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OTCQB versus S&P 500

A funny happened in the last couple of weeks – the global weaknesses in the economies around the world have shone through.  China, the powerhouse economy growing at over seven percent (7%) a year (see the World Bank’s numbers at 7.7% in 2013, 7.8% in 2012 and so on on their website) has stumbled.  Our own Federal Reserve doesn’t know if it will raise the rate it lends to banks.  Europe is in the midst of a crisis of immigration and other issues. To steal a line from Ghostbusters

…real wrath of God type stuff.
…, dogs and cast living together… mass hysteria…

SO what does this mean for us, the micro-cap investors who believe in the little guy and who work in and around entrepreneurs who aren’t part of the S&P 500 index?

A little notoriety

An article in the New York Business Journal entitled “Early – stag companies fair better on the OTCQB than S&P 500 during these turbulent days” is an interesting view of what is happening right now.  Of course, OTC Markets loves the exposure and they have shared this article with many of us who follow them (I would recommend joining their mailing list).  In essence, the OTCQB hasn’t seen the decline that the S&P has (take a look at the OTCQB index on the OTC Markets’ website).  The OTCQB index has only declined by 3.31% in the two week period ending August 28th, 2015 versus the S&P 500 dropping by 5.46%. Why?

First, why are the S&P 500 companies highly sought after by investors?  Because they are big enough to ride out ups and downs.  They are big enough to have robust operations.

Secondly, why are all the globe’s markets down?  China is a harbinger of the global economy being a slump / recession that is deeper than we expected.  Our economy really hasn’t rebounded that much from the 2007 debacle.  Now the rest of the world sees that.

Lastly, the OTCQB is a “venture” marketplace.  The risk is already figured into the stock price since investing in these stocks are smaller and don’t have the resources that the S&P companies do.  But therein is where they fair better in down markets – we’re placing a bet that these guys will graduate to the S&P 500 someday.  That risk isn’t greater because the world’s markets are basket cases.  In fact, that means that innovation and risk takers will be rewarded to an even greater extent.

My conclusions

2015 through 2020 will probably be sideways markets – giving up as much as they give.  Including some up and coming stocks in your portfolio is how I’m mitigating the risk that my portfolio does absolutely no growing during that time.  Of course, I am focused on bonds for current income, but that is pitiful right now.  All in all, it’s a good time to ensure that your business operations yield lots of cash and worry about where you’re going to put it all.  Happy hunting…

 
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Posted by on September 8, 2015 in Business, Public markets

 

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Going public costs, more than you would think…

Going public always costs more than one would think, even someone who is involved in the industry and has taken many companies public over their careers.  Recently we put together a cost estimate for one of our clients based upon a go public project last year.  We normally say going public costs $250,000 and an on going annual cost of $250,000 for the clients we normally provide services for.  What emerged was a cost of approximately $200,000 without any internal costs (which we normally include in the costs as well as recruiting costs for board members, executives, investor relations professionals, stock transfer agents, CPA’s, auditors, and others).

We provide the approximately breakdown here for reference only – please do not take these as non-volatile nor fixed in any way.  Please do not use these outside of for discussion purposes only!


This “Go Public” cost estimate document is copyrighted in 2015 by Rhodes Holdings LLC, all rights reserved.

 
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Posted by on September 1, 2015 in BLOG

 

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Your business plan on steroids

As you can imagine, our organization sees a lot of business plans – good and bad ones.  The ones that stand out to me are the ones that concisely state their business model and do so in a simple format.  I am not talking about the formats that look like they paid a huge sum on graphics designers, I’m talking about the ones where they know the key performance indicators of their business, they’ve planned their progression and they show the goals associated with that progression.

The article “18 Ways to Make Your Financial Model Stand Out to Investors” by David Teten seems like he is of the same thought process that I am.

Also, while you’re reading articles, I found this article “How to do guarantees right. And how we grew a business by 49% by adding a guarantee.” by the Conversion Rate Experts website.  This is something that one of Rhodes Holdings LLC’s sister companies, Online Sales Juggernaut, is dealing with right now.

Funding

Lately, Rhodes Holdings LLC is doing a great deal of funding, but not public companies – private companies.  We have a sister website, Key To Funding, that is making great progress in bringing in new clients.  We have done a number of fundings in the past three months – equipment leasing, factoring (including spot factoring), acquisition financing, and other formats.  We’re very excited about our progress.

 
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Posted by on August 13, 2015 in Business, Entrepenuers

 

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OTCQB Snapshot

Go to http://web.otcmarkets.com/OTCQB-Americas-Venture-Market/ for more information straight from the source of this infographic.

 

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The only 10 slides you need in a pitch

 
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Posted by on July 1, 2015 in BLOG

 

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Why do you want to be public?

Many business people believe that “going public“or doing an initial public offering (‘IPO’) is the end all be all of being in business.  The prestige and experience will bring untold riches and happiness following the big event.  Unfortunately, the truth of the matter is often exactly the opposite – “if you go public in the forest and nobody is there to witness it, did you actually go public?”  I jest, but the reality is often not far from that.

Benefits of being public

So, why would you want to be public?
  • Attract new capital with an IPO and have the ability to attract future capital.
  • Enhance prestige and public awareness of your company and its products.
  • Create publicly traded securities as currency for acquisitions.
Associated with people, being public gives management the ability to:
  • attract and retain executives and key employees with incentive stock options,
  • provide directors, senior employees, customers and suppliers opportunity to become stakeholders in the company, and
  • provide liquidity and exit strategy for owners and investors.
The last one, providing liquidity for owners may be the slam dunk for going public.  Many private businesses never provide a liquidity event for owners who get stuck in their businesses without an opportunity to “take some of their chips off the table.”  Going public gives them the ability to diversify their interests without having to sell their company to get at some of their equity.

Good candidates for “going public”

So what makes any company a good candidate for going public?
  • Company size – a size large enough to create a sound foundation for growth while not being
  • Growth potential and financial performance to date – public companies depend upon their ability to attract capital to accelerate their growth, so if no growth potential, not a good candidate for going public.
  • Financial statements that can be audited by an independent auditor – you’ve heard of them and know they exist, companies that couldn’t complete an audit if they tried, and unfortunately, we’ve experienced these first hand.
  • Quality of current management – if current management needs to go, get your house in order before trying to go public.
  • Public appeal – if your company is in an industry that everyone is shunning right now, like tobacco today, then you might not be able to achieve some of the reasons to go public in the first place (of course a shunned industry may be ripe for roll ups).
  • Market timing

Summing it up…

All in all, going public needs to be able to stand on its own with reasons being focused on liquidity, capital formation, and creating a sound foundation for accelerated growth.  We can help your company determine if you are at the right point in your corporate existence to go public, or if you need some work before you get there.
Contact us on our contact page for more information…

Copyright 2015 by Rhodes Holdings LLC, all rights reserved.

 
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Posted by on June 26, 2015 in BLOG

 

Starting at the beginning, the business structure #1

In our work here at Rhodes Holdings LLC, we work with numerous business organizations looking for funding.  What is striking is how mismatched many businesses are to the business organization structures chosen – therefore, we would like to go over some of the business structures and their uses, risks, and benefits.

Sole Proprietor

Keep it simple when you are starting out, then if business starts to boom, then move to a more complicated structure for your business.  This is the simplest form of business organization (U.S. Small Business Administration definition of sole proprietorship) in that there is nothing that you need to do – just start doing business.
Take payments and deposit them in your own checking account, although we do recommend opening a separate checking account for your business to segregate business expenses. When you file your taxes, Schedule C on the IRS Form 1040 (instructions) is where you list out your revenue and your expenses.  If you want to name your business something other than your name, you can file a ‘Doing Business As’ or more frequently known as a D/B/A.  In some states you must file a D/B/A in each county and in Texas you can file a D/B/A statewide (which can last 20 years).

Actions Required

  • Open a business checking account
  • File a Doing Business As (‘D/B/A‘), for Texas
  • File taxes on schedule C of IRS Form 1040
  • Secure a domain name and create a website
  • (come on, this is 2015 and this is required for just about every business)

Benefits

  • Simple
  • No extra annual expenses for tax preparation or franchise taxes

Risks

  • Personal liability – the individual who owns and operates the sole proprietorship is personally liable for debts and actions of the business since there is no separation between the individual and the business.
  • Raising funds is dependent on the individual owners’ credit and guarantee, which makes it very hard to raise any funds for this business structure
  • Precludes certain activities, licenses and permits that require corporate structures

Conclusion

As the Master of Funding, I personally believe that every business should start off as a sole proprietorship since it allows you to focus on your business instead of the structure of the business.  Write your business plan, make some sales, and run the business for 6 months prior to incorporating.  Once you are ready for the next step in your business’ evolution, do some homework.  Read some of the further reading sites that we provide, contact a lawyer who can walk you through the legal ramifications of each of the corporate business structure (the Master of Funding will provide some further posts associated with business structure), and then take the plunge.  Coming up, information on:
  • Limited Liability Corporations
  • Corporations
  • Partnerships
  • Limited Partnerships (and LLP’s or LLLP’s)
  • Joint Ventures

Further reading

We recommend that you review business structure types to ensure that your business is optimizing its usage of our U.S. federal tax incentives for businesses, Texas state regulation support, and local rules.  A good time to do this is immediately prior to the annual meeting of the business.  Here are some sites that we continually scan:

 


Copyright 2016 by Rhodes Holdings LLC, all rights reserved.

 
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Posted by on June 15, 2015 in BLOG, Business

 

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