Outside ventures require close review

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The Transportation Services Index for freight increased 1.3 percent on a seasonally adjusted basis in February from January’s level of 119.1. The 120.6 index level in February was 3.7 percent higher than the February 2003 level. The index, which was launched by the Bureau of Transportation Statistics in March, is still under development and subject to refinement.

GE Commercial Finance-Fleet Services (www.gefleet.com) worked with Asset Appraisal Services to introduce an online remarketing channel to help Fleet Services’ customers sell their used heavy truck and specialty assets directly to dealers. By using onsite inspections and condition reports, customers avoid the cost and hassle of having the assets picked up.

Internal Revenue Service introduced two resources to help small businesses keep their employee retirement plans compliant with federal tax law. Check-Ups are a series of checklists that help employers identify possible problems with their administration of Simple IRA, SEP and SARSEP plans. Retirement News for Employers is a newsletter that addresses concerns of small businesses in relation to the plans they maintain for their employees. For more information on both, visit this site.

Employers not required to use the Electronic Federal Tax Payment System (EFTPS) can receive a refund of a federal tax deposit by enrolling in EFTPS, the Internal Revenue Service announced. To qualify, an employer must have paid the penalty in full, use EFTPS for one year and make all Form 941 payments on time. To enroll, visit this site.

If you have succeeded in trucking, can you thrive in another business as well? As a CPA serving entrepreneurial clients, this question arises frequently. Every successful business owner at one time or another gets the bug to invest in a new business venture, perhaps one related to his core business. For example, a trucking company owner who buys lots of tires might think that owning a tire store would be a great business. He might think it will help him save – or profit – on a key expense item.

Other times, an owner might want to delve into something totally new. If owning a fleet gets tough, why not invest in, say, a local restaurant?

Whether it’s a seemingly solid diversification strategy or a wild idea that pops up at a cocktail party, you need to conduct a feasibility study on any outside investment opportunity. It could mean the difference between the club level or cheap seats come retirement time.

We need to make a distinction between backing an entrepreneur and expanding your present business and management team into a new product line or service. The latter course is risky enough as you stretch your company’s resources into new areas. But the former approach – known as angel investing – is especially challenging.

When you look to fund a start-up or fledgling business or entrepreneur, you are acting as a venture capitalist. That term, however, is usually reserved for disciplined teams of hard-nosed investors who have experience in managing multiple ventures of $1 million or more. An angel investor, on the other hand, may be one or a group of individuals who might back a promising new business or young entrepreneur with, say, $10,000 to $100,000 each.

If you have some cash, there are plenty of opportunities to be an angel investor, but be certain they represent smart investments. One savvy investor I know looked at perhaps 100 deals before actually investing. How do you quickly sort through the possible investments to determine whether you should continue to the expensive legal and accounting “due diligence” phase? Here are my recommendations:

Understand the venture. The would-be entrepreneur should have a written business plan. If he doesn’t, suggest he write one and come back when he’s finished. If he cannot express himself in writing to explain the business in at least a simple plan, move on. What you are dealing with isn’t a real entrepreneur but rather a dreamer who is not really prepared to build a business.

Understand the industry. The chosen field should be one you can grasp easily. Is there a clearly defined and proven business model for successful players? Is there a model business in some other locale that can be used as a basis to envision the growth of the new venture? If not, you are potentially a pioneer. Learning on the frontier can be fatal.

Understand the entrepreneur. What drives or motivates the person you are considering backing – profits or an idea? What are his strengths and weaknesses? Does he want your counsel and not just your money? And can your investing team counterbalance and build on the entrepreneur’s weaknesses?

Examine your personal reasons. Assuming that you have the ready cash and can risk it for total loss, why do you want to do this? What’s the hurry? What’s the opportunity cost? Consider a simple two-columned “Reasons to do this / Reasons not to do this” analysis. You might be surprised at the results.

Take your time. Due diligence is a lengthy process – typically at least four to 12 weeks from idea presentation to funding. Assuming you would be part of a group of investors, you need to sort out the committed investors from the tire-kickers. Consider listing in advance of due diligence conditions that would be deal breakers for you. If those conditions are shown to exist, back away. Don’t let emotion alone guide your decision.

Do it right. Before jumping into your first angel investment, I recommend reading a book: Angel Investing: Matching Startup Funds with Startup Companies – A Guide for Entrepreneurs, Individual Investors and Venture Capitalists by Mark Van Osnabrugge and Robert J. Robinson. And consider asking hard-nosed and skeptical professionals to assist you. You need understandings in writing – lots of legal documents, financial budgets and projections, how to control the money and much more. Don’t get hitched to an entrepreneur without a prenuptial agreement.

American Trucking Associations’ advanced seasonally adjusted Truck Tonnage Index rose 1 percent to a record high 156.5 in March. March’s increase was the sixth in the last seven months. For the first three months of 2004, the index is up 6.7 percent over the same 2003 period. The index uses 1993 as the baseline of 100.

ATA Chief Economist Bob Costello believes the factors are in place for continued tonnage growth, including strong manufacturing production, inventory rebuilding and solid consumer spending.

“The talk of so many carriers is it’s only getting stronger,” Costello told attendees at the 15th annual Randall Trucking Symposium, held in Tuscaloosa, Ala., last month. “Truck tonnage is definitely going to be over 6 percent growth this year.”