Troy Sympson

Monday, 26 January 2009 19:00

Time to review

Data centers are always in flux, constantly growing and expanding. New applications are added, band-aids are created to accommodate problems, hardware and software is implemented and removed. Because of this, businesses must perform regular assessments on their technologies.

When doing assessments, companies must ensure that trained professionals are involved. Performing assessments without trained engineers can create a false economy when implementing new solutions, according to Bruce Rosenberg, the director of enterprise servers and storage at Technology Integration Group (TIG).

“Time and time again, one saying comes to mind — ‘There’s never enough time to do the job right, but always time to redo it,’” Rosenberg says. “This is the reason not doing proper assessments creates a false economy.”

Smart Business spoke with Rosenberg about assessments, why they’re important and how to properly perform them.

What kinds of assessments should businesses be considering?

There are various types of assessments that resellers and integrators offer, including:


  • File system assessments. These look at the files on your servers and disk storage devices to determine the files’ ages, sizes, types (.doc, .pdf, .xls, etc.), last access dates, last modified dates, etc.



  • Network assessments. These identify IP addresses, equipment, subnets, routing, etc.



  • Virtualization assessment. This looks at your stand-alone Intel servers running Windows, LINUX or Solaris to determine your current environment in order to model a virtualized environment.



  • SAN assessment. This looks at the physical disk, tape and switches that create a storage area network to determine if best practices are being followed regarding data placement, zones on the switches, whether or not there are ‘hot spots’ being created by incorrect load balancing, etc.


Why are engineers important to assessments?

A trained engineer knows the software that aids in compiling the data used in assessments. Additionally, from years of experience in a variety of environments and familiarity with many vendors’ equipment, a trained engineer can sift through the mountain of data and produce a comprehensive, coherent and complete report.

If engineers aren’t involved, what problems or issues can arise?

Not using an experienced and trained engineer can result in not having the assessment tools collecting the correct data, or for that matter, you may not get the tool to collect data at all. Further, a skilled engineer pulls out the relevant data from the inconsequential. For an assessment to be effective, the data collection tools run for an extended period of time, from two to four weeks. That generates a lot of information and, without the know-how, you could be searching for a very long time to find what you’re looking for.

How is a false economy created, and what are the consequences of that?

A false economy is created when you think you’re saving money by skipping the assessment. Yes, there are upfront costs involved in having an assessment performed, but a lot of unplanned expenses can be incurred. Here are some examples:


  • A company misses price breaks and incentives by not ordering the correct quantities initially.



  • SLAs have been missed on projects.



  • Outside resources idled waiting for additional equipment.



  • Completing a project and having to redo it because it was sized incorrectly.



  • Poor performance on a mission critical application or database.



  • Overpurchasing equipment just to ‘be safe.’



  • Incorrectly sized equipment and not being able to gain additional budget.



  • Worst of all, missing a vital component of a disaster recovery plan only to be discovered when declaring a disaster.


Where can a company turn for assistance, and how do you select a good engineer?

A company can turn to the manufacturers of the equipment it currently has or intends to purchase from and ask for their recommendation of an experienced business partner. If the company already has a trusted IT partner, it will most likely be able to guide the company or be able to perform the required assessment itself. Bottom line, the best way to select good engineers is to judge them based on five criteria: experience, training, certifications, recommendations and presentation skills.

BRUCE ROSENBERG is the director of enterprise servers and storage at Technology Integration Group (TIG). Reach him at (813) 281-1980 x1805 or

Monday, 26 January 2009 19:00

Time to review

A document retention policy provides for the review, retention and destruction of records and documents that a business either receives or creates in its everyday business activities. A good policy should identify what documents need to be retained and for how long as well as when certain documents can or should be destroyed. It is needed not only for future reference purposes but also to comply with regulatory requirements under either state or federal laws.

“In the past, BCA (before computer age) document retention was based on file capacity, but now capacity is no longer the overriding issue,” says Johnny J. Veselka, a shareholder with Briggs & Veselka Co. “Today, the issue is how long do we need to keep documents in case we are involved in litigation or our records are subpoenaed by government regulators or in other court proceedings.”

Smart Business spoke with Veselka about document retention and why it’s so important in today’s business world.

What role does document retention play in today’s business world?

Document retention is necessary to be able to refer to and extract data that has been recorded in the past, in order to conduct business and also to protect the business in cases of potential legal action and to comply with rules and laws on document retention.

What problems or issues can arise from document retention?

A lack of a good document retention policy can result in a lack of efficiency in business operations and a lack of storage space. You may be exposed to harsh results in litigation. Destruction of the wrong information or deleting important e-mails can have disastrous consequences for your business, as well.

What is the answer for business today?

A good document retention policy not only states how long certain types of documents must be kept but also where they are to be kept and who is responsible for maintaining those records. Today, it is typical for 80 percent of business documents to reside on employees’ desktops and laptops. Therefore, all employees, not just records management people, need knowledge and understanding of the company’s rules on document retention. Beyond knowing how long to keep documents, it’s also important to know how to properly destroy documents that have passed their retention date.

A powerful document retention policy will allow a company to respond confidently to a court order by saying either, ‘The document exists and here it is,’ or, ‘The document no longer exists, and here is the date and time it was destroyed in accordance with our published document retention policy.’

Why are document retention policies so vital?

Most, if not all, information is now being stored electronically. So, you must purge data that is no longer useful and/or is past its retention period. This will decrease the need for more storage capacity and reduce the length of time necessary to perform backups of company data.

Recent amendments to the Federal Rules of Civil Procedures have addressed how electronically stored information can be exposed during legal matters. Thus, it’s important that you and your staff know what, where and how data is being stored and destroyed.

How can you make sure your document retention policy is working?

You have to stay on top of your policy and always follow up on it. Make sure everyone is following it from the day you implement it. Don’t loosen up on the policy over time — always ensure it is being followed to the letter. Also, keep track of your backup tapes and off-site hard-copy storage. Tape backups must be included in the retention policy. This holds true for those that store hard-copy documents off-site. These documents should be included in the retention policy, as well. Finally, make sure your staff, from top to bottom, is well versed in your document retention policy. The more educated you and your employees are, the more successful your policy will be.

The rules for how long documents should be kept can vary by type of business. To learn the document retention requirements for your business, contact any of the following: your accountant, an attorney, or your state or national trade association, or search online for time limits.

JOHNNY J. VESELKA is a shareholder of Briggs & Veselka Co. Reach him at (713) 667-9147 or

Friday, 26 December 2008 19:00

Virtualization considerations

With technology changing almost daily, and with business being conducted in a variety of ways in a host of places, it’s imperative that your company’s technologies are working for you.

One way many companies are accomplishing this is through virtualization, the concept of sharing the resources of a single technology across multiple environments. While virtualization is a great, if not vital, process to implement, it is often done incorrectly.

“The problem with jumping into a virtualization solution is that you may not get the total package your business needs and deserves,” says Larry Gross, a business development executive at Technology Integration Group (TIG). “Virtualization is a change that needs to include all considerations, starting with applications then covering servers, networking and storage, as well as backup and disaster recovery. One of the industry’s new and exciting ways to address this end-to-end or data center virtualization consideration focus is Cisco new switch level virtualization that allows you to manage and scale your virtualization infrastructure from the core.

“The key is to purchase exactly what you need, not what a technology provider is trying to sell you,” he says.

Smart Business spoke with Gross about how to find a virtualization solution that is right for you, without buying components you don’t need.

What should a company look for in a technology provider?

A technology provider has to be focused on your needs, not the manufacturer’s needs. Technology providers have to understand exactly what you’re looking for and why. If they’re not asking those questions, they probably don’t have your best interests at heart. Also, a provider should stay technically trained on all products and services, be up on all the certifications for the applications, servers, networking and storage that will be architected in the virtualization infrastructure, and be able to identify the exact practices that will benefit you and your company. A virtualization solution is never just one piece. Your technology provider should touch everything, from data centers to applications to networks to storage.

What parts of virtualization should be focused on first?

In virtualization, most people are concerned with processor speed and dual core versus quad core. But, the No. 1 area of concern when you virtualize is input/output (I/O). The No. 2 area of concern is RAM, and No. 3 is storage. This sometimes surprises people, but even in a virtualized world, when you look at servers and the utilization of processors, it is extremely low utilization due to proper load balancing and the ability to share resources in a virtual cluster.

How can a total virtualization solution benefit business?

A total solution allows you to downsize, consolidate and increase availability, all with little to no downtime. One thing that really opens eyes is when you realize you can avoid a crashed or sluggish server. With certain virtualization tools, you can identify what server is your top priority, then, when that server reaches a peak that you set, resources are taken off that server and spread out over other lower utilization hosts. Then, your main server is focused on handling the peak. When the peak is done, everything moves back to the way it was. This way, you have multiple VMs (virtual machines) just waiting for these types of peaks and requests. By spreading out resources, you work more efficiently without down time. With VMware, tools like DRS, V-Motion and Storage V-Motion that allow you to implement HA across applications are the keys to a total solution.

If a company wants a total solution, will it have to scrap everything and start from scratch?

In many cases, once we identify the requirement for virtualizing an environment, we are able to use existing servers, storage and other infrastructure. It’s a matter of just adding I/O, RAM and storage in most cases. A good technology provider will help you improve and upgrade what you already have.

What are the consequences of not having a total solution?

Not many companies are going to take 100 percent advantage of 100 percent of a total solution all of the time. Your technology provider should help you understand your environment and then make recommendations. Then, you need to decide exactly what you need and when you need it. You don’t have to implement a total solution in phase one.

It is also important to know not to move a bad physical environment to a virtual environment. It’s like when you move to a new house. Do you take broken appliances or old things that don’t work for you? No, you trash what you don’t need and start with a fresh working environment. By cleaning and tuning your servers and storage and getting rid of old files and bad techniques first, you’ll have a clear picture of what virtualization can do for you, and you’ll be able to alleviate any other pain that’s been bringing your technologies down. The impact will vary, but a total virtualization solution will make all your systems work to peak performance, which will only enhance business.

LARRY GROSS is a business development executive at Technology Integration Group (TIG). Reach him at (858) 566-1900 x4510 or

Tuesday, 25 November 2008 19:00

Keep income flowing

In today’s uncertain economic times, having a consistent, stable and secure source of revenue could mean the difference between sink and swim.

But, it’s difficult to predict how the market will affect a company’s clients and customers. A customer that’s consistently given you great business could be here today, gone tomorrow. According to Georgia Vasilion, director, public sector, Technology Integration Group (TIG), one way to establish secure, reliable returns is through public sector contracts — selling your goods and services to federal government, state and local agencies, and education institutions.

“Public sector contracts can provide your business with a host of new client possibilities,” says Vasilion. “It should be noted, however, that these contracts require a substantial investment of time and resources, from finding the contract and agency that’s right for you, to drafting the request for proposal (RFP) response, to actually following through with the contract deliverables.”

Smart Business spoke with Vasilion about public sector contracts, how to find them and why they can be so valuable.

What is involved in public sector contracts?

Public sector contracts are generally divided into three main categories: federal government, state and local government, and education. With any of these, the agency will put out an RFP that your company can respond to. Most RFPs are long and detailed, so they require a lot of time and internal resources to digest. And, a public sector contract is not a quick fix, either. Sometimes it can take months or years to complete the process. If you want to get into a public sector business, you have to have buy-in from your entire organization, from management to sales reps who may have relationships with the agency you’re pursuing. To that end, it’s always best to focus on an agency that you do have some knowledge of or experience with. Look at the big picture and how your business will be impacted from top to bottom if you do win the contract. If you can’t fully perform against the contract, don’t pursue it, no matter how good it looks.

How can companies find public sector contracts?

There is a multitude of ways. Perhaps the best way is to visit ( This Web site features a host of open opportunities, and it’s easy to search for one that will best align with your company’s core competencies and business strategies. Again, these RFPs tend to be hundreds of pages long, so make sure you’ve got plenty of time to wade through it all. Other ways to find public sector contracts are relationship-driven. As stated, your sales reps often have associations or connections with different agencies. They can be great resources to find out what business opportunities may be on the horizon. Also, mine your manufacturers for possible opportunities. They may be working on an RFP with the agencies’ end users, and need a partner to submit the bid proposal.

What should companies look out for when pursuing public sector contracts?

Even if you’re going after a federal contract, there are usually state and local considerations to keep in mind. While state and local agencies have their own rules and regulations, such as needing a physical location or business license, these can be worthwhile contracts to pursue as well.

One of the most overlooked requirements in an RFP is the absolute necessity of following directions. RFPs will be very specific. There will be direction of what type of paper and font to use, and how many copies and how they want them bound. In short, agencies receive hundreds of proposals — they are looking for any reason to throw yours out. If you can’t follow simple instructions, the agency’s evaluation team will assume you will not be able to deliver on the specifics of the contract.

Finally, you have to have a strong infrastructure. From putting the proposal together and securing the contract to actually following through on it, you’d better be able to deliver to expectations. Most contracts require that you set up some kind of reporting system, and will require you to meet delivery and customer service expectations. If you win a public sector contract and don’t have the infrastructure to make it work, not only will you lose that contract, but it’ll be pretty doubtful you’ll win another one in the future.

If you’re confident your company can handle the contract, what benefits and ROI can you expect?

Bottom line, a public sector contract can help get you into a constant revenue stream. You’ll be able to hit your numbers and keep your business moving forward, even in a tough economy. Having these contracts gives you peace of mind, knowing what will be coming in and going out in the future. Over time, these contracts will allow you to increase margins, which is not an easy task in today’s market. And, these contracts get you more involved with the agency you’re working with, so you’ll become more familiar with who that agency is and what it does, and you’ll be a known entity, thus giving you a better opportunity to shape and win future contracts.

GEORGIA VASILION is the director, public sector, for Technology Integration Group (TIG). Reach her at (310) 320-4934 x4962 or

Sunday, 26 October 2008 20:00

Purchasing power

It’s a foregone conclusion that your company and its employees need technology to conduct day-to-day business. Yet many companies don’t have a technology purchasing management solution in place, and some have probably never examined their technology purchasing and maintenance processes.

Companies spend a lot of money on technology devices and the consumables for those devices, yet, many times, purchases are made with no rhyme or reason, and thousands of dollars are wasted. Different departments manage different devices, devices are procured from various vendors, rental and maintenance costs are not identified or measured, and devices and their components are misused and underutilized. Thus, more and more companies are looking at consolidated purchasing solutions.

“The key is to understand your company’s total environment, simplify your technology purchases and save money,” says Becky Connolly, the director of computer and imaging supplies and accessories at Technology Integration Group (TIG). “Therefore, it only makes sense to partner with one supplier who can be your one-stop resource for all technology needs.”

Smart Business spoke with Connolly about how purchasing consolidation can help you cut costs, leverage your purchasing power and improve the bottom line.

How do you know if consolidation is right for your business?

Consolidation is right for all businesses, no matter how big or small. You need to look at your technology vendor as a partner instead of as a supplier. If you buy a computer from one company, why would you buy the peripherals from a different company? If you buy a printer from one company, why would you go elsewhere to contract service or buy the consumables from yet another company? Why not stop employees from renegade spending. Having one supplier to outfit your company with everything it needs makes sense and this consolidation will gain your company access to better purchasing power and will save money.

Consolidation allows you to leverage this purchasing power, giving you better prices on equipment and supplies, a full understanding of what you are spending — and why — and an entire big-picture view of your corporate environment. This shows you exactly what your spend is, so that instead of variable spending, you can approach spending with accurate fixed costs and savings.

Where do companies usually waste the most?

Companies often start off with small systems and continue to add pieces over the years as business grows. This usually leads to machines and technologies that end up underutilized or not used at all. If you ask some companies how many printers they have, for instance, they may not have a clue. Why pay for something that does nothing but collect dust?

With regard to printing, research from Gartner Inc., an information technology research and advisory company, shows that printing costs are 1 to 3 percent of a company’s gross revenue. Thus, despite all the talk about moving towards a ‘paperless world,’ companies are still printing everything. So a print management solution is a recommended part of any consolidation plan.

What is a print management solution, and how would a company implement one?

A print management solution is a key part of a consolidation plan. You and your chosen technology partner should work together to determine exactly what printing devices you need and why and when you’re going to get them. As part of this process you should consider a print management solution.

The first step in a print management solution is to identify where your biggest printing problems are, and then do what is necessary to eliminate those pain points. Your technology partner will conduct a comprehensive assessment to identify just how much you are spending — and wasting — on printing, including costs for devices, cartridges, toner and maintenance. Then, recommendations are made to help you find the solution that’s best for you. There are many ways to improve printing efficiencies. Sometimes, it’s as simple as a balance deployment plan, moving your current devices into areas where they will be better utilized. Another easy improvement is streamlining printer locations, reducing document flow or switching from costly inkjet printers to laser devices.

Usually, it will take time to change a company’s printing culture. The net result, however, will be increased productivity, less waste, less maintenance, streamlined supplies purchasing and lower overall costs.

Is there often resistance from employees when you make changes?

Most people are resistant to change, whether it be that they can no longer purchase their own supplies, that they now have to go down the hall to access a printer, or that certain software will no longer be used. When implementing a technology consolidation plan, you can’t just expect employees to adjust with no questions asked. Meet with each decision maker and each department to get feedback and buy-in from everyone. If employees understand what you’re trying to accomplish and can see the benefits that will come from a consolidation solution, they’ll be more likely to embrace the change.

BECKY CONNOLLY is the director of computer and imaging supplies and accessories at Technology Integration Group (TIG). Reach her at (800) 858-0549 x4100 or

Monday, 26 May 2008 20:00

Getting on board

All CEOs need help running their businesses — whether they admit it or not. A great resource for help is a board of directors, a group of people whose obligation is to serve the best interests of the company.

But, creating a board is not easy. You need the right people in the right places, and everyone needs to know their roles and be on the same page. These key individuals not only serve your company’s best interests, but they also help you face the scrutiny and watchful eyes of the public and the government.

“The role of a board is more important now than ever,” says Steven C. Karzmer, an attorney at law with Calfee, Halter & Griswold LLP. “All companies need effective boards to keep them on the right track.”

Smart Business spoke with Karzmer about boards, how to create them and why they are so important in today’s business climate.

What are the functions of a board?

Generally, under corporate law — except for items reserved for shareholder votes, such as electing directors and approving certain major corporate actions — all authority of a corporation must be exercised by, or under the direction of, its board of directors. Practically, a board’s function is twofold: advising management on strategic issues and monitoring the company’s performance.

What are the board members’ primary roles and responsibilities?

Under law, board members have two legal duties: the duty of loyalty and the duty of care. The duty of loyalty means that directors must act in the best interests of the corporation and not in their own interests or that of another person or company. The duty of care requires directors to be reasonably diligent in discharging their duties — they should regularly attend meetings and be well informed about the issues. Board members are responsible for all aspects of a corporation’s affairs. The specific responsibilities of each board vary based on the company’s industry and stage of development, but all boards should review and monitor operating strategies and results, management succession plans, annual financial performance, cash flow issues, corporate conduct and legal compliance, and risk management. Board members are also accountable for selecting auditors and overseeing the compensation of senior executives. A board also has to actively monitor how management implements decisions.

How can board members stay on top of it all?

Many boards develop an annual calendar for addressing those items that arise on an annual basis, such as financial performance, succession planning and long-term corporate strategy. Having a calendar ensures that these material items are addressed on a regular and timely basis. Management can also help ensure the success of its board by providing it with regular updates of material information, presented to board members far enough in advance of a planned meeting so they can review it and provide management with meaningful feedback. If the company is considering a significant transaction, management should present it to the board in a number of smaller decisions instead of all at once, allowing the board to give each segment the focus and attention it deserves.

How do you decide what to take to the board?

That is not an easy question. Boards can try to develop guidelines to help a CEO with this decision process. For example, the board may require its approval on issuing options to acquire company stock, becoming a party to any litigation or incurring any debt above a specified limit. To this end, the board, along with management, should review decisions that could have a material impact on the company’s affairs and try to establish some guidance for the CEO. Beyond these fixed guidelines, however, there is a lot of gray. The relationship between a CEO and the board of directors is an evolving one. Over time, the CEO should get a sense of how much information the board wants and what matters the board believes are within its purview, and the board will get a sense of the CEO’s judgment and those issues that are appropriately delegated to the CEO.

So, what makes a good board member?

A good board is filled with accomplished people who fit into the company culture and have good reputations, solid thought processes and strong financial backgrounds. Board members should know your industry, and they should be people who have experienced crises, who have been successful and who can provide guidance to help you be successful. Board members bring not only what they know but also whom they know. Look for potential directors who have connections in your industry and who will provide additional opportunities. Consider outside directors, those who are neither employees nor affiliated with company management. Sometimes, particularly in privately held companies, boards are filled with the CEO’s family members or close personal friends. This almost always is not a good idea. To grow the company and achieve your goals, you need to have challenging and thoughtful discussions. This is difficult with a group of people who are going to agree with everything the CEO says. CEOs need to be secure enough in their position to realize they do not know everything and that a fresh set of eyes can be invaluable. A board also needs to be filled with people who can handle their specific functions. You cannot just divvy up responsibilities without taking into account each board member’s area of expertise.

STEVEN C. KARZMER is an attorney at law with Calfee, Halter & Griswold LLP. Reach him at (614) 621-7013 or

Wednesday, 26 March 2008 20:00

The effects of SOX

When the Sarbanes Oxley Act of 2002 (SOX) was passed, it was intended to address systemic and structural weaknesses affecting the capital markets, ultimately for the purpose of protecting investors by improving the reliability and accuracy of corporate financial reporting and disclosures made by public companies pursuant to the securities laws.

However, the SOX act simply raised a host of questions and concerns, leaving companies wondering what to do, when to do it, and how to do it, not only among the public companies required to adhere to the provisions of the Act, but also among private companies who wondered whether SOX could or should apply to them.

“While a few provisions of SOX do affect private and nonprofit organizations, such as the provisions related to criminal liability for document destruction and protection for whistleblowers, other provisions only apply to public companies,” says Laura Freudenberger, an audit principal with Briggs & Veselka Co. “Still, there is no doubt that SOX is having an increasingly significant spillover impact on the private sector. ”

Smart Business learned more from Freudenberger about SOX and its affects on corporate governance for private and nonprofit organizations.

Why would a nonpublic company consider adopting corporate governance provisions similar to that of a public company?

Many nonpublic companies are starting to voluntarily adopt certain key provisions of SOX that are geared toward oversight of internal controls and the financial reporting process. They feel pressure from those outside the organization, such as donors, lenders, investors and insurers who evaluate corporate governance in assessing the cost and availability of capital, as well as pressure from independent auditors, who evaluate the quality of corporate governance in their client acceptance procedures. Plus, they face pressures within the organization.

In many cases, board members of nonprofit companies frequently serve on boards of public companies and, as such, view a SOX-like audit committee as being best practice for all companies and organizations, public and private alike. Not to mention that many states have adopted or are considering adopting SOX-like requirements for nonprofit organizations.

Should all private companies and organizations seek to implement SOX-like corporate governance?

The cost of assessing and adopting provisions of SOX can be formidable. For a small organization that doesn’t have the resources or the expertise, implementing SOX would probably not be very cost beneficial. Additionally, an organization that expends resources it does not have on implementing SOX-like controls and processes could lose credibility and suffer financially. Also, an organization that is unsuccessful in implementation or fails to adhere to its audit committee charter exposes itself to certain risk.

How should an organization assess which aspects of SOX should be adopted?

SOX contains a number of provisions designed to strengthen financial reporting, internal controls and audit committee oversight of the financial reporting process, including management and the internal and external auditors. Assessing which provisions, if any, should be adopted by a private or not-for-profit organization in an attempt to transition to more SOX-like corporate governance is a significant undertaking, but it can reap large benefits. It’s certainly not a one-size-fits-all approach.

An organization will want to look at the provisions of SOX and assess the cost and benefits by considering what external or internal pressures will be mitigated by implementing SOX-like provisions; whether the board and/or audit committee members possess the skills, time and commitment to carry out the provisions; what improvements to financial reporting and/or internal control processes are sought; and what resources may be required to achieve the desired objectives.

What are the benefits of implementing SOX-like provisions?

Successfully implementing procedures that improve oversight of financial reporting and internal control processes should gain efficiencies along with greater credibility with access to the organization’s donors, lenders, investors and others in the capital markets. It may put the organization ahead of its competitors in terms of quality of financial reporting and corporate governance, and in readiness for state SOX-like regulations, should they ultimately be mandated.

What resources are available to assist companies?

The AICPA has created an Audit Committee Effectiveness Center through its Web site,, where it offers guidance and tools to audit committees. The tool kits are available for corporate public companies, nonprofit organizations and governmental entities.

LAURA FREUDENBERGER is an audit principal with Briggs & Veselka Co. Reach her at or (713) 667-9147.

Sunday, 24 February 2008 19:00

Value transfers

Approximately 90 percent of the businesses in the United States are family-owned. However, studies show that two-thirds of closely held businesses fail to survive into the second generation. Many owners spend a lifetime building their businesses, but several ignore the planning that is needed to transfer ownership. This failure to adequately plan for this transition is a leading contributor to the low survival rate.

“A business valuation is a key first step to help family businesses figure out what planning steps they should take to ensure the company survives under second generation leadership or continues operating via the sale to key management or a third-party buyer,” says Mark R. Schaaf, a shareholder and the director of valuation services of Briggs & Veselka Co.

Smart Business spoke to Schaaf about business valuations and how they can help in succession planning and transferring ownership to the next generation.

What are the benefits of doing a valuation for helping in succession planning?

Going through a formal valuation process can be the cornerstone for determining what steps owners need to take to achieve their succession goals. It is good to get a valuation now to get that ‘home plate’ valuation to get an idea of what the business is worth to a third party.

Owners of small businesses cannot flip open the business section of their paper or look online to see the traded value of their company. An experienced valuation expert knows what questions to ask when analyzing a company to arrive at a fair market value of the business upon which sound succession or transition planning can be based. In addition, the best valuators understand the factors that create value. The valuation process can therefore frequently reveal such valuation drivers to the business owner in time to reposition the company for a higher sales price at some point in the future.

What other factors need to be considered?

Many times, the business owner has taken the annual profits each year and has become accustomed to a high level of cash flow annually. Selling the business means that this annual cash flow will go away, and then the big question becomes: ‘What value is sufficient to allow for a comfortable retirement or exit from the business?’

A fair market valuation gives those answers — often leaving the owner to say: ‘I can work X number of years more and get that same cash.’ Thus, frequently it takes a major life event — health issues, family issues, etc. — to get owners to face the fact that time doesn’t go on forever and the economic value of the company is not dependent on some never-ending cash flow to them. In fact, that ongoing cash flow is what third-party buyers or subsequent owners pay for in a purchase.

Those factors above show why it is important to get a grasp of the current value, as well as potential steps that might be taken to improve the valuation over time.

What about selling to key management?

Frequently, the value of the business is a direct result of the efforts of a few key employees’ efforts. A valuation consultant can walk a business owner through the different ‘standards of value’ that may apply to a transfer. A fair market value would be based on the willing buyer/willing seller concept, and this value is often discounted for lack of marketability issues and other issues associated with the risk of ownership of the business. A fair value typically is a higher value and does not include such discounts. A valuation consultant can explain the differences in the two, what it means to the owner and the key employees, and help work out a value and a buyout plan that is executable and understandable to both sides.

How about transfer of ownership to family members?

Valuations can also help in transitioning the business within the family. A multiyear gifting plan can help accomplish this goal as well as selling to the second-generation family members or to trusts of the family to combine the goal of transferring the business along with achieving tax savings and implementing valuable estate-planning techniques.

What about selling to outsiders?

Among potential buyers for the business, independent third parties may present the highest multiples, but there is also the highest risk of failure and disclosure of confidential information. By planning ahead and using the guidance of an experienced professional, these risks can be minimized and key selling points emphasized.

MARK A. SCHAAF is a shareholder and the director of valuation services of Briggs & Veselka Co. Reach him at (713) 667-9147 or

Tuesday, 29 January 2008 19:00

Sale-leaseback strategies

Asale-leaseback is a transaction whereby an owner of real estate sells its property to an investor, subject to a lease that allows the seller to utilize the property during the term of the lease. The primary reason an owner would do a sale-leaseback would be to free up capital to grow their business.

Sale-leasebacks can benefit a company by reducing costs and maximizing profits. On the other hand, increased taxes and long-term obligation can be potential drawbacks.

“Sale-leasebacks are a proven strategy for many companies,” says Paul M. Hilton, senior vice president and principal of Colliers Investment Services Group. “However, there are definitely instances where a sale-leaseback is not a good strategy.”

Smart Business spoke with Hilton about sale-leasebacks and what this type of transaction can mean to your company.

What are the benefits and drawbacks of a sale-leaseback?

There are several benefits to a sale-leaseback. Some of them are:

  • Maximum proceeds. The seller receives 100 percent of the market value of a property, as compared to conventional financing, which would typically only provide proceeds of a maximum of up to 75 to 80 percent of the market value.

  • Lower costs. In many instances, the cost of the funds from a sale-lease-back are lower than financing.

  • Investment funds. A sale-lease-back typically allows a company to rein-vest the proceeds from the sale of the property into the business in order to grow the company, usually generating a higher rate of return on the capital.

  • Tax benefits. Rental payments are often fully tax deductible, whereby payments on loans only allow for the interest portion of the payment to be deducted.

  • Off balance sheet financing. Under some circumstances, the lease obligation does not show up on a company’s balance sheet.

The possible drawbacks of a sale-leaseback include:

  • Long-term obligation. The seller is bound by a lease, which requires monthly payments.

  • Long-term control. At the end of the lease and/or options, the seller must negotiate a new lease with the owner or relocate.

  • Capital gains tax. The seller may incur taxes on the profits from a sale.

Are sale-leasebacks better for the buyer or the seller?

Sale-leasebacks can be good for both the buyer and the seller. Sellers obtain funds to grow their businesses, and buyers can invest their funds at specified returns. On the flip side, they can be bad for either party in the event of a significant change in the business.

For example, if the company is sold and, as a result of the sale, the company no longer needs the property, the company is still liable for the lease payments. On the other hand, if the seller, or the tenant, has financial difficulties and can no longer meet the lease obligations, this would be bad for the buyer.

What should a company look for when considering a sale-leaseback?

When considering a sale-leaseback it is important to look at the company’s goals moving forward, the cost of funds and the reinvestment opportunity for the proceeds. In order to complete a sale-leaseback, a seller needs input from the accounting, legal and real estate fields. This team should work together to structure the terms of the lease to best meet the company’s goal. For instance, it is important in structuring a transaction to understand if the company would prefer higher proceeds from a sale or a lower long-term lease obligation.

Once the terms of a lease are established, the property should be fully marketed to the entire investment community, utilizing a sealed bid process in order to maximize the proceeds to the seller.

PAUL M. HILTON is the senior vice president and principal of Colliers Investment Services Group. Reach him at (314) 746-0313 or

Tuesday, 29 January 2008 19:00

Future planning

Private equity funding is a transaction that can provide liquidity and growth capital to an owner who doesn’t want to sell the business, but does want to realize some of the benefits of a sale or merger.

“Private equity funding can benefit owners by giving them a significant portion of the value of the business in cash, while maintaining an ownership interest in the recapitalized company going forward,” says Bob McDonald, CPA, CM&AA, a principal with Briggs & Veselka Co.

“The transactions are usually conducted with a private equity group that contributes equity to recapitalize the company.”

Private equity funding can divide a company’s equity into two or more classes, with provisions to serve the objectives of the owners. The owners grow the business, while the financial partner provides assistance on financial, strategic and exit issues. At a later date, usually five to seven years, the company could either be sold to another firm, go public, or undertake another recapitalization.

Smart Business spoke with McDonald about private equity funding and how it can offer benefits to all parties involved.

For whom is private equity funding best suited?

Private equity funding allows owners to achieve personal liquidity without sacrificing the operating control of the company they built. Through a recapitalization, a portion of an owner’s equity is sold to the private equity group (either a minority or a majority interest), while maintaining operating and ownership control. This scenario is an alternative to total sale or regulatory scrutiny of a public offering. The owner is able to gain a financial partner to assist with strategic issues without interference in day-to-day operations. With its access to substantial financial resources, the financial partner supports the company in expansion plans and/or pursuing strategic acquisitions. By selling a portion of the company, the owner can eliminate personal guarantees on company debt, diversify net worth, and continue to run the company, if they choose. This newfound ability to grow increases the value of the owner’s retained equity position. Private equity funding is an excellent option to facilitate the owner’s estate planning and execute a succession plan to either the next generation or management.

What about retaining key employees?

Non Qualified Stock Options (NQSO) are great ways to help retain key employees. Even if a private equity group is not involved, NQSOs should be considered as part of an owner’s exit strategy. The goal of a private equity fund is to build value, therefore the investors expect a high rate of return on their acquisition. While they are very experienced in business, the private equity group does not typically have the operational experience needed to efficiently run the acquired business. For that reason, the investors generally retain the owner and key employees. In contrast, if an owner sold to a competitor, the new buyer may not want to retain these employees.

The company can grant NQSOs only to the employees it chooses. The options are not taxable to the employee until the option is exercised. At the time, the employee recognizes income equal to the fair market value of the vested amount, and the company receives a deduction for the amount. A good tool is to grant NQSO on a vested schedule. If, for example, an employee is to be granted 5 percent of the stock, vesting at 1 percent per year, the employee has an incentive to stay with the company for at least five years.

Why would I want to give ownership to my key employees?

Assuming the company is successful, it is probably in the 35 percent tax bracket. Since the company receives a deduction for the value of the NQSO, it is saving 35 percent of that value in taxes. The remaining 65 percent should be considered as an investment in the company. By giving ownership in the company, the employees will maximize their efforts to help the company grow and become more profitable; the owner’s return on his remaining ownership may far exceed the value of the stock granted. This is a decision that has to be carefully weighed, but can be a very good investment in your own company under the right circumstances. <<

BOB MCDONALD, CPA, CM&AA, is a principal for Briggs & Veselka Co. Reach him at (713) 667-9147 or