Selective Articles by Bruce Barren

Tips on Choosing the Right Expert Court Witness

Finding the right expert court witness can be a complicated process, regardless of whether the court matter involves real estate, business partnerships, Boards of Directors, wrongful terminations, or minority shareholder rights. There are many factors to consider. Here are some quick tips to narrow your search for a dependable court witness in these fields.

The Right Qualifications

The term "expert" is crucial. Find a court witness with a solid background in the areas needed for the case. A qualified witness will usually be able to bring clear, concise information to the case. Check the witness' background as an expert to be sure he is qualified in the field. This will also help you discover his or her strengths and weaknesses, and to avoid major surprises at the last minute. For instance, both sides may have contacted the same court witness. Or, the expert may have already taken a view in a previous similar case, which may be unhelpful in your client's case.

Also, ask to be sure the witness will accept instructions from both defendants and claimants. Many courts do not favor one-sided experts, and will choose one with a reputation of being even-handed.

If the other side chooses their own expert court witness, be sure your expert has similar qualifications so theirs doesn't appear to be "more qualified" than yours.

Get Clients Involved

Allow your clients to meet the potential court witness before making a choice. Although the client will usually not be directly involved in the final decision, he or she may still want to give input.

Choosing a Court Witness for Complex Cases

With complex cases, be sure the court witness you are considering is willing to work closely with your team. Keep him informed of every development in the case, and involve him in important decisions that would benefit from his opinion. But even during a complex case, please do respect his privacy and independence.

Choosing the Same Court Witness Again

If you need to hire the same expert court witness you've used before, do another check on credentials. He could have even more beneficial credentials than before. Ask your colleagues or counsel if anything has changed (for better or worse) in the expert's background.
Writing Skills

As courts move more toward the "written report" than experts actually taking the witness stand, you'll need to be sure your expert has the correct skills to write a comprehensive report.

Bias and Conflict of Interest

Before hiring an expert court witness, be sure that he does not have a conflict of interest or any potential reasons to be biased in the case (past or present). Even if the expert is not biased, there may be things in his past that the other side could point out and weaken his influence and evidence in the eyes of the court.

Most importantly, make sure the expert has a history of being balanced in every case. The expert court witness in your case will be one of the major players, and could make the difference between winning and losing. Use the tips above to make an informed choice.

Source:
Majon’s Law and Politics Directory - Majon International, November 13, 2006
wherein they refer the reader to EMCO/Hanover’s website at:
http://www.emcohanover.com/

Can booming sales bankrupt a business?
 Not yours – if you steer clear of these three traps 

You’ve no doubt heard it before: “Let's take on the order. It'll be great for cash flow.” The owner is excited about the deal. The sales manager is excited. But you think something doesn’t seem right....Of course no one sets out to make an unprofitable, company-sinking deal. But hidden traps can snag even the best firms. To avoid a blindside, Los Angeles-based business-turnaround expert Bruce Barren suggests watching out for the following traps that hide in otherwise good deals. 

Trap 1: Scaring lenders 

One side effect of a big order is that it can concentrate accounts receivable in one customer. If you're relying on outside financing to maintain cash flow during the performance of the deal, that may raise red flags at your lender. 

Example: An airplane parts manufacturer got a big airplane parts order but forgot to analyze cash flow. The firm's banker informed the owner that he had too much sales concentration with a single customer and disallowed billings for financing because the billings represented more than 10% of the customer’s business or actual accounts receivables outstanding. The company filed for Chapter 11 in the middle of the contract. Ironically, the problem snowballed. The customer took over production, but its creditors forced it into a Chapter 7 bankruptcy. The customer used too much cash trying to salvage the original contractor. And the customer's regular creditors were unwilling to sit and wait. 

Fix: In general, you don't want a concentration of accounts receivable of more than 10%. That's when lenders disallow advancing against particular collateral – here, an account receivable balance. You'll want to communicate how a deal will impact your borrowing power. Even better, schedule your customer payments so that fulfillment will not impinge cash flow. 

Extra: Make sure your partial payment terms (for example, progress billing) are adequate, so you won’t have to rely heavily on financing. 

Trap 2: Not testing actual inventory 

You know there are costs on paper and then there are the actual costs. Some firms don’t have enough control over actual gross margin because they haven't tested their actual gross margin against their physical inventories as required in the calculation of one’s cost of goods sold. 

Example: A mid-size supplier got an order that looked good for cash flow. The owner thought that he had a balanced inventory. In fact, though valuable on paper, the inventory was missing specific items needed to fulfill the order. He used up his “critical” cash to buy inventory at steep prices to meet the demands of the order. Profit margins evaporated, overhead became burdensome, payroll became delinquent. Worse, the dissatisfied customer left: Word also spread by competitors. Other sales began to erode. 

Fix: Make sure that overstated ending inventories don't create a misleadingly high gross margin and that inventory is adequate to meet new order demand. Regular real, physical inventory counts can avoid misjudging profitability.  

Extra: Barren recommends being wary of using P&L statements, which can mislead your firm (particularly if you are a private company in which the financial statements are prepared for tax, not operating, purposes). In the short term a P&L might create a sense of artificial profitability, but P&Ls usually haunt firms. For example, in a plumbing supply business, inventory is often adjusted for tax reporting because it buries short-term profitability, but this process overstates true profits in the long run. 

Trap 3: Ignoring personnel limitations  

The flip-side of an inventory-related cash crunch is a labor-related cash crunch.  

Example: A mid-size electrical contractor had a reputation for producing quality work. One satisfied customer was well connected with the local city government and recommended the contractor for a lucrative but large city “request for purchase” order. The contractor was ecstatic. But he soon found that he couldn't get enough trained/qualified electricians to handle the order. At least he couldn’t get the people without running out of cash. To make up for the missing people, the contractor tried to work harder with existing staff. The result was poor quality work – so poor the contractor was blackballed from city contracts, even the kind he could have handled. 

Fix: Double-check your actual labor costs, especially if a project requires people with hard-to-find skills. Better to find a partner or pass on a project than let it compromise other sales. 

Finance 21
November 8, 2004

Phantom stock keeps execs happy - and defer payouts

Give something that feels like stock - without losing control

The war for talent can cost a bundle. It’s led more private companies to take a look at using "phantom stock" to retain key execs while keeping more current cash.

Since it feels like equity, phantom stock (often called a Capital Appreciation Plan) can work well for less exotic firms. Among the pluses:

No loss of control, minority shareholder beefs or legal battles with ex-spouses or

heirs. (Most phantom stock plans pay in cash.)

Because they’re not "qualified" plans, you needn’t include everyone.

Execs won’t worry about "under-water" options with no value at the exercise date.

At a future date, phantom stock plans pay the issue price plus appreciation in value over time (three or five years is typical).

Example: A share at $90 might appreciate to $120, based on an independent annual valuation. The values could track market value or book value, but that can be volatile and give rise to disagreements. The smart approach for a private company is to use a metric like total revenue or gross margin times an agreed-upon industry multiplier, says consultant Bruce Barren of EMCO/Hanover in Los Angeles.

Keep the details private

Using a performance metric keeps external market or industry factors from generating results the execs haven’t influenced.

Plus, unlike plans tied directly to the financial statements or P&L, owners need not "open the kimono" to reveal their own cost or takeouts.

Finally, tax treatment is favorable, since amounts paid are not taxable to either party until actually distributed.

CFO & Controller Alert
May 8, 2000

Early signs say downturn: Will they squeeze you for cash?

Take this three-step cash flow cure to stay healthy

The smart money players are taking steps now to protect against a financial belt-tightening - one that will be toughest on brick-and-mortar companies.

The evidence of this goes deeper than what Mr. Greeenspan and the Fed are likely to do - or not do - abut raising interest rates. Examples:

Banks, while still flush with cash, are looking for better balance sheet management, solid cash flows and better projections.

The equity markets are tightening for all but the most exotic bio-tech and dot-com start-ups, and

The merger/acquisition frenzy is cooling for traditional companies due to low payoffs.

Companies with classic risk and reward factors don’t have much sex appeal now, says consultant and dealmaker Bruce Barren of EMCO Financial. Now money goes to new deals where you go public or merge in 12 to 18 months.

What if you can’t ‘build to flip’

Act aggressively on loans

There’s a payoff to acting aggressively in the face of higher interest rates.

Many companies are huddling with their friendly bankers to renegotiate loans on the books. There’s still time to get good deals and lock in rates.

Since banks are still hungry for business, you should be able to peg loans or credit lines to below-prime indexes like LIBOR or link to commercial paper rates.

In addition, now is the time to make sure the company doesn’t overextend when it comes to trade credit or bank debt.

Convert under performing assets

There’s just too much opportunity cost tied up in having non-performing assets on the books, whether in receivables, inventory or other non-earning assets. You will benefit from the added liquidity - as well as potential investment return - when you convert low-performing assets into investible cash.

Again, everything is negotiable, and companies with serious cash flow can bargain for institutional rates on sweep account funds - gaining a better deal by 25 to 30 basis points.

Tighten up on collection

Paradoxically, now - when times are good - is probably the best time to prepare for the worst.

You’re in the best position of anyone to make sure processes are in place that monitor any slowdown in cash collection cycles, or bracket creep in accounts receivable.

Look for opportunities to streamline cash collection, such as: implementing electronic collection and disbursement, with e-cash, at least for large-volume customers, and using "customer service" approaches to collection proven to bring in cash 25% to 30% 30% faster.

CFO & Controller Alert
March 28, 2000

Financing: With cash getting tight, packaging matters more than ever.

The kiss of death: Trying to dictate terms

With capital sources getting tighter, firms hunting for dollars must make sure proposals are crisp and buttoned down. Yet the mortality rate for debt or equity deals is about 75% from the get-go, says consultant Bruce barren of EMCO Financial, Los Angeles. That’s not because the deals are inherently bad, but because a surprising number of small to medium-size companies still: don’t take the time to do their homework on assumptions in advance, or submit packages with incomplete or "blue sky" numbers. Barren, who has structured hundreds of deals over the years, has some specific advice you can use to increasing your odds of success.

First, assemble the basic information about your company in a ten page document, with a one page, executive summary. Anything more elaborate will simply not get read.

Don’t try to dictate terms

Make sure the proposal contains basic information about your market, and comparative industry figures on margins of profit, etc. that can be independently verified. Trouble spots: Barren says most deals die over "pie in the sky" assumptions about cost of goods sold or overestimate the money they really need to make the deal go.

Even more fatal: Attempting to dictate terms. Rather than say, "We need $ 5 million and that’s 35% of the outstanding shares," it’s better to nail down the amount you need and let the capital source make an offer.

Finally, when you get a "live one," know when to stop shopping and negotiating.

CFO & Controller Alert
October 12, 1999

. . . AND GIVING HELP

Watch those growing pains

Now’s that best time to remind you CEO and other top execs about the need for year-end tax planning. It’s important for busy owners to realize that revenue gains can trigger huge federal and state tax liabilities.

Example: A California software firm sold $2 million last year and $4.2 million this year. It now faces a $ 600,000 total tax bite because the company made only minimum quarterly tax payments last year, on the advice of its CPA firm.

The owner must now sell stock to raise the funds, since bankers view borrowing to pay taxes as "sloppy management," says consultant Bruce Barren. Also missed: The chance to switch from C to S-Corp status.

CFO & Controller Alert
October 26, 1999

Team up with the money men to get the backing you need.

*Here are four ways to get backing

You probably think crunching numbers is only for the bean counters who couldn't tell you which end of a crescent wrench to use. But unless you can put your money requests in language that'll get the attention of your CFO or CEO, you could have trouble securing money for important facility projects. Reality: Most of the projects you'd like to spend money on are considered expenses that don't contribute to the bottom line.

Fortunately, you don't have to be a financial expert to get top brass to approve your projects.

Just try these four steps to help upper management clearly understand the need for projects.

1. Partner with other managers to help sell your projects.

You obviously have reasons for wanting a project done. Lighting retrofits could reduce energy bills. Reliability programs could slash maintenance time and boost performance. Or better facilities could help with recruiting. 09In each example, another department would benefit. The CFO would love to reduce energy costs. The production supervisor wants more uptime. And human resources will take all the help it can get with recruiting. When you can, find other department heads who could benefit from your projects. Because the big question top management will ask is: "How will we get our money back?" If you and other department heads can show where and when, you'll have a better chance of getting projects approved.

2.Compare long-term benefits to short-term costs..

Your CFO probably doesn't see a dollar the same way you do. That's because financial types view money in terms of the company's profit and loss statements.

Your CFO probably doesn't see a dollar the same way you do. That's because financial types view money in terms of the company's profit and loss statements.

Example: You want $ 100,000 for renovations. It's natural to think of the project as costing the company $ 100,000. But your CFO sees money coming straight from the profit of the company, and not being deducted from income taxes.

So the total cost of a project can be significantly higher than the vendor. The long-term benefits of a project you describe will have to include these additional, short-term costs. : You want $ 100,000 for renovations. It's natural to think of the project as costing the company $ 100,000. But your CFO sees money coming straight from the profit of the company, and not being deducted from income taxes.

So the total cost of a project can be significantly higher than the vendor. The long-term benefits of a project you describe will have to include these additional, short-term costs.

3. Have a Plan B.

When trying to sell a project, give the finance people some alternatives.

When trying to sell a project, give the finance people some alternatives.

Example: Your facility needs a major roofing renovation. Your CFO tells you it's too big a project to fit into a fiscal budget and suggests you just make repairs where you can.

You may choose to do that. But offer an alternative, too. Phase in the project over five years. You split the project, therefore, over five budgets. You may come up with patchwork that will last five years until the troublesome section of the roof can be repaired.

Bonus tip: Ask your CFO when the best time at your company to make project requests. Of course you want to make your requests before the fiscal year or quarterly budgets are approved.

Getting to them early will prevent the sort of "yes" and "no" decisions that occur as budget deadlines approach. : Ask your CFO when the best time at your company to make project requests. Of course you want to make your requests before the fiscal year or quarterly budgets are approved.

Getting to them early will prevent the sort of "yes" and "no" decisions that occur as budget deadlines approach.

4. Don't forget regulatory benefits.

If your project will help you comply with safety or environmental regulations, point that out to the bean counters. And don't forget to include possible penalties or liabilities in your cost/benefit analysis.

If your project will help you comply with safety or environmental regulations, point that out to the bean counters. And don't forget to include possible penalties or liabilities in your cost/benefit analysis.

Facility Manager's Alert
August 11, l998

Raising capital: More competition, less availability by the Year 2000

* The prudent choice: Make your move well in advance of actual need.

* The prudent choice: Make your move well in advance of actual need.

Need to raise capital?

You can expect more competition and less availability as the millennium approached.

	The new issue (IPO) market for middle marquee companies has all but dried up. Bank credit is tighter. And investors are more risk-averse. That means it's more important than ever to plan ahead, says Bruce Barren, who specializes in raising capital for middle market companies.
	Don't wait until the last minute to raise capital. Seek it well in advance of the actual need.
	Negotiating in a tight market

Here are some guidelines:

1. Define your capital needs in your business plan. A lot of companies don't keep their business plan current. That's okay if you can raise capital on short notice. But in today's environment, you should be planning two years in advance.

2. Know the rules, such as standard coverage ratios. For example, lenders demand 1.5 dollars in cash flow for every dollar in amortized debt. Don't waste time applying for financing for which you can't qualify.

3. Create a competitive environment between several capital sources. Look for the best terms.

4. Negotiate terms. Of all the costs associated with obtaining capital, probably the least important is interest expense. More important: covenants affecting operational control, limits on executive compensation, personal guarantees and restrictions on new capital.

5. Close the deal. Don't try to squeeze out the last dollars of costs. Compromise intelligently and know when to stop negotiating.

CFO & Controller Alert
September 29, 1998

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S-Corps and ESOPs: A winning combination

You’ve got to act now if you want to qualify for S-Corp election in 1999.

You might want to calculate the tax gains you could realize with S-Corp election and an Employee Stock Ownership Plan (ESOP).

Here’s a sample calculation:

C-Corp/ESOP Combination: Say a C-Corp is owned 50% by taxable shareholders and 50% by an ESOP. During 1998, it has $1 million in pre-tax income, on which pays pays federal income taxes of $340,000.

It also distributes $100,000 in dividends to all shareholders, including the ESop. Taxable shareholders pay an additional $20,00 in taxes (assuming they’re in the 40% bracket).

Total tax: $360,000

S-Corp/ESOP Combination: But say the firm is an S-Corp, still 50% owned by the ESOP. Half of the income is exempt. The 40% individual rate applies to the rest.

Total tax: $200,000

That’s a saving of $160,000. Taxes on the ESOP are deferred until accumulations are distributed to plan participants. (Funds can be rolled over after distribution. Consult an attorney,)

Requirements for S-Corp election

If numbers like that are attractive and you’re now a C-Corp., you’ve got to act now to qualify for a 1999 S-Corp election. The key limitations:

	a 75-shareholder maximum, all of whom must be U.S. citizens or residents.
	only one class of stock (thus, no preferred stock), although stock may be be differentiated by voting rights.

S-Corps must also operate on a calendar year basis. And on conversion, any C-Corp NOLs are suspended, with application only against LIFo or built-in gains tax.

CFO & Controler Alert
November 24,1998

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Receivables financing: You have more options but the costs are up.

Now you can borrow on purchase orders as well as receivables

You’ve got more options than ever to convert receivables into cash. But you should consider those options carefully, says Bruce Barren, who advises mid-market firms on capital formation. Costs are up. And lenders want more guarantees, There are three types of receivables financing: factoring the receivables by selling them at a discount to a factor borrowing on the receivables by pledging them to a lender, or prior to the actual creation of the receivable, using the purchase order and underlying inventory as collateral on a loan. These days factoring is almost always "with recourse," meaning that if the receivable becomes uncollectible, you’ll have to make good. In essence, you guarantee collection. So it may not be as good a deal as it used to be. Factors also often won’t take receivables from companies with too many trade discounts, merchandise returns or concentrations in certain accounts (like the U.S. government). And if a factor does take the risk, it will often demand additional collateral such as personal guarantees or additional pledged assets.

If you don’t use a factor
Borrowing against receivables will save you about 2% over a factor - more if you have a good line of credit from your bank. But the receivables must have a solid credit history, usually at least three years. Borrowing against a purchase order is becoming more popular. It can be one way to generate a lot of cash fast (to ramp up production, for example). But you must have an ongoing relationship with the lender.

CFO & Controller Alert
April 13, 1999

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Contact Information

Bruce W. Barren

FAX 310-440-2214
Postal address
11740-11 Sunset Boulevard, Los Angeles, CA 90049-6909

e-mail: brucebarren@emcohanover.com

Last modified: August 09, 2006