Many of my clients are searching for financing and/or investors to fund growth. There are several criteria that we use to judge whether or not a company can get funding and from what source the funding will be sought. Here is a company that is in need of additional funding. Based on the information below, would you invest in this company?

Here are the financial facts for the year 2010:

Revenue of $2.2 million
Expenses of $3.5 million
Operating loss of $1.3 million
Balance sheet debt as of 12/31/2010 of $14 million

Additional facts: From a profit and loss perspective, revenue has not kept up with expenses. The company has been spending more money than it takes in each year for the last several years. To fund the operating losses the company in 2008 borrowed $459k, in 2009 they borrowed $1.4 million, in 2010 they borrowed $1.3M and for projected out into 2011, they will need to borrow an additional $1.6M. Total borrowings are now about 6X annual revenue. Management: a new CEO was elected by the board 24 months ago and he is taking a “hands off” approach to this funding problem and leaving it the management team who are split, ½ of them want to cut expenses and the other ½ want to continue the historic expense trend because the company will loose creditability in the market if they cut expenses; so they want to increase expenditures.

Currently the company has the $14 million borrowed from the following sources:

$6 million – Current customers
$2.6 million – The company’s employees retirement fund
$1.6 million – various vendors
$1.1 million – largest competitor
$ 900 thousand – second largest competitor who just had a plant wiped out
$ 857 thousand – local police and fire department
$ 485 thousand – foreign sister company
$ 300 thousand – domestic security force
$ 228 thousand – vendors who supply fuel for company
$ 185 thousand – vendor who supplies raw product

You probably have already figured it out that no shareholders, board of directors, CEO or management team could be this irresponsible in today’s economic climate. Nearly everybody knows that an organization cannot continue to borrow money to fund on-going losses without going out of business. This story is not about a small business, it is the current financial state of the U.S. Government, all you need to do is change millions to trillions and change thousands to billions.

The key: current customers = U.S. individuals and institutions, employee retirement fund = social security administration, various vendors = foreign nations, largest competitor = China, 2nd largest competitor = Japan, local police & fire departments = U.S. Civil Servants, domestic security force = U.S. Military Retirement Fund, etc.

The U.S. Government has outstanding debt of $14 trillion dollars. Here is picture of what $14 trillion dollars looks like. $1 million is 100 packets of $10,000 (a packet is 100 – $100 bills). $100 million is one 4X4X4 pallet of stacked $100 bills. A billion dollars $1,000,000,000 (9 zeros) is equal to 10 pallets a $100 million each. A Trillion dollars is $1,000,000,000,000 (12 zeros) or equal to 10,000 pallets of $100 million each. The U.S. Government has outstanding debt of 140,000 pallets of $100 million on each one.

SUMMARY AND CALL TO ACTION

Our government is being ran by a CEO/President with no management experience, of his hand picked management team of 12 (the Cabinet) only 3 have had outside corporate business management experience. Our Congress is made up of 435 elected representatives of which 162 have some type of business experience coupled with a Senate of 100 which 26 list any type of business experience.

We are the primary lenders and suppliers of funds to the U.S. Government, 1) take up pen and paper and write a letter (or email) to your elected representatives and tell them that the spending spree of the U.S. Government is irresponsible and must change, 2) forward this email to as many people you know and ask them to read it and take action. The tax payers who are financially responsible in American have been too silent for too many years. Our government leaders need accountability – make it your goal to communicate with your elected (state and federal) representatives monthly – that is the best thing we can do to get this country back on track. It is up to the silent majority – we have to become the LOUD MAJORITY.

To Your business Success:

Dan Lacy
dan@dynastybuilder.com
phone: 765-644-8887

Asset Protection- The Basics

Posted on | March 28, 2011 | No Comments

Perspective- His, Hers & Theirs

Posted on | December 6, 2010 | 1 Comment

Q: What’s wrong with this photo?

A: It’s a photo of a paper towel dispenser that was installed in my office building restroom this week.  The problem is that the dispenser was installed upside-down, with the slot for the towels at the top.  Last time I checked, gravity pulls paper towels down and not up.  So, unless you are 7 feet tall or have a really skinny hand with long fingers, you’re never going to get a paper towel out of this dispenser.

Q: What does this photo tell you about growing your business?

A: Our businesses are not about us.  Your business is not about you.  It’s about your clients and customers.

The person who installed this towel dispenser forgot this critically important lesson, or may be never learned the lesson in the first place.  Would you not think to actually put some towels in the dispenser as part of the installation process and test whether the dispenser works?  I sure would have.  I would have also checked the placement, the height and the metal edges to make sure the dispenser was functional and safe.  In short, I would have taken 60 seconds to live the experience my customers would experience to determine whether my clients would be well-served, under-served or poorly-served by this dispenser.  If it is worth the money and time to install a towel dispenser to serve my client’s restroom needs, then it is worth a few extra minutes to serve my client’s restroom needs well.

The baseline question, however, is this:  What processes, procedures and steps have I put in place to judge, measure and gauge my clients’ experiences working with my company?  How about a survey?  Better yet, how about a confidential survey from a third-party?  How about having trusted friends and family test and evaluate my products and services, on the condition that they agree to be brutally honest in their responses, comments and feedback?
Whatever system you put in place to measure your clients’ experiences in interacting with your company, the first step in the process is to recognize the need to think more like a customer and less like a business owner or manager.  Said differently, the best business managers think about the customer first and the backroom operations last.  Profits never flow when the customers don’t show.  It’s all about happy customers and clients.  So start thinking like a client today, and you’ll increase your odds of profitability tomorrow.

Do I Need a Lawyer to Form a Business?

Posted on | October 5, 2010 | 2 Comments

Anyone with $90 and a little time can form a limited liability entity in Indiana. However, only an experienced business lawyer can help you determine the right type of entity to form and how to structure the entity so that your “corporate veil” in not pierced.

Do I Need a Lawyer to Form a Business? from Matthew Griffith on Vimeo.

Asset Protection

Posted on | September 30, 2010 | No Comments

Basic Asset Protection for small business owners is not complicated. In fact, for most small business owners, asset protection consists mostly of three key components: (1) a limited liability entity (corporation or limited liability company), (2) a solid and sensible insurance plan, and (3) good business practices developed, in part, with your business lawyer’s help or review. In this blog, Matt briefly explores these three basics components.

Asset Protection Basics from Matthew Griffith on Vimeo.

Matt’s 3 Rules of Landlording

Posted on | September 20, 2010 | No Comments

Landlording is a tough business.  More today than ever before, landlords need to stay vigilant and follow strict rules of operation to minimize risks and increase profits.  After 18 years of representing landlords, I have developed several “rules of landlording.”  Here are the first three rules- 

MATT’s FIRST 3 RULES OF LANDLORDING.

Matt’s 3 Rules of Landlording from Matthew Griffith on Vimeo.

“ARE LAND CONTRACTS NOW SAFE UNDER THE SAFE ACT?”

Posted on | July 27, 2010 | 9 Comments

Regulators Suggest Land Contracts Are Not Subject to New Law

Background

In 2008, Congress passed and President George Bush signed into law the Housing and Economic Recovery Act, (Public Law 110-289) (HERA). HERA is designed to assist with the recovery and the revitalization of America’s residential housing market – from modernization of the Federal Housing Administration, to foreclosure prevention, to enhancing consumer protections.  The SAFE Act is a key component of HERA.

The SAFE Act is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators. The SAFE Act requires states to have licensing and registration systems by July 31, 2010. Indiana’s SAFE Act law was passed last year and goes into effect in June 2010. An easier-to-read version of the Indiana law appears in the Indiana Administrative Code.

You Need a License, If You Are a “Loan Originator”

You need a loan originator’s license, if you are a loan originator as defined by the new Indiana law enforcing the SAFE Act. In a sentence, anyone who offers or provides a residential mortgage loan or extends credit for a home purchase is deemed a loan originator and is required to get a license.

You Might Be a “Loan Originator”

The SAFE Act defines “loan originator” as “an individual who (1) takes a residential mortgage loan application; and (2) offers or negotiates terms of a residential mortgage loan for compensation or gain.” This definition is broadly interpreted. If you sell a residential property on credit, YOU ARE PROBABLY A LOAN ORIGINATOR under the SAFE Act.

Indiana’s Law Has (Already) Changed, Since July 1, 2010

Indiana passed its Safe Act statute with an effective date of July 1, 2010.  Originally, the following regulation appeared to draw land contracts into scope of the Safe Act:

“Mortgage transaction” means a loan or consumer credit sale in

which that is or will be used by the debtor primarily for personal, family, or household purposes and is secured by a mortgage, or a land contract, or other equivalent consensual security interest on a dwelling or residential real estate.

(emphasis added).

Sometime in July 2010, Indiana proposed a new regulation that deleted the term “land contract” from the definition of a “mortgage transaction.”  The new definition reads as follows:

“Mortgage transaction” means a loan or consumer credit sale that is or will be used by the debtor primarily for personal, family, or household purposes and is secured by a mortgage or other equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or intended to be constructed a dwelling.

Clearly, the term “land contract” was deleted from the regulation.  However, the question is this:  Is the definition of a “mortgage transaction” still broad enough to include land contracts?

In an effort to get this question answered, a number of lawyers and real estate brokers have contacted the Indiana Department of Financial Institutions and have spoken with Jim Harrell, Assistant to the Supervisor-Consumer Credit, about the applicability of the Safe Act to land contracts.  What this author has been told is that Department of Financial Institutions deleted the term “land contract” from the regulations, because the Department of Financial Institutions believes the statute should only apply to transactions where title to the real estate has transferred to the consumer-borrower.

A Word of Caution

This author has concerns that the Safe Act is so broadly written that future regulators could apply the law to land contracts, or at least argue that land contracts fall within the scope of the law.  We should assume that neither Jim Harrell nor anyone else from the Indiana Department of Financial Institutions will testify in defense of someone using a land contract in years to come.  Nor would this evidence be admissible in an Indiana court.

The new regulations make no mention of title to land transferring as a definitional component of the new law.  In fact, with regard to ownership of real property, the terms “title,” “transfer,” and “deed” appear nowhere in the new regulations.  There is arguably no language in the Safe Act or Indiana law supporting the interpretation given by the Indiana Department of Financial Institutions.

Under the new regulations, the term “loan” still includes “the creation of debt by the creditor’s payment of or agreement to pay money to the debtor or to a third party for the account of the debtor; or the extension of credit by a person who engages as a seller in credit transactions primarily secured by an interest in land.”  That language sounds like a land contract to many real estate lawyers.

The new regulations do not exclude land contracts.   Nor does the statute or regulations contain any language distinguishing situations where title has or has not transferred, as part of a “mortgage or other equivalent consensual security interest on a dwelling or residential real estate.”  The term “land contract” has merely been deleted from the definition of a “mortgage transaction.”

So, until regulators expressly exclude land contracts from the Safe Act, be cautious in the use of land contracts.

Exclusions

There are exceptions under the SAFE Act. Here are a few:

• Selling a home you previously occupied/lived in as your residence.

• Certain clerical and administrative tasks.

• Selling a home to an immediate relative, as defined by the statute.

• Selling commercial buildings, as defined by the statute.

• An attorney who negotiates terms of a residential mortgage loan with a prospective lender on behalf of a client as an ancillary matter to the attorney’s representation of the client, unless the attorney is compensated by a lender, mortgage broker, or other mortgage loan originator or by an agent of such lender, mortgage broker, or other loan originator.

What Is a “Dwelling”

The SAFE Act’s definition of “residential mortgage loan” includes a loan secured by a consensual security interest on a “dwelling” and cross-references the definition of dwelling in section 103(v) of the Truth in Lending Act (TILA) (15 U.S.C. 1601 note). Regulation Z, which implements TILA, defines dwelling to mean “a residential structure that contains 1 to 4 units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.”

As always, feel free to contact this author for specific answers to your real estate investing and legal questions, or call for a consultation.   Good luck and Happy Real Estate Investing.

SAFE Act Catches Lawyers By Surprise

Posted on | July 11, 2010 | No Comments

I have been writing and talking about the SAFE Act- which makes most land contracts in Indiana unlawful- for months now.   I thought that I was the only lawyer in town who had heard of the new law.  No one seemed to know about it.

That recently changed, as a wave of panic swept through the local real estate bar in recent weeks.  And boy oh boy, are there some shocked and angry real estate lawyers out there.  This is a horrible new law in that it makes it unlawful for many people to sell their own real estate on contract.

It has been such a rude awakening for so many lawyers that a Continuing Legal Education class was quickly organized for next Friday in a matter of weeks.  Usually, CLE’s are planned months and months in advance.

Congratulations to those of you who listened to my teleclass on the SAFE Act or who read my blog.  You knew about this crazy new law long before many real estate lawyers did.

If you want to learn more about the SAFE Act and the several new laws that have passed recently, register for the July 17 real estate class.  Details are here.

You can also listen to the teleclass on this blog.

MATT TO SPEAK AT IMPORTANT REAL ESTATE CLASS

Posted on | July 10, 2010 | 1 Comment

2010 Real Estate Update:  New Laws- New Strategies

“A Day of Essential Learning,” presented by

2009 and 2010 had more law change that effect investors than any other time period.  Discover the top critical law changes that effect investors.

At this seminar, you will discover the top ten things real estate investors and landlords get sued for and why, if you aren’t careful, you will be sued too!  Learn the Safe Act exemptions!!  Unveil the how to turn tax $ into a valued investment!!  Master the most critical changes to save you thousands!!Use these law changes to transform them into $$$ instead of liability.

When: Saturday, July 17, 2010

8am – 4pm

Where: George’s Neighborhood Grill, 6935 Lake Plaza (71^St & Binford Ave.), Indianapolis

317-577-1600

Cost: $79 per person (spouses only $35 more!)

** Seating Limited to the First 40 Registrants **

REGISTER AT www.REIProfitCenter.com

Or call Selina at 317-526-6609.