Jerry Roche

Tuesday, 29 January 2008 19:00

Lending a hand

Almost 80 percent of minority-owned businesses in a four-county area are not taking full advantage of available management-oriented resources. As a matter of fact, many don’t even know what assistance is available.

The GAR Foundation, Akron Urban League, Kent State University and Akron SCORE are making every effort to reach the approximately 3,000 businesses that are owned by African-Americans or Hispanics in Medina, Summit and Portage counties.

“The goals are to help create jobs, raise incomes and grow the economy,” says Dr. Patricia A. Book, vice president for regional development at Kent State University. “Minority business owners are an important part of that strategy, and they merit special attention.”

Smart Business talked to Book about how local and regional minority businesses can reap the benefits of various programs.

How is the Fund for Our Economic Future helping minority businesses?

The Fund for Our Economic Future is composed of 83 foundations. Those organizations have pooled their time and resources to contribute to the region’s economic growth and development.

The Fund supports Advance Northeast Ohio, a regional action plan, through grant-making, research and civic engagement. Not long ago, it organized a broad stakeholders’ dialogue to engage Northeast Ohioans from all walks of life. Four major economic initiatives emerged. One of them — growth through racial and economic inclusion — became part of the the regional action plan.

To that end, Kent State, the Akron Urban League and SCORE — ‘counselors to America’s small business’ — openly discussed what each was doing to support small business development and success. In the process, we discovered that we were not effectively reaching a growing group of business entrepreneurs in the African-American and Hispanic communities. The three partners are only serving 633 of the 3,000 eligible businesses. So, we organized a two-year program called the ‘Partnership for the Minority Business Accelerator’ (PMBA) to serve companies in business at least one year with annual revenues of approximately $50,000 to $2.5 million. The program taps into all our resources and engages participating companies in a two-year effort to align their needs and goals. Program outcomes include increases in profitability, number of employees and market reach, and new products or services. The group approached the GAR Foundation, a member of the Fund, for funding support. The GAR Foundation has become a major partner in launching the new Partnership for the Minority Business Accelerator.

What are some specific programs and plans?

Realizing that each prospective company has varying needs and goals, PMBA focuses on customizing plans. It offers services whereby minority businesses can develop business plans or obtain financing for sustainability and growth. The Akron Urban League funds a minority business development center that is part of this project.

SCORE offices and several Small Business Development Centers associated with Kent State are involved. Another element is expanding supplier diversity. The initiative hopes to increase awareness among participating companies about supplier diversity, how to get on the list and how to prepare. There is clearly a need for a more concentrated focus on a customized approach.

What do minority businesses need most?

They routinely require additional business management information, and the best way to provide that is through outside training, coaching and mentoring. Some of the business topics in high demand are assistance in securing business loans; human resource issues, like creating and implementing employee policies; recruiting and retaining workers; staffing issues; and issues dealing with marketing and product or service positioning. Additionally, if clients are interested in formal education, they can be directed to providers in their immediate geographical area for formal credits and associate or bachelor’s degrees.

Can Small Business Development Centers sponsored by local institutions help?

Yes, they can. One excellent way is by using internships to pair up African-American or Hispanic undergraduate or graduate students with minority businesses. That can potentially engage students in the real world of business development and be a win-win-win for the students, the businesses involved and, by extension, the entire region’s economic viability.

How are the products and services that are available being publicized?

Community outreach obviously includes standard promotional materials, but it also has to involve a speaker’s bureau, through which representatives can carry the message to locations and environments where they’re likely to reach the community. The marketing plan includes making contact with key church leaders, professional organizations that minority groups might belong to, and financial institutions and community leaders through an advisory board. <<

DR. PATRICIA A. BOOK is vice president for regional development at Kent State University. Reach her at (330) 672-8540 or pbook1@kent.edu. Official Web site of the Fund for Our Economic Future is www.futurefundneo.org.

Wednesday, 26 December 2007 19:00

The litigation roller-coaster ride

Going to court should never be taken lightly. Even if a company wins its case, litigation may still take a significant financial and equitable toll on a company.

“Litigation has become an unfortunate reality for modern businesses,” says John Mark Jennings, a partner with Shulman Hodges & Bastian LLP. “If a company is contemplating litigation, it needs to have the right attorney, the right culture, the right people and the right financial resources to pull it off. Preparing for litigation beforehand can make a big difference in the case and goes a long way toward keeping the company focused during the fight.”

Litigation is particularly difficult for companies that find themselves embroiled in legal proceedings for the first time.

“In every case, you have to protect and brace your company for what is to come,” he says.

Smart Business talked to Jennings about how a company can prepare for litigation.

How can an executive manage expectations before entering into litigation?

Executives must consider and plan for the worst-case scenario before deciding if litigation is prudent. Many executives feel a moral imperative to seek justice against someone or something that has damaged their company. But just because your company is right, does not mean that litigation is right for your company.

Litigation takes commitment by key personnel to actively participate in the process. The toll litigation has on corporate officers and administrators is often significant. It is often very surprising to executives that their companies are scrutinized thoroughly as the parties in the case strive to find documents and analyze financial data. An executive may wish to consider if the company can withstand the bright light that litigation often sheds on the company’s inner workings.

If a company is about to embark on litigation, it has to be prepared to revisit the past. Looking backward is something at which many executives are admittedly not very good. The company officers will need to prepare themselves for this intellectual paradigm shift [i.e., thinking about things that they are not accustomed to thinking about] and be intellectually, emotionally and financially prepared for the impact that litigation will have on the company.

Another point is that CEOs — who are generally not accustomed to being told what to do — have to let the lawyers do their job. Executives should ask their attorneys all the questions they need to ensure the corporation is in good hands, but should also feel comfortable letting them handle the case. This will help lessen the burden on the company’s executives.

Why is a litigation budget good for business?

It is important for executives to have a general understanding of what litigation will cost — which means you have to know the whole process and what financial impact it will have on the company.

There are essentially two types of litigation budgets — those that are specific to a particular piece of litigation and those that are used to plan for future litigation needs. If a company is proposing or anticipating litigation, one of its principals needs to sit down with the company’s attorneys to discuss the potential litigation costs and to develop a budget based upon how the attorney expects the case to proceed. That way, the executive will be better able to justify litigation expenses to the board of directors.

Also, internal litigation budgets may be necessary for companies that compete in particularly litigious industries. Companies that engage in aggressive intellectual property pursuits or other core products are also good candidates to establish a litigation budget.

Some companies have the added benefit of an in-house attorney to assist with the coordinating and overseeing the efforts of outside counsel. Companies that do not have that luxury are forced to rely on their counsel to provide monthly financial and progress reports on the case. That reporting should also include the anticipated fees and costs in the next reporting period.

If a company has used the same attorney for years, should it consider looking elsewhere when litigation arises?

Chief executives are naturally loyal people. Because of that otherwise admirable quality, they tend to turn to the same attorneys regardless of the nature of the particular issue facing the company. That practice can sometimes be harmful when litigation arises. This is particularly true for small companies. Labor law, business litigation and intellectual property disputes are wildly different fields and should be handled by attorneys who routinely handle those types of claims. It is critical for an executive to ensure that his or her go-to lawyer is up to the particular challenge at hand.

It is prudent for executives to use their go-to attorney as a filter for selecting litigation counsel for a particular case. If the future of your company is riding on the outcome of litigation, the selection of which attorney to use may be the single most important decision made in the case.

JOHN MARK JENNINGS is a partner with Shulman Hodges & Bastian LLP. Reach him at jjennings@shbllp.com or (949) 340-3400.

Wednesday, 26 December 2007 19:00

Keeping pace with technology

Companies don’t have to bear the full burden for research and development. Universities across the state are ready, willing and able to help.

“We are eager to partner with companies in the areas of research and technology,” says Gregory Wilson, associate vice president for economic development and strategic partnerships at Kent State University. “We do extensive outreach to make businesses aware of these capabilities.”

Smart Business spoke with Wilson about how companies can take advantage of the many resources offered by local universities.

What kinds of technology resources are available through a local university?

At any large, comprehensive research university, many resources are available for technology companies, such as research expertise, technology, specialized equipment and business support services. First and foremost, however, are the people — faculty consultants and skilled interns in cutting-edge technology areas who become available as permanent employees. These universities can also conduct a number of sponsored research projects on various topics, from science and technology to business and economic research.

Most institutions have some kind of technology transfer function, which involves patenting and licensing inventions to make new products. Many campuses have business accelerators or incubators that stimulate the creation and growth of new businesses. Many offer services, equipment and facilities at competitive costs, providing resources to help companies become sustainable, growing enterprises that contribute to their regional economies.

Finally, arrangements to use specialized equipment can be made on a feefor-service basis, and many institutions around northeast Ohio have Small Business Development Centers (SBDCs) to assist companies.

What kinds of technical research can a university conduct for a private business?

The universities in northeast Ohio are extremely diverse, and much of their technological expertise is aligned with key industry clusters, such as biosciences, fuel cells, advanced materials, information technologies and advanced manufacturing. That means additional economic momentum in areas where northeast Ohio is strong or emerging, which, in turn, provides fuel for growth.

Additionally, the state of Ohio has its Third Frontier program, which awards funding to universities that partner with companies for research and commercialization. For instance, the state is allocating $21 million for Third Frontier projects devoted to advanced energy. Additionally, in recent years, the state has invested $19 million into stem cell research and $17 million into fuel cell research.

Is technology just one research and development tool available at local colleges?

Definitely. When you say ‘technology,’ people often think of computers, systems or, perhaps, technologies to license. But research is done much more broadly. The scientific areas are often thought of in this context. Colleges of engineering are heavily oriented to manufacturing, materials and systems, so they undertake research in those areas. Some institutions have colleges of technology, which are focused on advanced manufacturing and its many applications.

Other aspects that can be beneficial to businesses and other organizations are research in economics, psychology and the social sciences, as well as studies on the prevention of violence, employee ownership for companies that are becoming employee-owned, and language translation for companies that are contemplating international expansion. Sometimes businesses need that kind of unique expertise.

Are specific fees involved, or are fees determined on a case-by-case basis?

Some of the services are free, particularly small business counseling at the Small Business Development Centers, many of which are supported by federal or state funds. Others are fee-for-service, like using equipment, faculty consulting or customized corporate training.

Whom should a business contact to ask about technology-related services?

Because the technology transfer office works broadly across technical areas of the university, it is particularly good at connecting businesses with technical resources, research and licensing opportunities.

GREGORY WILSON is associate vice president for economic development and strategic partnerships at Kent State University. Reach him at (330) 672-0704 or gwilson2@kent.edu.

Friday, 26 October 2007 20:00

The subprime meltdown

Several financial institutions and bankers are saying that the current subprime meltdown may last two to three years and create job losses in the neighborhood of 20,000.

This situation begs for good real estate brokers who specialize in tenant representation. Such brokers can advise their clients about funding tenant improvement dollars, providing quality management and security services, handling build-to-suit deals, and coping with ownership changes.

“Another factor before agreeing to a new lease is identifying what other tenants occupy space in the building,” says Jim Vanderslice, Senior Vice President of Grubb & Ellis Company’s Office Services Group in Dallas. “A-level tenants are those whose occupancy is one person per 250 square feet, while B-level tenants have a density of one per 100 to 125 square feet. Over-occupancy by B-level tenants can cause numerous system malfunctions — like waiting five minutes for an elevator or facing a parking lot that’s full to capacity every day.”

Smart Business talked to Vanderslice about real estate considerations, before and after the subprime meltdown.

Why hire a real estate broker?

A prospective tenant should not hire just any real estate broker, but one who is experienced and who specializes in representing tenants. Finding space is easy, but it ultimately pays to have someone who understands the nuances of the problems that can occur and who can offer advice on how to protect yourself as much as possible.

Also, hire someone the owner will take seriously; in other words, someone who knows what they are talking about.

How long before the current lease ends should a tenant begin seeking a new location?

Because of current economic conditions, a lot of space will be coming back on the market in the next 12 to 24 months, so there will be a tremendous amount of sub-lease space and opportunities. All the jockeying for tenants will create more leverage for them to negotiate price.

If your needs are for an occupancy of 20,000 square feet or smaller, you should start 12 months in advance. If your space needs are larger, then start 18 to 24 months in advance.

How should finding a suitable location be pursued?

If you hire a broker, be sure he or she analyzes the possibly problematic issues so you don’t opt for the cheapest rent or the most convenient building location.

Once a location is determined, then identify the owner(s) and manager(s) of the buildings being considered. You need a current profile of owners and the long-term objectives for ownership, if any. You have to determine what other tenants in the marketplace are competing for space and the quality of the buildings as they sit. You have to assume prospective buildings must be in play because of all the trades in the last year.

Also, be aware that ownership fully investigates credit information on a tenant, and that there’s a lot of default language in the lease aimed at the tenant. Each ownership profile stands on its own, but an experienced broker will still want to create a lease that protects the tenant as much as possible — without having to go to court.

What economic pressures are being placed on owners/landlords?

A lot of credit issues and easy capital have influenced the commercial real estate market lately. They have placed economic pressures on owners, but there’s still an 18-month to 36-month window to work through a lot of them.

A landlord can cut a lot of expenses and still maintain minimum services required under the lease. But usually, there’s some fall-off of services when there’s pressure to cut expenses as much as possible.

Also, you should beware of situations where the rent goes to an alternate payee or when building ownership changes. As buildings trade hands, there’s an Estoppel Certificate that forces the tenant to acknowledge terms of the lease. When presented this document, the tenant should get a broker to look at the lease and be sure the terms line up with the Estoppel Certificate. If there are any issues or problems with the lease, the time to put them in front of the owner is before you sign the Estoppel Certificate. It gives you — the tenant — some leverage.

When the market was strong, no one really paid attention to the owner or manager, but that has changed. The good, established landlords or owners will still be in demand. But with a lesser landlord/owner, the tenant sometimes has no recourse except a lawsuit — and that’s something an experienced broker can help you avoid.

JIM VANDERSLICE is Senior Vice President of Grubb & Ellis Company’s Office Services Group in Dallas. Reach him at (972) 450-3335 or jim.vanderslice@grubb-ellis.com.

Tuesday, 25 September 2007 20:00

Discriminating behavior

With the myriad of federal and state laws protecting employees, employment-related lawsuits have steadily increased in our litigious society. Since anyone can file a lawsuit and allege anything, lawsuits by current and former employees cannot be completely avoided. However, they can be reduced in number and potential exposure can be minimized.

“Certain claims are completely fabricated,” says J. Ronald Ignatuk, a partner in the law firm of Shulman Hodges & Bastian LLP. “But other cases present egregious conduct, not only by employees and supervisors but by the very HR department charged with investigating and remedying the improper conduct.”

These lawsuits are significantly impacted by the policies and procedures instituted by the employer and whether or not those policies are strictly followed.

Smart Business spoke with Ignatuk about ways that employers can minimize discrimination and wrongful termination lawsuits by former employees.

Please explain what is meant by ‘wrongful termination.’

While an employer can terminate an ‘at-will’ employee for no reason or for any number of reasons, the employer may not terminate an employee for an improper reason, such as age, gender, race, disability, religion or national origin. If this occurs, the employee has a claim against the employer for wrongful termination.

However, the employer does not have to fire the employee to be subject to a claim for wrongful termination. If the employee is subjected to a hostile environment in the workplace that would be intolerable to a reasonable person, such as continuous and severe sexual harassment, and this causes the employee to quit his or her job, the employee can bring a lawsuit for ‘constructive termination.’ In other words, the law treats this situation as if the employer actually fired the employee. If the employee proves that the work environment was intolerable, the employer is liable to the employee to the same extent as if the employer fired the employee for an improper purpose.

What exposure does an employer face when sued for discrimination or wrongful termination?

First, unless the employer has insurance coverage for these types of claims, the employer may incur significant attorney’s fees and costs in defending the lawsuit. If the case goes to trial and the employee prevails, the employer could be held responsible for all damages caused by the discrimination or wrongful termination. These damages could include emotional distress, lost wages — both past and future — and medical care, including psychiatric treatment. If the conduct is sufficiently egregious, the jury could award punitive damages against the employer, which are above the amount to compensate the employee, and serve as a form of civil fine to punish the employer and make an example in order to deter others from similar conduct. Finally, the employer could be required to pay the employee’s legal fees.

How can the employer minimize discrimination and wrongful termination cases?

First, the employer should establish a zero-tolerance policy regarding all forms of discrimination. The policy should explicitly state that violation of these polices will result in immediate discipline, up to and including termination.

Second, the employer should have a procedure for reporting discrimination that does not involve the alleged perpetrator and that is handled as confidentially as possible under the circumstances. Employees should be informed that there will be no retaliation for reporting discrimination.

Third, the human resources department should have a procedure in place to promptly investigate all forms of discrimination, including interviewing the victim, perpetrator and all witnesses.

Fourth, the HR department’s response is critical. When there is a complaint, the employer has an obligation to promptly investigate and take remedial action. The appropriate remedial action depends on the nature of the complaint and what the investigation reveals.

These policies and procedures should be contained in the employee handbook distributed to all employees. The employee should sign a receipt after the handbook is provided to him or her.

Finally, every employer should retain a knowledgeable employment law attorney who can create materials or review materials created by the HR department.

What should the employer do if it intends to take a negative job action against an employee for a legitimate reason?

In order to minimize the chance that a lawsuit will be filed — or if it is filed, to maximize the chance of obtaining a favorable outcome — the employer must document the legitimate reasons for the negative job action.

If the employee is performing poorly, chronically late for work, insubordinate, etc., written warnings should be provided to the employee by the HR director or stated in the employee’s file. The warnings should be specific, provided to the employee with another witness present and signed by the employee. Then if termination is necessary, the employer has a well-documented legitimate defense to a claim of wrongful termination. These warnings may make the employee reluctant to claim discrimination and will serve the employer well in court should a lawsuit be filed.

If the employer is truly concerned about a lawsuit, he or she can offer the employee a severance package in exchange for a release of all claims. It is advisable to have an attorney prepare this document.

J. RONALD IGNATUK is a partner at Shulman Hodges & Bastian LLP. Reach him at rignatuk@shbllp.com or (949) 340-3400.

Tuesday, 25 September 2007 20:00

Solutions for the logistics industry

One of the most vital decisions that a corporate officer must make, as it relates to the company’s supply chain, is location: stay, move to a more convenient or efficient location, add or reduce warehouses, or add or reduce plants. These decisions can financially make or break a company.

“You will leave money on the table if you don’t follow a repeatable process that’s known to produce excellent results,” says Tim Feemster, Senior Vice President, Director of Global Logistics for Grubb & Ellis Company, representing their offices globally. “For instance, you might go to a city’s economic development commission too early, when you don’t have enough facts. That does not yield the optimal solution.”

Smart Business talked with Feemster about how to formulate a results-oriented, repeatable process of selecting warehouse locations for your supply chain.

How long does the whole process of finding an appropriate and economical location take?

The process usually starts with the operations team recognizing a need for network change. They are either making an acquisition that entails expanding to multiple facilities, they have decided to combine the network, or they are making changes to their terms of sale that will alter the network. Or the company might just outgrow its buildings.

Typically, finding the right location will take eight to 10 weeks if you’re doing a true network analysis and running a model. If you’ve determined what specific market you want to be in, then, obviously, it’s a shortened period. The concept is very scalable, it’s a world-class process, and if you don’t do it in the right sequence, it can cost you money.

How are the CEO and/or directors involved?

Changes in corporate business strategy typically force a change, so the CEO and directors would be involved at some point. They would delegate implementation of business strategy changes to their supply-chain logistics groups, asking for an analysis and subsequent recommendation. During this process, the CEO and directors receive updates and, eventually, a solution.

Explain the five steps to determining a new location.

The first is contextualizing or outlining a strategy. It starts by articulating basic requirements. What’s your ship-to-deliver cycle? What’s your order-to-delivery requirement from a customer service perspective?

You develop preliminary cost profiles to determine the relative importance of factors such as labor quality, operating costs, quality of life and operating environment. A professional adviser can help you sort through what might be some oddball requirements, considering everyone’s individual agendas. He won’t make light of them, won’t discount them but will bring them into the analysis and get them all on the table.

In the beginning, you calculate with your team what’s strategically important. You’re not actually measuring the factors, just identifying them. Then you have to determine the relative importance of such factors, so you actually weight them.

During the initial screening, you figure out which locations may have your requirements. You run a model and do the math, keeping in mind that 50 percent of the cost of doing business is transportation from the distribution center to the clients and over 15 percent is labor.

Eventually, you rate each of the communities on a scale of 1 to 10 in each of your key requirements. You determine what sites may make some sense, trying your best to put more than one location into play. This process forces a somewhat quantitative analysis rather than basing factors on emotion or opinion.

With the location assessment, you’re putting all the information you’ve obtained into a visual perspective with a qualitative cost matrix. For instance, you rate quality or availability of labor 1 to 10 for each location. When you total up your scores, you narrow your list from 10 or 15 to a short-list of two to four sites.

Field visits are next, in order to obtain more data. You can talk about competitors to make the economic development commissioners recognize there’s a horse race. You’re doing a little poker playing at this point. You may have the final site virtually determined, but you don’t want to let those people know. When this step is completed, you know a lot more about the sites, not just your intuitive understanding of them.

Finally, comes negotiation and selection. The real estate group has one agenda and the operating group has a different agenda, and sometimes, they’re not on the same page. That’s why the final decision has to be as unbiased and logical as possible and why you should rely on an experienced real estate adviser. But, in the end, it’s the client’s decision.

TIM FEEMSTER is Senior Vice President, Director Global Logistics for Grubb & Ellis Company. Reach him at (972) 450-3225 or tim.feemster@grubb-ellis.com.

Sunday, 26 August 2007 20:00

Legal requirements

The most valuable asset to an attorney is time. If his or her law office is not adequate, either in space or efficiencies, billable hours are wasted.

That is when a knowledgeable and experienced real estate broker should enter the picture, according to Bo Estes, Senior Vice President, Office Services Group for Grubb & Ellis Company.

“If the location is obviously lacking and the senior partner does not hire outside brokerage services, he’s basically utilizing his own time to do something that a real estate professional specializing in tenant representation could do for him more effectively,” says Estes. “A tenant rep broker brings a wealth of knowledge to the table that can only enhance the whole lease process and add value to the decision that the firm finally makes.”

Smart Business talked to Estes about the factors that must be considered when locating or relocating a law firm.

What are the most common reasons why law firms seek your assistance?

Most of the time, it deals with a lease that is either expiring or nearing expiration or there is a need for expansion. In the case of an expansion, the law firm might be looking into growing an existing office or entering into a new market. In either case, they will need timely and accurate information in order to make good decisions. There are also times when the client wants to take advantage of an opportunistic market; for instance, when a current lease rate may be higher than what the market currently demands.

Do these occasions include both renegotiation of a lease and seeking a new lease?

Yes. In the Dallas market, it has been very common to approach an existing landlord and renegotiate a lease to cut costs. Landlords are eager to renegotiate because they want to add more value and stability to their building by securing tenants for a longer term.

What are some factors to consider when evaluating office space?

Over the past five years, a lot of law firms have taken a hard look at their space requirements — including layout, building infrastructure and how the building is configured for technology. They typically decide that they need to right-size their space, or make it more functional and more efficient.

Because of changes in technology, law firms are also looking at fiber optic speeds, electrical requirements and accommodations that will allow for sufficient computer backup. To protect client information, the building must provide the necessary infrastructure for firms to install adequate technology backup for their servers.

What are some pitfalls that legal firms might fall into when looking for office space?

It is a big commitment when signing a 10-to 15-year lease. One of the most frequent pitfalls for a law firm is not leasing enough space for additional growth or not having options on future space negotiated into the lease. Another trap might be just the opposite: leasing too much space and not having the options to either reduce space or terminate the lease if, for some future reason, the firm shrinks.

What do real estate professionals have to know about clients to effectively serve them?

A broker has to have a clear understanding of the client without prying into any proprietary information. He or she will require a thorough understanding of the philosophy and goals of the partners and future plans. The questions a broker might ask include: What types of law do you practice? Which practices are in a growth mode, which are stagnant, which are dissipating? What locations — what parts of town — are priorities? Do you need to be near your client base? Do you want to be close to mass transit? What kind of image do you want to portray? Have you established a budget for your office space? Are you willing to write a check for improvements above and beyond what the landlord is going to offer in a tenant allowance?

What qualifications should a law firm look for in a real estate broker?

Experience counts and local market knowledge, as well as a familiarity with landlords and lenders, is critical. He or she must know what is going on in the Dallas area from the standpoint of where space is available, what kind of deals are being made, what kind of deals law firms in particular are securing, the various costs associated with being in certain buildings, as well as being aware of certain efficiencies.

Any law firm that is considering moving or opening a new location should take advantage of some of the outstanding real estate expertise in the brokerage community.

BO ESTES, Senior Vice President, Office Services Group, for Grubb & Ellis Company in Dallas. He solely represents tenants. Reach him at (972) 450-3326 or bo.estes@grubb-ellis.com.

Sunday, 26 August 2007 20:00

Private equity recapitalization

A few years ago, private equity recapitalization was a small percentage of the way owners exited their businesses,but today, its popularity is growing fast.

“Sixty to 70 percent of what we do now involves private equity firms,” says Joel J. Guth, an advisor in the Citigroup Family Office at Smith Barney. “It is a very attractive option. You can continue to work for a few more years but also secure your financial future by taking a good amount of money out of the business today.”

Smart Business asked Guth questions about the best way for an owner to exit his or her business by using a private equity firm.

What kind of companies do private equity firms consider recapitalizing?

They want to bring some expertise to the table in terms of access to capital, new ideas and access to sophisticated, savvy investors who will help the company grow. To that end, they look for well-run businesses with strong ownership that is willing to stay in place for three to five years and an experienced management team. They want the company to be in a good industry that has attractive growth with historical, strong, consistent profitability.

Contrary to what you might expect, private equity firms prefer not to interfere with the integrity of the business, which usually means that employees can stay in place, job descriptions and responsibilities will not change, and employees will still report to the owner. They do not want to get into the business of running companies on a day-to-day basis. When they conduct their due diligence upfront, they are looking for a good partner.

What kind of owner can benefit from private equity recapitalization?

Consider an owner in his late 50s who would like to retire in three to five years. He has a good business and a fairly large net worth. He knows he can continue to grow his company, but he has to infuse capital — without risking his own financial future.

With a private equity recapitalization, the owner typically retains 10 to 30 percent of the business. The private equity firm will create a very lucrative stock option plan for the senior management team, so that if the company can realize its growth plan and stay profitable, senior management will be able to take money out.

What are the inherent dangers to using this option?

One, there is a potential loss of management control, both financially and operationally, because the owner is giving up majority ownership in most cases. Two, somebody will be scrutinizing results and possibly questioning the owner’s management — and that can be tough for a lot of entrepreneurs. And three, there are potential conflicts in culture and chemistry. If results start to suffer, investors are going to want more of a voice in how the business is run. They could even ask the owner to change long-held policies and practices.

What happens to the company when the owner does call it quits?

In that three to five years, the private equity firm is hoping to sell the company again, at which time, the owner will retire fully. If the owner wants to retire prior to that, the private equity firm would work with the owner on a succession plan. Normally, owners want to stay until that second liquidity event because they still have their money invested in the business.

How does an owner find a private equity firm?

Most owners are getting phone calls every week. Very rarely will an owner get a maximum price for the company by talking to one private equity firm because it is trying to buy the business at a price that will maximize its return. The best way for the owner to realize his objective is to create a competitive auction process with four to five prospective buyers. If the auction is run correctly, it will increase the sale price.

However, when choosing a private equity firm, the money is only one consideration. The second is finding a high level of comfort. If you can get the right match, your odds of success at eventually exiting the business in good financial shape go up dramatically.

Citigroup Family Office is a business of Citigroup Inc., and it provides clients with access to a broad array of bank and nonbank products and services through various subsidiaries of Citigroup, Inc.

Citigroup Family Office is not registered as a broker-dealer nor as an investment advisor. Brokerage services and/or investment advice are available to Citigroup Family Office clients through Citigroup Global Markets Inc., member SIPC. All references to Citi Family Office Financials Professionals refer to employees of Citibank. N.A. or Citigroup Global Markets Inc. Some of these employees are registered representatives of Smith Barney, a division of Citigroup Global Markets Inc., that have qualified to service Citi Family Office clients.

Citigroup Global Markets Inc. and Citibank are affiliated companies under the common control of Citigroup Inc.

JOEL J. GUTH is an advisor in the Citigroup Family Office at Smith Barney, a division of Citigroup Global Markets. Reach him at (614) 460-2633 or joel.j.guth@citigroup.com.

Sunday, 26 August 2007 20:00

More than sales

Your organization needs a sales team that does more than make presentations to prospective clients. It may have to build the kind of long-term relationships that engender trust in your company, which, in turn, ensures steady business.

Believe it or not, the ability to develop long-lasting business relationships with clients can be taught.

“This is more than just how you sell,” says Vera Jasper-Lewis, executive director of sales and marketing at Corporate College, a division of Cuyahoga Community College. “It’s how you develop a relationship with your clients. It’s the touchy-feely part of selling.”

For instance, your company may have technical experts who are brilliant in their own field but lose confidence when having to create better business relationships. When in doubt, they fall back on their expertise, potentially boring clients and dazzling them with too many facts and figures.

Smart Business spoke to Jasper-Lewis about defining the process of relationship management and the training available in Northeast Ohio.

Is business relationship management a part of the sales process?

Definitely. Business relationship management is not only a part of the sales process, but it’s a critical part that a lot of organizations leave out.

Management sometimes wants to make the sales process very simple and easy to assimilate, which can be the wrong approach. That’s fine if you’re selling something where you don’t have a lot of repeat business, like roofing services. But when you depend on repeat business, your sales-people have to take special care to develop relationships.

Does most business relationship management occur before, during or after a sale?

It’s ongoing. A good part of building trust is before a sale ever goes down. The relationship building goes both ways, too. You not only have to understand their business, but you have to coax them to understand your business before you can both begin to understand their problems and possible solutions.

What are the keys to developing good business relationships?

Gaining clients’ confidence and trust in you and your company is one of the keys. Too often, consultants, salespeople or other company representatives deluge clients, or potential clients, with too much information.

Relationship building is all about the fact that — at gut level — it’s the salesperson that they buy. During meetings, the salesperson not only represents the company, he or she is the company.

It’s less about your product and a whole lot more about how your representatives connect with your client. They need to be a trusted consultant, to understand the client’s needs and to get to the core of what is going on in the client’s company.

Equally important is the ability to draw out unspoken agendas and to deliver messages the client may not want to hear. Clients often think they know what they want, but they may, in reality, need something quite different or more than they believe. Another part of the relationship building is to tease out needed information without seeming to interrogate the client.

How do you build the necessary trust?

You must, first and foremost, be a person of your word. If you tell the client you’re going to do something, you have to do it. If I tell someone that I’m going to send him information, I send the information. People trust you because you do what you say you’re going to do and you’re looking out for their interests. They feel you’re a partner in the process instead of a vendor.

Can nonsales personnel be taught business relationship building?

Absolutely. I’m a great example of that. More than 20 years ago, Westinghouse and General Electric were looking for sales-people who were first and foremost technical people. I became one of the first non-business employees who was asked to sell very technical equipment.

For some of the strong technical-based people, converting to a sales-first mindset just didn’t work. But some of us gained a different perspective that had an impact on what we designed because we developed relationships with our customers.

It’s very easy to teach people how to build business relationships, and most understand it, even if they don’t adopt it. It’s very easy to grasp the concept if the teacher or facilitator relates the process to the students’ own personal experiences.

Some subtopics included in teaching relationship building are 1) understanding the customer’s customer, 2) the customer experience, 3) past the sale and 4) developing a person-to-person relationship.

Building and managing a business relationship is a throwback to the days when top executives knew each other so well that they sealed a deal with a handshake — before so much sales was conducted as if products and services were nothing more than commodities. The important thing is that this kind of approach is not about somebody buying something; it’s about growing a partnership and helping customers better serve their own customers.

VERA JASPER-LEWIS is executive director of sales and marketing at Corporate College, a division of Cuyahoga Community College. Reach her at vera.lewis-jasper@tri-c.edu or (216) 987-2963.

Saturday, 26 May 2007 20:00

Another good way to borrow

It costs money to borrow money. But a lesser-known tactic called trade cycle financing may allow companies to save on the cost of money.

If your company’s borrowing base is not large enough to provide the money you need now, you can fund each stage of a trade transaction in exactly the amount required for that stage, rather than the amount your borrowing base allows. This same model is used the world over to fund international transactions.

“Most companies may not know about trade cycle financing,” says Glenn Colville, senior vice president and group manager, Western Market, International Trade Finance for Comerica Bank.

“Trade cycle financing — a type of transactional financing — allows for more than traditional availability of financing against inventory.”

Smart Business talked to Colville to get more specifics about trade cycle financing and its benefits.

What exactly is trade cycle financing?

It’s a form of transactional financing that provides a company with financing from the beginning to the end of a sales transaction — from the time a customer places its order until the receivable is liquidated.

Commercial banks generally lend against a collateral pool of inventory and accounts receivable, say, up to 40 percent on inventory and up to 80 percent on accounts receivable. With trade cycle financing, the bank examines the deal on an order-by-order basis. A company is not limited to the traditional borrowing base percentages against a pool of collateral.

Typically, banks are looking to finance transactions that complete the trade cycle within 180 days. In some scenarios, a bank might be willing to go longer than that, but the nature of the company’s business has to justify the longer finance period.

What kind of companies can apply for trade cycle financing?

Traditionally, it’s seen more in an import/export situation. But it can be brought onshore within the U.S. where there’s need for larger-than-typical advances against inventory.

Because you’re looking at transactional financing as opposed to a traditional collateral pool, the banker has to be really comfortable with the company applying for the loan having been successful for a number of years. The banker has to know that the product is marketable and that there’s a market for it — because that’s where the liquidation value lies. Additionally, the company must be mature enough to have experience with its vendors and its customers.

All these factors dictate lending to a company that has demonstrated a successful business model for a number of years, not one that is less than tried-and-true.

What rate can a company expect to pay for the money it’s borrowing?

Banks create a specific advance for a specific period of time. The rate could be based on prime, LIBOR or Banker’s Acceptance, which is another form of fixed-rate, short-term financing. Banker’s Acceptance rates can be considerably less than prime, which means a lower cost of funds to the company.

How can a company benefit from this type of financing?

As I just said, there’s the possibility of lower-cost funding. In an environment with a high potential for rising interest rates, the ability to use fixed-rate, short-term financing is an advantage.

The other real benefit is the additional financing against inventory. Trade cycle financing allows up to 100 percent advances against inventory as opposed to 20 percent to 40 percent against other methods of financing.

What are the risks associated with this kind of borrowing?

It’s neither more nor less risky than other forms of financing. The fundamental risk when any company borrows money is that it might not be able to repay it. And if it can’t, the larger implications are that something is failing in its business.

What type of insurance is included for the shipped product?

When you’re financing a whole series of transactions from start to finish, collateral protection against loss is important, so cargo insurance is a key. Credit or accounts-receivable insurance can be purchased by the company taking out the loan. For the bank, an insurance product is available that provides it with risk-of-loss insurance.

Are commercial banks the only institutions where a company can apply for trade cycle financing?

To my knowledge, the players are mostly commercial banks and commercial finance entities or intermediaries.

If this concept piques your interest, talk to your relationship manager and/or trade finance specialist at your bank.

GLENN COLVILLE is senior vice president and group manager, Western Market, International Trade Finance for Comerica Bank. Reach him at glenn_l_colville@comerica.com or (925) 941-1931.