Don’t waste any time.
When you come into a crisis situation, you have to act quickly. You have to have a lot of confidence and take risks.
Sometimes you don’t have time for detailed analysis, so you have to have confidence in your judgment and experience. Time is money.
Get as much information as you can, involve the management that is closest to the issue and make a decision after getting their thinking and input. Not making a decision only causes you to delay the opportunity to impact company performance.
Coming into a crisis, you look at everything. Nothing is sacred. You enlist all of the management to look at every expenditure, every commitment.
We took every expense category on the income statement and looked at all the detail of what was included in the category to see if it was essential, and if not, we evaluated the impact of doing away with it. We looked at each piece of business that we had, and if it wasn’t profitable, at renewal we implemented rate increases to make it profitable. And if the client didn’t agree, we let the business go.
It takes strong teamwork from all management with the CEO and CFO deeply involved and willing to make the hard decisions.
Get in the field.
To be successful, you’ve got to get in and really understand your business and understand the details of your business. It’s just a matter of rolling up your sleeves and digging in and understanding. Don’t hide yourself in a corporate shell.
You know your employees that are on the front line. You get to know your customers, and in our case, your brokers and consultants that help sell your products. Markets are different, have different needs, different competitors, different client needs, so if you don’t get that input, you can easily make a wrong decision.
I believe in a very flat organization structure. So, there’s not lots of layers and tiers and things, so you can stay close to your customers. Communication is quick, it’s clean, it’s not distorted by lots of people’s prejudices along the way.
Recognize good performance.
One of the ways you keep people is not only give them an opportunity to perform, but recognize that performance. We have what we call the Service Excellence Club.
Somebody who does something above and beyond what would normally be expected of their job may become a member. Customer feedback is one of many criteria that drives who gets into the Service Excellence Club. If we get a couple or three kudos about a particular employee’s help to a customer or member, that employee most likely will be brought into the club.
In there, they get some special benefits. They get periodic reinforcements in terms of we may give them gift certificates or some additional time off or something like that. So it isn’t a one-time thing. We continue that recognition and keep reinforcing it.
(Recognition) is what people need. People want to do a good job. And if you do a good job and somebody recognizes that you’ve done a good job, that’s very motivating, and so you keep seeking that recognition.
Set the bar high.
If we’ve made a mistake, we’ll stand by it even if it means we’re going to lose money. And if we make a mistake, our goal is to identify it and fix it quickly.
But we have a culture of we try to stress that we are easy to work with and we’re responsive to your needs and we try to have zero errors. We are realistic to know that zero errors probably will never happen, but it still can be your goal. (Customers) can see that we work hard to not make errors.
Most anybody can duplicate our products, can duplicate a network of providers, can do the mechanical parts. But if we can provide a better service and support of our product, we can differentiate ourselves from our competitors.
We constantly monitor the availability of our member services and client services and broker services people.
How quick does the phone get answered? What is the abandonment rate? (We monitor) all of those kinds of mechanical issues to be certain that our service levels are there.
We also believe enough in it that we publish a quarterly report card on ourselves and how we’re doing servicewise as perceived by our customers and clients. We pay an outside agency who surveys a sample of our members, our insured people, as to certain aspects of the service they’ve gotten from SafeGuard, as well as from our providers.
We seek (feedback) and we get a lot. We get letters now and then from clients or brokers or even providers or a member who says, ‘Jane Doe who helped me with this problem did an outstanding job.’ Once in awhile, we’ll get one that’s the other way that says there was a problem. And that one we’ll follow up on aggressively.
Be forthright with employees.
We communicate openly both to our people and to the other company’s people. When we did the acquisition of the Health Net Dental and Vision business, we met multiple times with all of the employees so that they knew along the way exactly what was going to happen, when it was going to happen, how it was going to happen, and there were no surprises.
Rumors are always the bad stuff, never the good stuff. We’re open and honest with the people in an acquired company. And if they say, ‘Will there be layoffs?’ if there are going to be layoffs, we will say yes.
And if they say, ‘Do you know who?’ we usually don’t know who early on, but we share that information. We have found that it’s better when people know, because the unknown is always worse than the known.
HOW TO REACH: SafeGuard Health Enterprises Inc., www.safeguard.net
Ten years ago, the mortgage lending firm was a fledgling venture run out of the front bedroom of Aldi’s house and staffed by six high school students working as telemarketers. Today, the company has grown to more than $20 million in revenue and has more than 250 loan officers and 30 office employees, says Aldi, who serves as CEO of the 13-branch company.
The key to propelling the Burbank-based business, he says, has been the pair’s nontraditional way of approaching things whether it’s forming relationships in the community or building a company culture.
“We’ve always had a direction we wanted to take our business from Day One, but we’ve never had a specific plan to get there,” he says. “We definitely change on the fly, and we leave ourselves very flexible to move along with the market, which has attributed to our success for sure.”
Smart Business spoke with Aldi about how he’s managed the challenges of growth and created a motivating culture at First Security Lending.
What’s been your biggest challenge to growth, and how have you managed it?
Our ability to find good employees. Our company would probably be twice the size if we could secure the appropriate amount of help. We’ve tried everything recruiting agencies, job fairs, Monster. Nothing works.
We’ve got a core group of not just loan officers but staff employees that have been really recruited from our childhood. It’s been people we can trust, with no mortgage skills, that we’ve trained and brought aboard to help us run the company because we gave up on trying to find outside employees.
We would rather take someone that has the right mentality and the right energy and the right enthusiasm and train them to our specific standards of quality and customer service rather than take somebody who has preconceived ideas of what’s going on and coming in with bad attitudes and so forth, which is rampant. We ask constantly for referrals from our existing employees.
How do you create a culture that motivates employees?
Our culture is very unorthodox for this industry. If you want to bring your kid or your dog to the office, that’s fine with us. I have two 150-pound dogs that I bring to the office.
We’re not big enough to have a childcare facility, so if you want to bring your kid and have it sit next to you in a crib or playpen or cradle, it’s fine with me as long as it doesn’t disturb anybody else. What does it really hurt? They’re here working and making us money.
As long as they’re able to maintain their duties ... I don’t care what you wear, what you look like, when you come into work. I don’t care if you come in at 5 in the morning or 10 o’clock at night, as long as you do your business.
We have a lot of fun at work, which is key. Practical jokes are numerous ... whether it’s filling desk drawers with sand or putting gold fish in the water tank or moving somebody’s desk down into the parking garage.
We also keep it uplifting by doing company parties that are very unorthodox. We don’t have a Christmas party. We never have because it’s too traditional. We’ll have a St. Patrick’s Day party or a Cinco de Mayo party.
It builds a tremendous amount of loyalty because we’re putting ourselves on a limb a little bit by allowing this freedom.
How do you make sure people don’t abuse these privileges?
We’re very laissez-faire, but we do hold the bar extremely high for ethical and customer service standards. We let people do what they want, but that does not eliminate you from the high standards.
I judge them by their actions and how it reflects our image as a company. We hold our reputation and our moral code to the highest level possible.
HOW TO REACH: First Security Lending, www.firstsecuritylending.com
The head of the Cleveland Pops Orchestra realized this last year when the organization embarked on a rebranding campaign.
“As much as we’re known, we’re still a young company,” says Cleveland Pops Executive Director Shirley Morgenstern. “We want to look out to a new audience. We wanted to get a fresher, edgier look. We want to help audiences know what pops music is.”
The Cleveland Pops is targeting people between the ages of 30 and 50 because its most frequent patrons those of retirement age won’t be around forever. The organization is reaching out to the next generation to change the image many people have of going to a concert.
“So many young people think that going to a concert is going to be very stuffy, and you have to get all dressed up and it’s not fun,” Morgenstern says. “And that’s not what pops music is about.”
But while a rebranding can be extremely beneficial for a company, it’s not something the leader can usually do alone, says Morgenstern. In her case, she had a wealth of resources within her board members, including people from both the advertising and marketing worlds to help. And if you don’t have a board of trustees, it’s critical to get help wherever possible, even if that means hiring a consultant.
“Don’t be afraid to ask for help, whether you can pay for it or whether you can get people that are knowledgeable,” Morgenstern says. “Surround yourself with people that know more than you know. No one knows everything, and you need fresh eyes, a fresh look.”
Not only does the process require lots of heads, it takes a lot of time and effort ,as well. As they say, Rome wasn’t built in a day, and a new brand or company image can’t be developed and implemented overnight.
“We didn’t just snap our fingers and make a decision,” says Morgenstern. “There was a lot of hours put in. There was a lot of discussions. There was a lot of research in what we wanted to do, why we want to do it.
“We did the same thing you do in strategic planning. You look at what you have. You look at the logo. You decide who our audience has been in the past, who our audience is now, what our demographics are. Then we look at where we want to go. And then we discussed how to reach out to the people that don’t know who we are.”
Morgenstern and her team went through 200 to 300 slogans before deciding on “Music and fun for everyone.”
They also had to pick from among 30 logos designed by marketing director Gordon Petitt. They whittled the choices down from 10 to five to three before eventually voting on the final version.
The point, she says, is that it takes a lot of discussion and collaboration to find the best option.
Morgenstern hopes the Cleveland Pops’ new slogan and logo and more cohesive overall marketing strategy will continue to draw people to concerts and events, with the goal of increasing its annual budget from $800,000 to more than $1 million.
HOW TO REACH: Cleveland Pops Orchestra, www.clevelandpops.com
In hopes of revitalizing the regional economy, higher education institutes in Northeast Ohio have made great strides by branching into areas that would once have been considered nontraditional. By educating both students and area businesses about entrepreneurship and innovation, they aspire to spur the flat economic and population growth facing the region.
“If we can leverage the resources that we have here our faculty and our students to help solve issues that have been on the table in the region, then we are not only giving [students] the experience internally, but we’re contributing to so many of those items on the community’s agenda,” says state Sen. Eric Fingerhut, who also serves as director of Economic Development Education and Entrepreneurship at Baldwin-Wallace College.
Many universities recognize the influence they could potentially exert on the region.
“We tend to have resources available to us that just don’t exist in either the private sector, the nonprofit sector or the government sector,” says Fingerhut. “We have the ability to marshal intellectual resources and people power in a way that really no other institution can match.”
Baldwin-Wallace has been marshalling those resources for the past three years, having founded the Business Clinic in 2003 to coach area small business owners and new business entrepreneurs through the development of their business plan.
“There are a lot of resources available in the community to help business owners, but nobody was providing sort of the one-on-one hand-holding and consultative support for entrepreneurs and small business owners to develop the detailed strategies that help improve success,” says Phil Bessler, Business Clinic director and associate professor.
The program has since evolved to also offer in-depth reviews of existing plans and feasibility studies for startup business ideas. The best part, says Bessler, is that the program involves the college’s undergraduate and graduate students as consultants. Selected students are paired with Executive Volunteers prominent area business leaders with a passion for educating students and for regional economic development to review some 100 business plans a year.
The Business Clinic is just one of several outreach and educational programs that are part of the newly instated Center for Innovation and Growth, which was founded in March and serves as an umbrella to link the related programs.
“The aim of the center is to be not only a common location for all of these programs but a common platform that allows us to move very quickly to respond to needs that are brought up to us,” says Bessler. “In order to meet the needs of the region, ... [we knew] we ought to bring together our existent programs under a single umbrella so that we could create better synergy and make them better known to the community so they would be utilized to a greater extent.”
B-W isn’t just trying to help area businesses and entrepreneurs; it wants to create more opportunities for its students as well.
“We’re very fortunate in that, while a majority of our students as much as 80 percent of them come from Northeast Ohio, an equal or higher amount actually stay here in Northeast Ohio,” says Bessler. “If we can get our students better trained, better prepared not just to take jobs in the community but think about economic development, to think about growing these businesses they go to work for ... then we think we’ll be a sustaining contributor [to the region].”
Part of that involves more experiential learning and a focus on science, math and technical knowledge.
“We are seeing when we talk to business leaders that the vast majority of innovation and business growth revolves around technology that is either science or math based,” says Fingerhut. “For students to have both a science or math background and a business background makes them uniquely able to see both sides of the equation and makes them very much in demand and very much a value to the region.
“To have talent that can swing both ways understand the science and jump in and fix something if it’s not working but also work with the spreadsheets and the marketing department and the sales side of the shop is critical. ... We see that as a huge opportunity for students, and we intend to be even more intentional in the future about integrating their education and encouraging them to cross-major in those disciplines.”
John Carroll University
Through the Entrepreneurs Association and the Muldoon Center for Entrepreneurship, John Carroll University also has a plan to contribute to the region’s needs. But the Entrepreneur’s Association takes a different approach than that of B-W. Instead of focusing on new business, the association seeks to strengthen already successful businesses throughout the community.
“We feel that growing businesses from a point at which they’re already successful is a much stronger strategy than trying to grow businesses from scratch,” says Mark Hauserman, director of the Entrepreneurs Association. “In other words, we’re taking the bushes that are already in the greenhouse and planting them in better soil rather than trying to grow seeds.”
Hauserman says this niche is underserved, as the region’s attention is often focused on high-tech startups and riding the next big wave.
“We’re not there,” he says. “We’re interested in companies that are good, solid, $10 [million], $15 [million], $20 [million], $50 million companies who have the management experience, the business model and the capability to go to the next level.”
The organization provides programs and education on issues that its members are facing.
“We are actually looking to the entrepreneur to define for us, what are your major problems?” says Hauserman.
The association also promotes creative problem solving among peers and taps into the knowledge of retired executives through its Master’s members. These community volunteers do hands-on mentoring with businesses and students. It allows the retirees to stay plugged-in while sharing the expertise they’ve cultivated over a lifetime of business experience.
Like B-W, the other part of John Carroll’s plan involves talent development within its student population. Like many business schools, John Carroll has worked to integrate real business situations and training into the classroom, even offering a course on innovation.
Hauserman gives an example of a class that spent part of the semester rebuilding the databases of two companies who are members of the Entrepreneurs Association.
“Something real happens instead of just it being an exercise,” he says. “And you can imagine the surprise and delight of an entrepreneur when he hires somebody out of John Carroll and he says to him or her, ‘Do you know anything about databases?’ They’ll say, ‘Yeah, I know how to build them, I know how to manage them and I know how to mine them.’ That’s how the academic meets the practical.”
Kent State University
Kent State University takes its role in the region very seriously. After all, says Patricia Book, vice president for regional development, the school was one of four founded in Ohio as a regional university, meaning its original vision and mission was to serve and develop access to higher education in a particular geographic region.
With its eight branch campuses, Kent State is uniquely positioned to affect change in Northeast Ohio, which is why the university created the Office of Regional Development in 2004 to play a bigger role in fostering area growth.
In the last two years, Book has worked to create partnerships and provide training and development programs for area businesses everything from succession and strategic planning to executive coaching.
“I’m interested to hear personally from these companies about how they’re doing, what their challenges are,” says Book. “We’re interested in identifying what types of training needs people might have that we could serve. And what I’ve found is that, in some cases (people are) surprised because they didn’t really think about the breadth of resources that they have with their universities right here in Northeast Ohio.”
The university is also looking for relationships that could provide collaborative research opportunities for faculty and students, as well as listening to what companies have to say.
“It provides us with a needs assessment about what kinds of programs we should be building,” she says. “What are the jobs going to be, and what kind of programs should we be offering ... so that when we recruit people into programs we have more confidence that they’re going to have an opportunity to get employed.”
The university also received board of trustee approval in April for a new Center for Enrepreneurship and Business Innovation through the College of Business Administration.
Its dual mission will be to provide students with a focus on entrepreneurship through experiential learning and expanded curriculum, and provide new and existing businesses with consulting services and professional development programs and workshops.
No matter how different their approaches are, many of the universities in the region share the same optimism for the future. With a renewed focus on innovation and entrepreneurship and a mission to better prepare students, these leaders see a means to reverse the “brain drain” that has plagued the region.
“We’re inextricably linked with the future of the state and the region,” says Book. “As the region is healthy, higher education is healthy. As the region fails to thrive, we fail to thrive as an institution.
“We know that we have a significant challenge to shift to being competitive in what I call the information or innovation economy. Higher education is a key ingredient to [that] economic progress.”
Hallock and his co-founders, Todd Jackson, Dave Lewis, Tony Forbes and Brent Hallock, grew Budget Blinds to approximately $250 million in revenue and almost 1,050 franchise territories last year. It has a presence in 48 states, Iceland and Canada, and Hallock has a vision to grow the company to 2,000 franchises.
He hopes to eventually dominate the $9.2 billion window covering market with a market share of 30 percent. The company is well on its way, and Entrepreneur magazine named it No. 1 in the window covering category and No. 50 on its list of best franchise companies in the world.
Smart Business spoke with Hallock about how he uses honesty, integrity, sincerity and transparency to grow Budget Blinds.
Start with enthusiasm.
Be passionate about what you do. Passion helps motivate you to outwork the competition. That sounds so probably typical, but I see too many entrepreneurs that are flat-out not passionate.
They go in with a get-rich-quick scheme of some sort, and to me, those never pan out. People don’t really typically understand the work it takes to be successful.
Be ready to outwork anybody else.
Expect to work harder than you ever worked. Expect to make less money than you ever made before. But also have a very clear, defined goal of what you are trying to accomplish.
Drive your brand home.
What makes or breaks your success is how many leads you can drive. When you get into a competitive environment that’s consumer-driven, the name of the game is to outadvertise the consumer to where you build brand recognition better than anybody else.
You’ve got to do such a good job of branding and becoming so good at top-of-mind awareness within the consumer base that when they finally decide (to buy), I want them to think of Budget Blinds first. And if that happens, you’ll dominate the market.
If they come to the point where they’re ready to buy and they have to hope to find an ad or hope to find a direct mail piece or hope to see you on the TV, if that’s how you’re going to play the game, that’s way more costly than it is to ultimately do a long-term strategy of building top-of-mind awareness.
Have strong values.
Honesty, integrity, being ethical and I think being transparent [are the most important values]. Be real, be honest, let people see your sincerity. Sincerity in every aspect of business sells itself and gains the consumer’s trust, gains the franchisee’s trust.
Lead by example.
The world needs to see good mentors, and I don’t think there’s enough of those who truly set a good example. To be a good employer, you’ve got to set the best example.
You should be here the longest, you should be here the most, you should be passionate, you should be friendly. You should make a true effort to go around and see everybody on a regular basis. You need to set the example not only at work but you need to set the example in how you conduct yourself and how you speak to people. And that’s all part of being transparent.
Value your employees.
Some people look at an employer and an employee relationship completely different than we do. Some employers go, ‘I’m giving them an opportunity.’ I don’t look at it like that at all.
I never look at an employee like we’re giving them an opportunity. I look at it as that employee is gold for us. And they’re more valuable than we are because without them, we have nothing.
Remember the Golden Rule.
Treat people like you would want to be treated. Take care of (employees) when they need it, when they are in a bind. We’ve had people that their parents died in Vietnam and they can’t afford to fly out there, so we pay for their flight, pay for their hotel.
Some of our employees were going to lose their kids because they didn’t have enough beds in their apartment, and so we buy them an apartment, we furnished their apartment.
And really it’s the five of us [owners] go and buy it ourselves. I think that creates an incredible culture and an incredible relationship with our employees.
Communicate your expectations.
We’re very honest, and every employee knows it. They know exactly where they stand. They know exactly how we feel. They know exactly what’s going to keep them their job, what’s going to lose them their job. They know exactly how we operate and how many third and fourth and fifth chances we’re going to give them before we finally have to cut bait in some cases.
Give people a reason to succeed.
Always reward those that are doing a good job and promote them. People that get on the bottom rung of our ladder know they’ve got room to develop and room to grow, and in some cases, into areas they never dreamed possible.
If you understand that if you’re here and you’re doing a good job, you’re going to be promoted, that’s a real positive thing. And if you’re not promoted, then you know [during] your tenure here, you’re going to typically receive huge unaccounted for bonuses because of the success of the company.
Overperform and undercommit.
I think where most customer service fails is people fudge the truth a little bit to get the sale, knowing full well what they promise they won’t be able to deliver. If ... I’m open and honest with you and say, ‘Listen, we might be a little more money, we might take a little longer, but at the end of the day, you’re going to be very happy with your product,’ you’re going to have great customer service because you set the standard correctly up front.
I can show you the features and reasons why you’re going to be happy with the product and I can have a brand to support that you’re going to be happy with that product and I tell you honestly what the case is going to be. What that does is that makes sure that the customer’s perception matches up to reality.
HOW TO REACH: Budget Blinds, www.budgetblinds.com
“To me, ‘care’ is what makes the whole thing tick,” says Butler, CEO of Repipe Specialists Inc., a copper repiping company in Glendale. “Everybody in every part of the business cares about what they do, cares about the customer, cares that we give a good, quality product.”
This means Butler and his employees and partners always try to go the extra mile to please the customer and encourage referrals.
“We as the company are in the most control of how many referrals we get,” says Butler. “You have to provide a consistent, high-quality service.”
Butler’s methods have grown his company from $7.3 million in revenue in 2004 to more than $10 million last year.
Smart Business spoke with Butler about his strategies for finding good employees and encouraging referrals.
How does your business model benefit your business and your customers?
What I look for is, how do I get the best quality product to the customer in the most efficient way? There’s two ways to set up a business. [In most cases], the CEO’s at the top, and he’s trying to ensure that all the jobs in his company are going well. Well, there’s no way he can personally oversee all that stuff, so he has to have hired managers and people to do that.
What I’ve experienced, at least in the contracting trade, is the more people you hire and the more people you put between the owner and the customer in terms of that hierarchy or structure, No. 1, the more expensive the job becomes because you have more management. You get top-heavy. And (No.) 2 is, you never get the same quality as if you had the owner out on the job overseeing it because that’s the person who cares the most about the job.
I set my business up where I partner up with guys who own their own [repiping] business ... that are smaller shops. As long as I’m providing and making sure that the jobs are available for them, which I do, they can stay on the job and make sure that the job is going well.
It makes it so that the actual quality of work on each job is attended to by that owner, or at the very least, a senior supervisor.
How do you encourage referrals?
One, you show up when you say you’re going to show up you’re on time.
We’re doing big jobs. We’re going into a person’s home and we’re opening up their walls, we’re replacing all their pipes. It can be a traumatic experience for these people. We just try to put them at ease by being extremely competent in what we’re doing [and] leaving the house at the end of the day cleaner than when we walked into it.
If we say we’re going to do A, B and C, and we get there and we see ‘We can do A and B, and C’ is not really very possible or it’s going to cost us a bunch more money, it doesn’t matter. We still do A, B and C because that’s what we agreed to do.
Also, we give customers cards that they can hand out to their friends. When that friend gets (a repiping) job done, we send (the person who referred them) $50. We have a tremendous number of people that do that.
How do you make sure you have satisfied customers?
You always verify the work that you’ve done. We call every single customer after we’re done with the job. We have an independent person who does a customer satisfaction survey.
It’s eight or 10 questions, and it goes through everything from the sales process to the repiping to the patching, anything else they want to say about the job. And if there’s anything at all that comes up on that survey from the customer, we go and handle it immediately.
How do you find employees who will contribute to your mission?
I really have a clear picture in my mind of the type of person that I’m looking for. I sit down and I write down the qualifications of the person that I want for a new position before I go looking for that person.
I look for people who are kind of entrepreneurial in their own spirit and like to have responsibility. You don’t have to tell them what to do at every turn, so it makes for a great working environment.
One of the first things that I ask (job candidates) is, ‘What is it you like to do? What are your own personal goals?’ And I make sure that the position that I’m hiring them for really aligns with what it is they want to get out of a job or what their interests are. ... [Otherwise,] No. 1, they’re not going to succeed at it, and No. 2, they’re not going to have any fun at it.
HOW TO REACH: Repipe Specialists Inc., www.1-800-repiping.com
It’s less about the math and more about all the factors and complicated rules that come into play, says Russell Warren, president of The TransAction Group, a mergers and acquisitions advisory firm in Cleveland and a member firm of M&A International Inc.
Warren says that many executives get a false impression from their peers about what the value of their business should be.
“If they talk to friends ... they get what is a fairly common term, a locker room number ‘I sold my business for $10 million,’” says Warren. “And you really don’t know any details behind that.”
Business owners may assume they should expect to get the same amount for their business, when in reality, each valuation is extremely circumstantial.
Warren offers some important factors to consider when trying to accurately value your business. A valuation should be:
- Purpose appropriate. “The valuation needs to be performed for a particular purpose in mind,” says Warren. “You can’t just take one valuation and use it for a variety of different uses.”
For example, if it’s a tax-driven purpose such as estate planning or gifting, there are specific rules that must be followed for that to hold up for the purpose intended. But valuations in those cases do not necessarily reflect what a business would be worth in a merger or acquisition or other business transaction.
- Fresh. The future is important, but the recent past is also of strong interest to a buyer. If circumstances have changed dramatically since the numbers were prepared, that has to be taken into account.
“One thing to keep in mind, the sale process today typically takes six to nine months from the time an adviser is engaged to help you do that, and therefore, things will occur in that six- to nine-month period which may be helpful or may be harmful to getting the highest price,” says Warren. “That’s one reason that we suggest that people that are planning to sell their business look ahead a year and more. It should still be on an uptick if they’re going to get the maximum price.”
- Real world. Your valuation should reflect today’s market appetite for businesses like yours. If you haven’t taken a good look at the market in some time, you may be surprised at how the value of your business and others has changed.
“We worked with ... an older gentleman that had made a number of acquisitions quite a few years before,” says Warren. “He was kind of mentally stuck in that prior era. We never could really get him to step up to the mark on making an acquisition that reflected today’s market.”
- Be size-appropriate. “We had one time worked with a printing company that was relatively small, and somebody valued that business and used RR Donnelly as a comparable company because they both do printing except Donnelly had over a billion dollars in sales and was doing telephone books and has a blue-ribbon group of customers, all these things,” says Warren. “There’s absolutely no relationship to that.”
Regardless of the purpose of your valuation or what type of business you own, Warren recommends contacting a professional firm to assist in the process.
“It’s the starting point for some of the most important decisions that an owner will make,” says Warren, “and therefore, it deserves to be addressed carefully and professionally.”
HOW TO REACH: The TransAction Group, www.transactiongroup.com
In 2005, the Ohio legislature made some sweeping changes in the tax code, leaving many business owners scrambling to interpret and understand the new laws.
The good news is that both the corporate franchise and tangible personal property taxes are being phased out, says Paula Divencenzo, senior tax manager with Bober, Markey, Fedorovich & Co. The corporate franchise tax is being phased out in 20 percent increments until 2010, and the personal property tax will be phased out in 25 percent increments until 2009.
“Basically, it was a whole overscaling of what we’ve been used to,” says Divencenzo. “And what it tried to do was spread the tax base around to everybody and encourage people in manufacturing to come to Ohio.”
Perhaps the biggest jolt to businesses is the Commercial Activity Tax (CAT).
“It is a tax that’s considered to be for the privilege of doing business in Ohio, and it’s measured by gross receipts,” says Divencenzo. “Right now, there are very few exceptions to somebody paying the tax. So all businesses in general will [likely] have to pay the commercial activity tax.”
The .26 percent CAT is being phased in over five years and hinges on where the benefit of an Ohio product or service occurs.
“They have to be what the law calls ‘situs’ to Ohio,” she says. “(Legislators) look at that as they have to be Ohio’s receipts and really look at where the receipt is enjoyed. As far as whether a sale is really an Ohio sale, it depends on what you’re doing.
“Obviously, if you have a plant or office in Ohio and you’re delivering goods to Ohio, that’s an Ohio sale. That would be subject to tax. If you had an Ohio plant here and you shipped it through a carrier and it got shipped to Pennsylvania, that’s not subject to the tax.”
Divencenzo says business owners should keep the most accurate, up-to-date information possible in their records to show that property or services really are being directed out-of-state.
CAT also has a provision that requires that the tax be paid on goods that were taken out-of-state but brought back within a year.
“Where that could come into play is if you had an Ohio plant in Cincinnati and you had a plant in Kentucky, they were thinking the people would try to avoid the tax and save tax by sending it to Kentucky and then bringing it back,” says Divencenzo. “What we found is most of our clients say there’s no way they’re going to do that to save a .26 percent tax. The cost of shipping would be much more than that.”
Businesses also need to be aware of deadlines, as they must file quarterly unless their gross receipts are less than $1 million a year. In these cases, businesses must only file annually. The first deadline, which accounted for receipts in the last half of 2005, was Feb. 10. The next deadline is May 10.
The changes may cause business owners to ask themselves whether their current business structure is still the right choice, says Divencenzo.
“It may not make you go back from an S Corporation to a C Corporation, but it may have been that last thing that made you decide that now you should,” she says.
HOW TO REACH: Bober, Markey, Fedorovich & Company, www.bobermarkey.com
But a new survey by The Creative Group, a California-based staffing service, shows that the office environment can play a big part in your employees’ creativity, not just in customer perception. Things such as office layout, dcor and lighting may greatly affect innovation.
“Physical surroundings can heavily influence an employee’s ability to concentrate and perform well,” says Tracey Fuller, executive director of The Creative Group. “Companies can encourage productivity and innovation by providing staff members with comfortable, attractive areas for team meetings, as well as individual work stations that can be tailored to personal needs and preferences.”
The Creative Group offers the following tips for developing a productive and stimulating work environment.
- Construct creativity zones. Designate office areas where informal meetings or spontaneous brainstorming sessions can occur. Equip each room with industry publications and a white board to jot down ideas.
- Offer private sanctuaries. While open floor plans can increase collaboration and communication among employees, some projects require greater concentration and solitude. Provide stations where employees can work without distraction.
- Let there be light. Maximize opportunities to benefit from natural daylight. Position desks near windows so workers can have external views. In locations where this isn’t possible, ensure sufficient ambient and task lighting are in place.
- Install an idea wall. Give your employees an opportunity to share their suggestions in a creative way. Transform the wall of a communal area the lounge or cafeteria, for example into a blank canvas for spontaneous scribbling.
- Change of environment. Hold staff or team meetings in unusual places such as a nearby courtyard, park or caf.
HOW TO REACH: The Creative Group, www.creativegroup.com
His office manages more than $120 million in client assets, and he frequently meets investors who need more than a little guidance in the wealth management department.
Landy says he frequently encounters the same mistakes, and offers these tips to avoid these behaviors and minimize your investment risks.
- Having no investment strategy. Investors should have a financial plan or asset allocation from the beginning that takes into account their time horizon, risk allowance and future contributions.
- Investing in individual stocks. Landy often sees investors who want to buy a lot of one particular stock. When that stock underperforms or suffers losses, they are turned off from the whole investment process.
Landy suggests that if investors are determined to buy an individual stock, they should buy it in companies or products they regularly use. For example, if you drink Starbucks coffee every day, buy Starbucks’ stock. Don’t buy stock in a single company you know nothing about.
- Buying high. In general, it’s better to buy what is not performing at its peak. Whatever was bad last year may be good the next year, and stock that is very high now is probably ready to level off. In the investment industry, winners always seem to rotate, says Landy.
- Not selling low. Nobody wants to sell a stock for a loss. Instead, investors will try to hold back until they break even. If the stock is not going to come back within a reasonable timeframe, it’s better to cut your losses.
- Acting on tips. Typically, if you are hearing about it, so is everybody else. Unless your source is a financial adviser, it is very risky to act on the tip.
Landy prefers to start new customers in mutual funds because they are more diversified. There are typically 80 to 100 stocks per mutual fund instead of just one individual security that you’re frequently paying fees on.
- Paying too much in commission. Rather than paying a per-transaction fee, it’s usually better to pay a flat fee or flat percentage fee per year. That way, the financial adviser really is working in the client’s best interest rather than just trying to build commission.
- Decision-making by tax avoidance. Landy sees many clients who have doubled their money on a particular stock but won’t sell because they don’t want to pay the tax on the gain. Capital gains are very low right now, so it’s a good time to harvest your gains.
- Having unrealistic expectations. Everybody wants a 12 percent return with no risk, but that’s not likely to happen in today’s market. If you can get 8 percent to 9 percent, or really anything above zero, Landy says consider yourself in good shape.
- Not knowing tolerance for risk. Investors frequently buy something and don’t understand that if it can go up 10 percent or 20 percent, it can also go down 10 percent or 20 percent. It comes down to what the timeframe for this money is. If it’s long-term, you can invest more aggressively. If you’re saving for a more short-term goal, you need to be more conservative.
- Putting off retirement planning. For many investors, 30 or 35 years seems so far down the road. The first thing you always should do is contribute to the 401(k) at work. And Landy believes people should work until age 70 because they want to, not because they have to.
HOW TO REACH: Steve Landy, (330) 877-8507; Ameriprise Financial, www.ameriprise.com