costs can be reduced as well. “If an employer offers a range of programs along with rewards that reinforce healthy behavior, employees remain healthy and the bottom line is improved,” Peck points out.
Smart Business spoke with Peck about health management, the importance of keeping healthy employees in the low-risk category and what types of savings can be realized from having a health management program in place.
What does health management consist of?
Simply put, health management is an effective tool for employers to control medical claims’ cost and utilization through building a healthy work force. A few years ago, we used the term wellness programs, but it’s so much more today. Health management addresses absenteeism, health and prescription drug claims, presenteeism, disability and life claims and workers’ compensation.
Why should employers invest in health management?
In light of the fact that workers spend a significant portion of their waking hours at work, employers are in a great position to positively influence lifestyle choices. Through positive lifestyle choices, an employer and employee can reduce health care claims, lower absenteeism and increase productivity. It really needs to be a two-way street, however, with both employers and employees actively engaged in the process.
How can a company most effectively deploy a health management strategy?
In the past, most programs concentrated almost exclusively on employees with existing chronic conditions with what were called disease management programs. I would deem this to be a reactive strategy. Recent studies have shown that there is a greater return by shifting focus to a proactive strategy of keeping your healthy employees healthy.
Let me illustrate it this way. Businesses value their existing customer base because maintaining loyalty is far less expensive than acquiring new customers. Similarly, low-risk employees, or healthy employees, who already have and maintain good health, can be viewed as an employer’s existing customers. These employees not only have lower health care costs, but they have higher performance and productivity. If an employer does not maintain a relatively low-cost awareness campaign and program, research indicates many of these low-risk employees 2 percent to 4 percent annually will inevitably join the higher risk, higher cost employees.
What type of savings and/or return of investment is typical with an effective health management program?
The numbers are very compelling. When an employee maintains his or her low-risk status, there is a potential savings of $350 per person per year compared to a savings of a $153 per person per year when an employee migrates from the high risk to the low risk. Additionally, the return on investment to establish and implement a health management program averages about $3.50:$1 in reduced health care costs, absenteeism and productivity.
What types of programs are there and how does one start a health management program?
Some of the programs that can be implemented include needs-and-interests surveys, health-risk appraisals, educational classes, communication campaigns, walking programs, incentive-based programs, newsletters, spousal meetings and fitness challenges. There has to be support and buy-in from the highest level of the company. Without that, most programs will not be successful. There is an overwhelming amount of information available to employers. More often than not, employers establish an internal wellness committee to help identify which programs are useful and to coordinate the responsibilities of managing these programs.
STEVE PECK is president of Kapnick Insurance Group (Benefits Division). Reach him at (888) 263-4656, ext. 1147 or Steve.Peck@kapnick.com. Kapnick Insurance Group is a member of Assurex Global, an international network of insurance and employee benefit brokers.