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MBA Mondays: Financial audits

On Mondays, sometimes I like to discuss business topics when I have the chance.

MBA Mondays is an idea I got from Fred Wilson.  The issue this Monday is financial audits. I have been thinking about audits recently, since we spend a lot of time going through them for deals that we work on.

See below for a few short tidbits on a financial audit.

What? A financial audit is an audit of a financial statement.  An audit means the verification of the accuracy (e.g. truth) and reasonableness of the financial statements.  The audits usually (but not always) result in an opinion band the opinion is intended to assure various parties that the financial statements are fair and that they give a fair view of the company based upon the accounting standards.

Are they a guarantee? No. An audit is intended to provide reasonable assurance, but it does not give a guarantee.

Who? Audits are usually done by audit firms. These are firms with licensed accountants who are experts in the field. They are almost always independent third parties.

Why? An audit (and the opinion) is intended to assure various parties that the financial statements are true and reasonable.  More specifically, it is intended to ensure that the company is not doing anything that is materially misleading its filings. This is why it is done by an independent third party.

Why does it matter?  These can be important in transactional work. In any sort of transaction, one company usually needs to be valued, because it is being sold or acquired, or its stock is being sold or acquired.  In order to value a company, a buyer and seller should understand things like assets and liabilities, cash and cash equivalents, property and equipment, and the short and long term debt of the company, among other things. Financial statements presented by the company have these numbers, thus the financial audit are important to help prove that the numbers the company gave are reasonably correct.

Layman’s Terms:  Think about it like your tax return.  You could purposefully put misleading information in to save money ever year. Moreover, even if you try to get it right, you may accidentally still get things wrong or mislead the readers. In many cases, the government will do an audit, to make sure what you submitted is correct.  That’s why tax firms will often audit the forms first, to make sure everything passes the test of reasonableness.

Keep in mind that this is the short version. The audits can become quite a bit more complicated than this.

Tags: Finance, MBA

When was the last time you did something the first time?

It’s a good question.  Something I’ve seen a lot of in the last few weeks.

Grad students first day back in school after years of working full-time.  MBAs starting their full time jobs in a brand new industry.  Friends starting a new company for the first time. And many other people taking a leap of faith.

That’s because the feeling you get from doing something new is what rewards us as humans.  It’s exhilarating, it’s what makes our work worth while, and it’s the only thing you can do that might change everything.

But we don’t do it nearly enough. Instead we stick to the status quo. We get in patterns and enjoy the routine. We put our heads down and just do our jobs.

But what if you did it more than that? What if you did something that might not work? What if you worked harder than ever on something you care about? What if you invested all of your emotions on something new?

The possibilities could be endless.

Embrace the pain

Pain, of course, is sometimes one of the worst things in the world. But embracing the pain is also often the gateway for change.

Along the way, it doesn’t usually feel like it’s true. Because by definition, pain hurts. It makes you uncomfortable, distracts you from the your end goal, and often makes you feel like you can’t finish.

But the thing is, that feeling is only in the moment. In fact, by the end embracing the pain makes you feel like you can finish stronger than ever before. Think about it.

In yoga, you feel the pain but by the end you feel more flexible, feel stronger, and at the end of class, feel like you can do anything. Even do a second class.

In sports, the same thing is true. Through the pain that comes with training you get better.  And if you embrace it, you’ll get faster, jump higher and perform better when the game starts.

In life, pain helps you learn to endure failure, learn how to make better choices, and learn how to stand up and fight back the next time around.

When we run from pain and quit early we don’t get nearly enough out of it. We get disappointed and we don’t make progress.

On the other hand, when we embrace our pain, follow it to its source, and learn to lean into it, we have the opportunity to grow in a way that could change everything.

[With that said, I’m off to my daily 6am yoga class now]

Reducing the Bravery Shortage

What would happen if you had the courage to stop doing what’s comfortable right now and instead do more meaningful work.

Just two days ago I heard of someone who had.  A colleague of mine told me she saw an update from a former classmate who quit her job.  After graduating one of the best law schools in the world and working at one of the biggest law firms in the world, she finally made the leap to go work at a nonprofit even though she was afraid.

What wonderful news.

In today’s world, taking that leap in spite of fear is not common. In law firms and consulting firms many people also leave, but usually for positions at companies not nonprofits.  In business school, most people aimed for the jobs with the best names and the highest salaries and forget about their passions by the end.  Law school was just the same.  Nearly everyone seeks out the firms with the biggest names.  Don’t get me wrong.  For some people these decisions are the right things to do.

But unfortunately, none of these companies give you a manual on how to eventually do meaningful work.  There is no kit.  No users guide. No terms and conditions. You just have to take the leap of faith, which gets harder and harder the longer you stay.

In today’s internet driven world, we have everything we need in front of us to do meaningful work.  We have the tools. We have the people asking about it. We have the resources to speak up. We have the platform to share our work with the world.

It is only when people are brave enough to stand up that we will actually make change.

What’s your grad school story? My small group seminar

In the next two months, I am organizing a free, very small, group seminar/phone seminar for up and comers considering grad school, career moves and new projects.  Fill out this form if you are interested.  

This is for the participants together to think about their careers and figure out their stories.  This seminar will be helpful for any aspiring MBAs and JDs but also for those seeking other grad degrees or looking to start new projects.

We’ll talk about applications but more importantly, we’ll talk about  your mindset, your values and your story.

Before we finalize all the details, we’ll need to get a a few to make it worth our time. Let me know if you are in.

Here’s a partial list of people that have given positive reviews about the blog/sessions/advice before.

Here is the form.

Where are the real relationships?

In today’s internet-driven connection economy, there are two types of  relationships we tend to make.    Real relationships and drive-by ones.

The obvious choice for every single one of us is real relationships. But the irony is that most of us don’t act that way.

We send out our requests to our friends at the last second. We rely on the internet and text messaging to rather than calling or meeting in person. And we divide our time more than ever before leaving people who we went out of their way for us wondering if we even care.

But along the way, I’ve learned that there is also a lot of value in fewer but better friends.  At some point in business school, a lot of of us did.  And so many of us eventually asked ourselves, where are the real relationships?

We learned that you don’t all-of-a-sudden form real relationships after a night out on the town or just because you live in the same neighborhood.  Instead you make them through a series of personal interactions. By spending more time with them to hear their personal story.  By picking up the phone and calling rather than relying on a text or email.   By showing thoughtfulness and generosity, especially in times where they would have never expected it. And by being there for someone when they need your support.

One of the easiest things to do is to form drive-by relationships with people who you’ll keep at a distance.  But one of the hardest things to do is find real relationships with people that matter.

Real relationships are really hard, but they are worth spending more time on.

Will I see you again?

We all ask the question, but few of us understand how often.

But this question is far more important than you think. It’s what every business implicitly asks a customer after she makes her first purchase.

What a professor thinks after the first class when students are shopping classes before committing to a schedule.

What personal trainers say after giving a new member his first free session.

What an employer thinks when it gets a star candidate who just left her interview.

What a blog reader thinks after he had his biggest day in terms of hits.

What you think after you meet someone you like on a Friday morning in your yoga class.

Today it’s easier than ever to see someone once, have a transactional interaction, and never see them again.  It happens to most of us almost every single day.  On the other hand, we also have the chance to see some people a second time.  To form real connections and create an interaction that matters. When we do, especially when it’s on purpose, that opens up all new possibilities.

What story are you telling?

That’s what really matters. Not the facts and logic that you keep giving to people all day.

The last job you applied to. Your pitch for you new startup. Your application to graduate school. It usually comes down to story.

Think about it.  More often than not, you can’t make people do things. But you can tell them a story. One that gets under their skin. And one that makes them remember that you are the obvious choice.

In the job application you recently submitted.  Does your life story fit with who the company needs to hire? The schools, past jobs, and recommendations? What they need RIGHT NOW.

The homeless person asking for money at Starbucks. Does the way they ask tell you something about their life story that makes you feel compelled that they can turn things around?

Your business school friend who just asked you to invest in her new venture. Does the mission reach you at your core?

Unfortunately, the answer to these questions is usually no. Because we usually focus on facts and tactics. That’s why consultants refine slides and lawyers draft memos and marketers estimate market size over and over.  These things often don’t work because they fail to reallly convey the story that needs to be told.

I propose the idea that rather than spend so much time thinking about those things, instead we focus more on the story.  One that’’s not only compelling but one that also resonates with things your audience already believe in.

So. What story are you telling today?

MBA Mondays: Fork In the Road

The time has finally come.  You have a critical business decision to make.  You could choose one of two ways and from your seat, both ways look right.   Problem is, you can only pick one. What do you do?

Unfortunately, this comes up far too often. Many times you don’t even realize it.  But even when you do realize it, it still feels like its impossible to choose.

That’s because the two options are usually both compelling, even though they are completely different

In business, choosing one could mean changing your entire value proposition   When you get new feedback from users, do you use one name or do you change everything and go with the other? Do you choose to focus on the customer you had in mind or do you change to the other customer? How do you decide which one you care about more? Because you can’t see the end of the road from your seat.

In the legal world, lawyers face this same choice.  Choosing one strategy sometimes means you forego all opportunities to argue soemthing different.  Choosing to argue for theft and not robbery.  Homicide and not manslaughter.  Choosing to go to court rather than settle, even when a large settlement option sits right in front of you.

Once you see it and understand the choices, then comes the hard part: you have to take a stand.  You have to say, here is what I believe and I’m ready to risk it all to move forward. Even if people don’t agree. Even if I lose support. Even if I lose some of my customers. Even if I lose a few votes.

What fork in the road are you facing right now.  And what are you going to do?

**Full credit to Seth who talked a lot about the concept of forks in the road while we working on his new project a couple of weeks ago.

Guest Post by Varsity Tutors: How to improve your score on the GMAT [or any test]

Any friends studying for a standardized test these days?  Then this guest by my friends at Varsity Tutors could be for you. Whether you’re studying for the LSAT, GMAT, GRE or the SAT, these general tips may be helpful on your second attempt.  More importantly,  they reinforce the idea of just how much #EducationMatters.

See below for the article.

How to Improve Your GMAT Score

“B-School applicant, you just finished a grueling four-hour test. What are you going to do now?”

“I’m going to…take it again!”

Well, that wasn’t the answer everyone was expecting. However, retaking the GMAT is a reality for many test-takers. Some simply feel they could have done better than they did, others need a certain target score to get into a particular school that they have not yet reached. In fact, students are often encouraged to initially sign up for two tests, hoping that a scheduled second test will take some pressure off of them the first time, ultimately leading to better scores.

If you have a solid reason to take the exam again, get the test date locked down as soon as you can. You have to wait 31 calendar days before retaking the GMAT, but in the interest of keeping your knowledge fresh, you shouldn’t schedule your retake too far after that time.

So, you’ve got a month or so before another test day, and you need a plan. It’s time to figure out what to do so that this extra effort expended will not go to waste.

1. Review your initial test day experience immediately.

As much as you probably don’t want to relive an experience that you possibly found about as fun as dental surgery, an immediate debrief is a necessary evil. As soon as possible, go back over your entire test day experience and take notes.

• Remember your physical condition. If you were sleepy, felt hungry, or were uncomfortable in any other way, these circumstances could very well have messed up your score. Thankfully, they can all be fixed for your retake.
• Remember conditions of the room. Things like temperature and noise can also affect you negatively, and you can be better prepared for them next time.
• Remember your actual test-taking. Timing and concentration during long reading passages are examples of important concepts that should be always incorporated into your preparation. Did you have problems with these the first time?
• Remember the test content. There may have been specific concepts, vocabulary, or problem types that were vague or unknown to you and that, to your dismay, popped up repeatedly. Jot them down so you can work on them, since it’s likely that they are important and you will see them again.

2.   Take a short break.

Once you’ve immediately recapped the day, it’s time to shake it off and move forward with the lessons you’ve learned. It’s important to give your mind a little bit of time off and put some distance between you and the first test.

3. Address your weaknesses.

When you analyze your test day experience, look at the items that you saw consistently and didn’t feel confident approaching. Hit those hard by doing drills and in-format questions until they are no longer a problem.

4. Shore up your strengths.

Don’t let the things that you are good at fall by the wayside. Instead, keep them fresh by continuing to work on them while simultaneously reviewing the more challenging material as well. And, in all question cases (but particularly when you’re trying to keep your good skills fresh), go over both correct and incorrect answer choices. You may have answered the question right, but was there a faster way to do it? Is there any lesson shown in the wrong answers that you could use regarding eliminating wrong answers in the future?

5. Work on time management.

Time management is a big problem for most test-takers, so don’t neglect it. You’ve got to improve how quickly you get correct answers and how much time to spend on questions before giving up on them or guessing. Once you have concepts down, complete timed problem sets and exercises as soon as possible.

6. Change it up.

The results of your first test were clearly subpar for you, so perhaps your method of test preparation needs to be changed. If you keep preparing the same way you did before, how will you ever increase your score? Einstein famously described insanity as performing the same task over and over and hoping for a different result. To avoid GMAT “insanity,” change the method somehow – get a GMAT tutor, use a different test prep book publisher, do a better job simulating the real test day experience when you do practice tests – really commit to working on the test everyday and not just sporadically. Shake up your learning and pump up your score!

It’s important to be very honest with yourself when analyzing your first test day experience. Only you can really know if you really were absolutely committed to the process and if you truly grasped what you kept saying you understood. Make some truthful assessments, change your preparation appropriately, approach test day with the confidence that comes from experience, and you’ll be well on your way to an improved score.

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This post is written by Toby Blackwell. Toby is a GMAT tutor and contributing writer for Varsity Tutors. He graduated with honors and received his Bachelor’s degree from Harvard University.

Tags: GMAT

New project based on bravery

During times of change, there’s nothing more important than bravery.  So I’m going to explore the topic over the upcoming months.

Whether deciding to take a stand on an issue that is controversial.  Going out on a limb to take on a risky project.  Or deciding to risk everything and tell someone exactly how you feel.

Brave acts are the things that help us make history.  That’s why giving people a platform for bravery is so critical.  That’s why I am exploring the topic.

No details yet, no decisions on platform, but the time will come.

Click here to let us know if you have a story of bravery to share.  I look forward to sharing mine.

#ArtofBravery

The simplest but most effective marketing strategy

Do you want to know the simplest, but perhaps most effective marketing strategy?

You probably have a lot of potential answers, but I only have one in mind.

You may not want to ask MBAs. MBAs will probably use analysis to give you a good answer.  MBAs will tell you how to size the market.  They may also tell you how to estimate your budget based on lots of numbers. But this usually doesn’t help with getting people to buy what you have.

It might also be risky to involve lawyers. They’ll tell you about all the risk and about all the potential litigation.But you don’t need that skill to be successful.

I propose that the best method to market is simply to care deeply.

I told you it was simple.

In short, care about WHAT you do and more importantly WHY you do it.  Care about the customer. Care about being generous and giving the customer the best experience you can.  And care about the story.  You don’t need a degree to do that, though the experience of getting the degree probably helps you understand others better.  But in many cases emotions, hard work, and a compelling mission will go a long way.

Just a thought.

Tags: Leadership

The Unknown

This is the concept that gives a lot of people terror but also gives others excitement.

When I chose to work at a startup many years ago, it was because unknown excited me.  I wanted to be connected to game changing ideas and to people who like shaking things up and causing a ruckus.

When I chose to work at a law firm many years later, I still had a love for the unkown but I chose it for longer term reasons and because it was more was known and stable. I was just out of law school and business school, so even though it went against my nature of spontaneity and excitement, it also appealed to have structure and routine.

Both types of jobs can be good for the right person, but neither of them is for everyone. People on each side are very different.  The tolerance for risk, especially when you don’t know when the risk is coming.  Their ability to work through ambiguity and things they don’t know.  The ability to deal with pressure, especially when the consequences can’t be predicted.  In short, the unknowns.

Both jobs are hard, frustrating and tiring. But both can also be very satisfying and help you develop in profoundly different ways.  But one of them is filled with more unknowns than the other. And it only works when you’re ready to take the unknown head on.

So what about you? Are you ready?

Rico Reyes for Texas State Representative in 2013

Every now and then, I like to highlight interesting professionals I know. One person I know is named Rico Reyes. Rico is not only a friend and a fellow dual degree JD/MBA degree, but he is also passionate about his community and now is currently seeking a seat as aState Representative in the state of Texas.

I first met Rico in Austin about 2 years ago, at an event called Latino Legacy Weekend (“LLW”).  LLW hosts Latino leaders from all backgrounds all around the country to think about their passions, ideals and biggest concerns.  Rico and I connected very quickly because we had similar interests and career experiences.   Rico worked as a lawyer for years, including as a Prosecutor at the Travis County District Attorney’s Office as welll as a Capitain as a United States Marine Corps.

Rico’s talk was compelling as was his interest in service.

But don’t take it from me, take it from Rico who has a great Facebook pages and great website, full of videos. Please consider visiting wen you have a chance.

Facebook @ www.facebook.com/RicoReyesforDistrict50

Website @ www.RicoReyes.com.

Three More Days

Three more days.  Yep, that’s it.  In three days, I’ll be working with a small group of people from all over the world, and we plan on doing something very special.

You must be dying to know exactly what this means?

What this means is that folks with game-changing ideas are coming together to work with a common purpose and to work for a common cause.  That purpose is to create something remarkable and in this case, the cause is related to education and the internet.  In just a few days, I’ll be joining Seth Godin, and his hand selected team.

In terms of what we’ll do, good question.  We’ll have discussions to see if we can up with a few ideas, maybe draw out a game plan, perhaps create and launch a product, and possibly even strategize on how to raise capital.  Who knows.

On one hand, the details are not all determined yet and that’s why the team is going to be important. On the other hand, we have to be quiet about what we are doing until we’ve done it.

But soon, that may not be the case.  So stay tuned. I look forward to sharing our progress with you.

Tags: Blogging, education, Entrepreneurship

Essay Writing Tip: Stop Exaggerating

I see it in just about every admissions essay I read.  Words like, “very” and “always” and other phrases and adjectives to make accomplishments sound bigger and better.  Only one problem: exaggeration in essays is usually not very helpful.

Sure, it gets your reader’s attention. It may even capture their interest.  But it doesn’t convince the skeptics or change the minds of the unbelievers.  Instead it makes them more skeptcial and less likely to believe anything you wrote about.

The most important thing you can do in any essay is tell a real story.  Not just a good one but also an authentic and believable one.  A story that resonates with the readers, aligns with what they believe, and creates a way for them to feel connected to the plot.

But when you exaggerate, more often than not you create a story that people are not connected to and one they couldn’t imagine taking part in.

So instead of exaggerating, you should describe in detail how things happend.  Summarize the background and explain how things turned out in detail.  Make the reader feel like he or she was there with you.  Like he or she felt the same excitement or fear.  And make them experience your anxiety, realizing they would have reacted the same way and learned the same lesson.

Exaggeration doesn’t really have a strong place in such essays.  On the other hand, finding common ground with your reader through persuasive yet realistic prose always has a place.

Good luck.

MBA Mondays: Weddings after Graduation

During business school, not only are you surrounded with the highest caliber students and professions but you also are surrounded with amazing friends.  And one of the best parts of finishing business school is that you get to celebrate weddings with many of them.

The last year since graduation has brought a lot of weddings from my MBA friends not just at Kellogg but all across the country at top schools.  It has been a thrill and a pleasure to take part in some of them.

Last weekend, I had the chance celebreate one more wedding in Seattle, when my good friend (and now work colleague) Kent married his college sweetheart Emily. The wedding was wonderful and gave us all the chance to share the moment with good friends who live in different parts of the US now.

Congratulations to my incredible friends Kent and Emily for a wonderful weekend.  Thanks for letting us all share in celebrating the special day.

Everyone at the wedding had just one question though: who in the group is next?

The Role of Local Counsel

One question that often arises in the practice of corporate law is whether you really need to hire local counsel for commercial deals? The answer is an unequivocal yes.  Here is the short answer for why.

Local counsel is the lawyer or law firm that is qualified to do business in a certain geography.  They are often hired becuase the laws of that geography might be critical to facilitating a deal, including a commercial finance deal, a secured lending transaction, or real estate deal just to name a few.

In many transactions law firms will hire local counsel because their clients have business going in other states. As a general rule, a lawyer can only work on a legal matter if he or she is qualified to practice law in that state.  If the deal takes place in a state where there lawyer is not qualified to practice law, then the lawyers would not be able to work on the deal.  On the other hand, if the deal takes place in a state where the lawyers are qualified to practice, but parts of a deal may involve an additional state, then a firm may hire local counsel to assist.

One reason local counsel should be a part of any relevant deal because, without hiring them, lead counsel may be engaged in the unauthorized practice of law.  Anothe reason to hire local counsel is because counsel should also have more knowledge and experience in the states that they practice.  Without getting too far into the weeds,  local counsel is  very important because they provide opinions that give comfort to lendeers and induce them to move forward in transactions that ar eoutside their borders.  These opinions are relied upon to deem the transaction as valid, to show that it complies with all aspects of local law, and that the debt is secured by verifiable collateral in that specific state.

While the folks at many big firms on a deal are certainly smart enough to do such work, they wouldn’t be as close to the matters as local counsel would be and that’s the role of local counsel.

Tags: Law

From the Archives: Reflecting on the 2010-2011 School Year

To all of those who recently graduated from college and grad schools over the past few weeks, congratulations! What a important accomplishment! I really do believe that Education Matters more than ever in today’s world, as the gap between those with and without a quality education is bigger than ever before.  In the spirit of graduation season and embarking upon new careers,  I wanted to share one of my favorite posts, which comes from the archives.

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2010 was an interesting year. Most of us left high-paying banking and consulting jobs and finally decided to return to business school. And what timing! The financial crisis was finally starting to fade and the prospects of recovery left the business world enormously hopeful. At the same time, the nomination of Sally Blount as the first female Dean of Kellogg had just made business news history.  Many of us were excited to be back in the  classroom during such interesting times, especially as we knew the markets were recovering just in time to land our dream jobs at business school.

But one thing we didn’t know is that many of us would also be scrambling in business school. Many of us had to scramble to learn accounting and finance since it was our first time ever taking the classes.  Others of us scrambled to stay awake in DECS and MECN, after spending the night before prepping for upcoming job interviews. And some of us scrambled all year trying to figure out exactly what our dream job was, or if that job even existed.

And so that leads me to the million-dollar question today. The one question that’s been on everyone’s mind since last August. What is the best opportunity to pursue at Kellogg? And what can I do to ensure that I maximize my success?

CLICK HERE to read the full post.

Tags: Leadership

MBA Mondays: EBITDA

One word I hear a lot in the finance world is EBITDA.  Most people don’t know how to pronounce that acronym, let alone how to define or calculate it.   But it’s quite an important concept in business.

Investopedia defines EBITDA as net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.

EBITDA first became common in the 80s with respect to leveraged buyouts, because banks and finance firms used it calculate whether or not a company could service its debt, based on how much money it earned.

The simple way I like to think about EBITDA is earning power. It is the profit that a company earns for doing exactly what it’s supposed to: sell a product or a service.

EBITDA effectively removes the effect of things people don’t want to consider – the effects of taxes, interest income, and expense as well as the effects of capital investments e.g. depreciation and amortization.  In other words, EBITDA is a measure of a company’s financial performance sheltered from the real world since all companies actually are impacted by those.

Because EBITDA helps measure the company’s underlying profit, it is often very important.

Banks use EBITDA when determining how much money they can lend (e.g. if a company can service its debt).

Private Equity firms use EBITDA to compare companies across the world which have different capital structures.

M&A teams use it to come up with valuations for companies to acquire or sell.  These figures often go into their financial reports.

Lawyers and investment bankers use it to create earn-out provisions. An earn-out provision is an arrangement in which sellers of a business could receive an additional future payment (beyond the selling price), usually based on future earnings or the satisfaction of other conditions. (This term deserves more explanation, stay turned for a future post on this).

Executive compensation consultants use EBITDA to help determine long-term incentives of executives and CEOs.  The higher EBITDA is, the higher the incentive payment the CEO receives.

The list goes on and on.  It’s probably worth learning more about this important term if you want to succeed in finance.

Tags: MBAMondays