The Senior Business Directory was able to sit with financial consultant Stephen Chin. He briefed us on his financial consulting firm, Financial Structures and Advisory, Inc, what he does as a financial consultant, and what skills are required for those interested in this line of work.
Tell us a little about your company Financial Structures and Advisory, Inc. What is your background in financial consulting?
I started my financial consulting firm in 2003. With a background in commercial banking and capital markets, my firm provides financial consulting services to private companies in the middle market to the lower middle market space. FSA is focused on supporting private companies that are owned by families, individuals, and partners, and these firms are geographically located in the northeast. The companies can range up to about 60 million to below 5 million dollars, including some which are early stage.
Clients usually retain my services because something significant is happening with their company – perhaps someone is trying to buy into their business, or buy them out. Or perhaps the company is looking to grow, but not sure how to fund it in terms of accessing debt or equity. Or they are looking to sell themselves while retaining a minority position to benefit from a second bite at the apple a later dat
How do you consult your clients on these significant events?
More often than not, business owners tend to take great pride in the business they run and may think their business is more valuable than what a buyer, or the market, would consider fair.
My job is to take the owner through an evaluation process and pair it with their personal ambitions and objectives. If they can think they can sell for 10 times EBITDA, but the reality is only 7 times, what does that actually translate to? Do they delay a sale to give them time to improve their operations and supporting infrastructure? Can they improve their internal accounting and financial reporting? Do they have appropriate legal support? Do they have something basic such as an employee handbook or an operating manual?
If they have all of those, then maybe they can hit ten times multiple EBITDA sale price. If ten times EBITDA gets you X amount of dollars in the bank, there are many other factors to be considered. Let’s say the owners receive Y dollars offer for the sale of 100% of the business and the buyer has no interest in keeping them on during the transition (which is unlikely – usually buyers want owners to stay on board 6 to 18 months during the transition.) What are the tax consequences based on, where are you located? What is the dollar amount in the bank you need in order to lead the lifestyle you want? These are all major components of the decision making process.
Many business owners have never gone through an exercise with their accountants to see what a sale translates to. Often, after tax, the amount they sell the company for will translate to significantly less money in the bank. Many times the amount does not match their financial expectations for selling the company. So that’s very important to consider.
Business owners have to look at how they are financially situated in order to determine whether or not they are in a position to acquire debt to grow.
What skills are necessary to be a financial consultant?
You have to have ambition and be dedicated. The typical 9-5 schedule does not work from our perspective, simply because that’s not the nature of the business. It’s not a production type of environment; it is more of an intellectual exercise and your job is to help your client achieve his/her objective in their timeline, not yours.
Commitment and accountability are both important. If your commitment cannot be met by a certain date or time, then that information needs to be shared and explained. You pick up the phone or send an email. In a professional way, you advise your counterparty that there is going to be a delay, whether it will be a day or an hour. That kind of diligence is absolutely required.
When you’re dealing with money, when you’re dealing with dollars and cents, it goes beyond what’s on the ledger or the financial report. Everything that we touch has to be treated confidentially and has to be treated with care – as if it is your own money. Financial consultants need to be diligent, timely, and professional. At an emotional level, they have to take possession over whatever it is that they’re doing.
As far as skill set is concerned, it is best to have someone who has some basic understanding of accounting and finance.
We are not an accounting shop; we are a finance shop. We are an advisory shop. Accounting is not a requirement, but knowledge of accounting, experience with numbers and looking at what the numbers mean – that is essential. How did these numbers show up on a financial report? What underlies these numbers? What does accrual accounting mean as it relates to a financial report?
The ability to communicate clearly is also very important. It’s important to be able to take your ego out of these conversations. There’s a certain humility that is required. Arrogance has its role, especially if you’re at the negotiating table, but humility is important because I’ve never met anyone who is right 100% of the time.
