Confidentiality Agreements

Confidentiality Agreement - A pact that forbids buyers, sellers, and their agents in a given business deal from disclosing information about the transaction to others.

The M&A Dictionary

It is common practice for the seller, or his or her intermediary, to require a prospective buyer to sign a confidentiality agreement, sometimes referred to as a non-disclosure agreement. This is almost always done prior to the seller providing any important or proprietary information to a prospective buyer. The purpose is to protect the seller and his or her business from the buyer disclosing or using any of the information provided by the seller and restricted by the confidentiality agreement.

These agreements, most likely, were originally used so that a prospective buyer wouldn't tell the world that the business was for sale. Their purpose now covers a multitude of items to protect the seller. A seller's primary concerns are to insure that a potential buyer doesn't capitalize on trade secrets, proprietary data or any other information that could essentially harm the selling company. A concern of the prospective buyer may be that similar information or data is already known or is being developed by his or her company. This can mean that both parties have to enter into some discussion of what the confidentiality agreement will cover, unless it is general in nature and non-threatening to the prospective buyer.

A general confidentiality agreement will normally cover the following items:

• A general confidentiality agreement will normally cover the following items:
• The purpose of the agreement - it is assumed that in this case it is to provide information to a prospective acquirer.
• What is confidential and what is not. Obviously, any information that is common knowledge or is in the public realm is not confidential. What information is going to be disclosed? And what information is going to be excluded under the disclosure requirements?
• How will confidential information be handled? For example, will it be marked "confidential," etc?
• What will be the term of the agreement? Obviously, the seller would like it to be "for life" while the buyer will want a set number of years - for example, two or three years.
• The return of the information will be specified. For example, if the sale were terminated, then all documentation would be returned.
• Remedy for breach or determine what will be the seller's remedies if the prospective acquirer discloses, or threatens to disclose any information covered by the confidentiality agreement.
• Obviously, the agreement would contain the legal jargon necessary to make it legally enforceable.

One important item that should be included in the confidentiality agreement is a proviso that the acquirer will not hire any key people from the selling firm. This prohibition works both ways: the prospective acquirer agrees not to solicit key people from the seller and will not hire any even if the key people do the approaching. This provision can have a termination date; for example, two years post-closing.

The sale of a company involves the disclosure of important and confidential company information. The selling company is entitled to protection from a potential acquirer using such information to its own advantage.

The confidentiality agreement may need to be more specific and detailed prior to commencing due diligence than a generic one that is used initially to provide general information to a prospective buyer.

Tips on Maintaining Confidentiality

• Use a code word or name for the proposed merger or acquisition.
• Don't refer to any principal's names in outside discussions.
• Conversations concerning the merger or acquisition should be held in private.
• Paperwork should be facedown unless being used.
• All documents should be kept under lock and key.
• Important data maintained on the computer should be protected by a password.
• Faxing documents should be done guardedly.

Copyright BBP 2003

Consumers Voice Complaints:
And Business Owners Should Listen

"Your salespeople didn't listen when I placed my order, and when I wrote a letter to complain, they still didn't get it right. I guess they don't read any better than they hear."

Daniel Langley, the owner of a central Massachusetts mail order company, took this call on a recent Monday morning. It happened to be a holiday, or he might never have got this close to a customer complaint. He was glad he did.

"I needed to be reminded," he said, "that the problems are always out there. I tend to hear a lot from customer service about the record-breaking order or the customer calling from New Guinea. I realized we haven't been paying enough attention to the everyday, not-so-happy news."

Langley is typical of many business owners and managers in that respect. A lot of companies--large and small--do much less than they could in dealing with customer problems and complaints. This is an unfortunate omission, and an unnecessary one: achieving good customer service is neither costly nor complicated. What's needed is a well-considered plan, coupled with a positive attitude.

The following steps can help any business convert problems into solutions . . . and into good PR as well.

Fight fire with anything but fire.

An unhappy customer calls expecting a fight. If they aren't downright angry, they are at the very least upset and on the defensive. The salesperson should be careful not to echo the customer's attitude. Instead, the person answering the complaint should aim for just the opposite tone: a calm expression of interest in listening to the problem, followed as soon as possible by the desire to solve it. This is not always an easy task, and salespeople should be trained to realize that customer complaints are not (in most cases!) personal attacks. Short of a free case of Perrier, employee courtesy is the most effective means of dousing customer fires.

Quick action is the best action.

And in most cases, it may be the only acceptable one. What you do in the first minute or two may well determine whether you will lose the customer--and create a ripple effect of ill will--or gain a "friend" forever. Research shows that the sooner the problem is resolved, the more likely you are to end up with a happy, loyal customer. Proper handling will turn around 95 percent of customer complaints, but the statistics get gloomier in proportion to the time that is allowed to elapse. Wait an hour, and you have a tentative customer; wait a day, you have a disgruntled one; wait longer, and you may have no customer at all.

Place authority where it will do the most good.

It's one thing to advocate quick action to quell customer complaints. However, if the manager or other superior in a company's hierarchy is the only one who can "sign off" on problems, delays will be, in most cases, impossible to avoid. If possible, salespeople should have the authority to approve returns and exchanges and solve other problems--up to a predetermined dollar limit.

Approach problems with a can-do attitude.

Obviously, not all complaints can be resolved to the every customer's satisfaction. However, each problem should be handled with a sincere attempt to make the customer happy. Working within the rules (and financial limits), the salesperson should give the customer the feeling that it is he or she who is important--not the rule book. What should the price tag be on customer contentment? Good business sense says it can't veer off into extravagance; however, generosity can pay big dividends. The cost of solving one problem may be far less than losing a valuable account, client, or customer.

Measure the quality of your "damage control."

Many midsized businesses are following the lead of the larger corporation and asking their customers for feedback. If you aren't already including some form of questionnaire or survey form in your mailings, you might consider trying a simple postcard or product enclosure.

Watch for patterns in customer problems.

Keep a careful record of all customer complaints and determine if there is a particular product or service that generates the majority of problems. If you can detect a pattern, these customer problems will actually have helped you, in the long run, to target company problems of your own. If no pattern emerges, you will be affirmed in treating each case as separate challenge--and, following the steps outlined above, you will have the tools to make quality customer service one of your primary--and attainable--jobs.

How Did We Do?

Here is the follow-up to customer problems Massachusetts one business owner recently implemented. Each customer complaint is tagged in the customer service data base and automatically "personalized" with the customer name and specific problem addressed.

Dear [Customer]:

Our records show you recently [returned/exchanged/had questions concerning] one of our products. To help us continue to offer quality service, please take a moment to answer the questions below:

1. When you called [with your question/to advise us of a problem], did you receive a courteous response?
2. How much time (approximately) lapsed between your [question, complaint] and our [answer/suggestion as how to resolve it]?
3. Did you receive a satisfactory [refund/item in exchange, answer to your question]?

Thank you!

Copyright BBP 2003

Does the Deal 'Fit?

"The most successful integrations were directed by people who placed the common good of the combined organization and its customers before all else."

From: The Mergers & Acquisitions Handbook.

By now most business owners are familiar with the problems created by the merger of' Daimler, the German automobile company and Chrysler, the American car maker. Here is the classic case of cultural friction adversely impacting what was originally promoted as the merger of "equals." If any deal can point out the importance of a cultural fit in a merger or acquisition - this is it. The officers of Daimler took complete control and the executives of Chrysler left in droves. Not only were the management styles completely different - centralized versus decentralized, quick decisions versus decisions by committee, supplier rivalries versus supplier partnerships, and finally, the American management team received huge compensation packages, while the Daimler people worked on small salaries, but huge "perks."

Mergers and acquisitions are supposed to produce synergies that bring results and if they don't the culture is too often the reason. John Chambers, the CEO of Cisco Systems, who has been involved in some seventy acquisitions, says that he will not do a deal unless there is a cultural fit. Culture according to one dictionary is defined as the "customary beliefs, social forms, and material traits of a . social group." The word compatible may be a better choice defined by the same dictionary as: "able to exist or act together harmoniously." Regardless of the semantics if both companies can't work well together the deal is a bad one. The importance of this cultural fit may be influenced by the nature of the deal and the desires of the seller. Here are some examples:

• The seller sells the company on an all-cash basis and doesn't really care what happens to the employees, the customers or the new owners. In other words, the seller takes the money and runs.
• The seller receives sufficient cash that he or she is secure about the transaction. Despite this almost all-cash deal, or the quality of the security for the balance, there is serious concern for the employees and their future with the new ownership.
• The seller merges the company and/or receives stock in the acquiring firm. Further, the seller's compensation, to say nothing of any increase in the equity, may be determined by the success or failure of the cultural fit of the merged companies.

Obviously, in the first example, the question of a cultural fit, or any fit, for that matter, is moot. Assuming, however, that the prospective seller fits into one of the two latter situations, how does one determine the compatibility of the two firms? It may be a non-issue if the seller's company is going to remain autonomous. Or, the acquiring firm may have been through several similar situations and is experienced in the assimilation process. These two examples do not necessarily mean that the companies will mesh perfectly, but they do help. However, if a cultural fit is of concern, what can be done to help assure an orderly blending of the two firms?

It can be as simple as the seller having a casual dinner with the owner or CEO of the acquiring or merging company. Much can be learned one-on-one about how the other company is managed and its owner's business philosophy. Is it based on teamwork? Is it entrepreneurial or hierarchical? Is the company customer or policy driven? If the CEO of the acquiring company is reluctant to share a social occasion, then the seller may have already received the answer to the cultural fit question.

Other areas that should be considered: how are the employees of the other company compensated? Or, for example, something as mundane as the company's product return policy may provide insight into the successful integration of the two businesses. How far apart are the companies' mission statements?

Absorbing smaller companies can be a lot easier than two firms of approximately the same size merging. There are few companies whose cultural styles are so similar that integration is an easy matter. In many cases, where there may not be a perfect cultural fit, proper communication can resolve most of the issues. Unfortunately, there are some situations, like the Daimler Chrysler example, in which the two companies may never be integrated successfully.

Sellers who are concerned about the right cultural fit should investigate this before the deal gets too far along and obviously prior to closing. An intermediary has the knowledge and experience to work with both buyers and sellers on this all-important issue. The right culture may be a "soft" issue when it comes to mergers and acquisitions, but just may be one of the most important.

Copyright BBP 2003

How Big Are Most Businesses 
Smaller than You Think?

Are you intrigued by the subject of just how big most businesses are?

American Business Information, an info USA company, has a breakdown that is quite revealing. Following is a randomly selected list of different types of businesses and the percentage of the total number in the U.S. that have less than $500,000 in annual sales.

Auto dealers, manufacturers and many other companies that would have certainly lowered the percentages are not included, but the above create a cross-section of main street type businesses. These businesses make up almost 90 percent of the total number of businesses in the U.S. Looking at the above selection and not counting the numbers of each, but just the percentages - over 60 percent, on average, have annual sales of less than $500,000. That's what small business is all about. Being your own boss, running your own show, making your own decisions, answering (most of the time) to no one, living your own life, and making a living - that's small business. It would appear from the data that small business is alive and well!

Copyright BBP 2003

How Do You Say Hello?

Answering services, message machines, voice mail, "on hold" music, speaker phones . . . where would a business be without them? Perhaps--in some situations--a lot better off! In the small to midsized business, where every call should count, owners and managers need to ensure that the telephone is an efficient, effective sales tool instead of a handicap. It's important to remember that the caller's first impression of your company is from the voice answering the phone. That first minute or less will help form the caller's lasting opinion of your business, so why not take the opportunity to make that opinion the best possible? Here are a few ideas for improving the way your business says hello.

Call Your Office

Give your office a call--just don't let them know it's you. Have someone whose voice your employees won't recognize place the call, with you standing by waiting to listen. This may sound like cloak-and-dagger tactics, but it's one that successful managers use to monitor the quality of their telephone service. What to listen for:

• A pleasant salutation ("Good morning, Jones and Jones"), followed by a name, if appropriate, and offer of assistance.
• An unhurried, interested response to queries, or the offer to connect the caller to someone else who can provide information.
• A reasonable on-hold time. And, if the time seems longer than normal, is there an apology for the delay?

Check Out Your Service

Conduct a "test" of your answering service similarly to the above; however, you'll be listening here for that extra level of care an answering service should take in personalizing its service. Be sure the following standards are met:

• Answering service operator answers with the name of your company, not just a generic "May I help you."
• Operator should know pertinent facts about your business: times of operation, key names of personnel, etc.
• Check message you give operator against the message that he or she transmits to your company.

If you aren't satisfied, take the time to educate your answering service about your standards and expectations. If the service can't--or won't--comply with your request, engage another organization to do the job.

Tune Up Your Message

When was the last time you listened to your own company's voice mail message? When you do, turn a careful ear to the following checkpoints:

• Are you satisfied with the voice that represents your company? It should be upbeat, but also well-modulated and pleasingly-pitched. Do a test of several voices and choose the one that sounds best "on tape."
• If your voice mail system has background music, or if your company has a call sequencer with on-hold music, be sure the sound is welcoming and soothing.

Take High-Tech Down a Peg

Does your company have automated voice mail? Speaker phones? Conference-call capability? All well and good in this era when communication is king. Just keep in mind the advantages of the "live" human voice--when you make a call, business or personal, isn't this what you prefer to hear? Although the person in your business who answers the phone may well be your lowest-paid employee, remember that this human voice is vital to the image of your company.

Copyright BBP 2003

How Many Businesses Are There?

We suspect that it depends on whom you ask! The Internal Revenue Service (IRS) reports that they received some 24.8 million business tax returns for the year 1999. We can hear the joyful sounds emanating from new business brokers and those considering the profession. Wow almost 25 million businesses we can hear them adding up the commission dollars. This is a very misleading figure. Many of these are hobby-type businesses, one-person consultants, writers, artists and the like. In fact, one source reports that there are 18 million non-employee businesses, and they account for only 2 percent of total sales. INC, in their Small Business issue reports that Sole Owners generate only 3.3 percent of all revenues and have annual sales of about $38,000.

Home-Based Businesses

According to INC magazine 61 percent of the firms in their 500 fastest-growing companies list started out as home-based. And, on average 15 months after they started, they moved to outside space.

We dont want to take anything away from these non-employee businesses, many of which are home-based, as obviously some of them will grow to be large businesses. Quite a few of these businesses rather than have actual employees use independent contractors or outsource work needed. Many others are making an excellent living for the owner, and still other owners are quite content with the results of their business. However, they are not the kind of businesses that business brokers and intermediaries normally sell. Certainly there are a few exceptions some one-person businesses generate sufficient revenues that would be quite salable. And, its not that business brokers couldn’t sell them or that people wouldn’t buy them quite frankly, they are just not commissionable.

Most business brokers, out of necessity, have a minimum fee and adding $10,000 to a selling price of $10,000 would price many small businesses out of the marketplace. There may be a way of handling them, but these small businesses cant afford full-service brokerage services. This is coupled with the fact that obviously many, many of these non-employee businesses don’t generate enough profit, if any, to make them salable. Total annual sales of $38,000 aren’t going to create a lot of excitement among prospective business buyers.

What Is A Real Business?

As we have discussed earlier we are really only interested in those businesses that have at least one employee. When we are asked how many businesses there are, we assume that they mean how many possible businesses are available for sale. The above figures give a false impression of the overall marketplace of businesses that might be for sale at some point. Certainly many of the businesses that have no employees might be available for sale, most will not and secondly, business brokers and intermediaries will most likely not be involved in a sale if one does occur. Since most people who call are interested in the business brokerage profession, very few of the businesses that file business income tax returns are really businesses that would sell, especially by business brokers.

Our feeling is that to qualify as a real business, it must have at least one employee. As we mentioned above, we suspect that some no employee businesses use outsourcing rather than go through all of the red tape required by governmental agencies to have even one employee.

An article in the Boston Globe March 4, 2001 stated that there were 7.7 million small businesses with less than 100 employees. Last years Business Reference Guide reported that there were 5.5 million businesses with one employee or more. INC in their Small Business issue said that there were 5.8 million with at least one employee. One other source reported 7.2 million.

BizStats reported that there were 5.547 million businesses with at least one employee. We're going with that figure.

Here Is A Further Breakdown:

4,467,900 represent 80.5% of the total and have sales under $1 million

790,600 represent 14.3% of the total and have sales of $1 - 5 million

265,600 represent 4.8% of the total and have sales of $5 - 100 million

23,311 represent 0.4% of the total and have sales of $100 million +

Total Businesses =5,547,400

*Courtesy: BizStats

Here's A Breakdown By Type of Business:

Services - 40% (87.8% Of Those Have Revenues Under A Million)

Retail - 19.8% (80.3% Of Those Have Revenues Under A Million)

Wholesale - 7.5% (50.7% Of Those Have Revenues Under A Million)

Manufacturing - 6.0% (61% Of Those Have Revenues Under A Million)

Construction - 12% (81% Of Those Have Revenues Under A Million)

Finance, Insurance & Real Estate - 8.3% (83% Of Those Have Revenues Under A Million)

Transportation/Utilities - 3.9% (81.3% Of Those Have Revenues Under A Million)

Agriculture & Mining - 2.4% (89.8% Of Those Have Revenues Under A Million)

Copyright BBP 2003

Meet the Customers

Some of you might remember the commercial for one of the major airlines in which a business lost a major client, because they never saw anyone from the company. The president handed out airline tickets to the entire sales staff so they could go out and visit the customers. When asked what he was going to do with the remaining ticket he replied that he was going to go see the lost client. And, a recent study revealed that customers really want contact with the business owner. In fact 83 percent of the decision makers want personal contact with salespeople.

Both of these examples point out the importance of customer contact. From the small shop owner to the CEO of a large company, meeting with the customers is still the smart way to go. With today's technology, it may be easier to fax, telephone or e-mail a customer or client, but is it really the best way to contact that person? Remember how good you feel when the owner of a restaurant comes to your table and asks how everything is. Nothing beats owner contact!

Is your business resorting to just telemarketing and direct mail programs to contact your customers - both present and possibly future ones? Perhaps it's time to hire a salesperson to go out and meet the people. Perhaps it's time to go out and do it yourself. Why not go out yourself and meet or visit your important customers or clients? If you own a retail business - go out and meet the customers. Owning your own business is not a "back-room" or hide behind the business-plan business. It is a "front-room" business - go out and meet the customers!

Copyright BBP 2003

Normalizing the Statements Isn't Always Normal

Definitions

Expense - anything that a company buys that has an economic life of less than one year. It shows up immediately on the income statement.

Capitalized items - have an economic life of one year or more and the cost is moved to the balance sheet, and then these costs can be written down by depreciation or amortization over time.

Normalized financial statements - statements that have been adjusted for items not representative of the current status of the business. Normalizing statements could include such adjustments as a non-recurring event such as attorney fees expended in litigation. Another non-recurring event might be a plant closing, or adjustments of abnormal depreciation. Sometimes owner's compensation and benefits need to be restated to a competitive market value.

As Americans have discovered over the past few months, many public companies will stop at nothing to maximize earnings and therefore increase the price of their stock. Most private businesses take the opposite tack and try to minimize earnings to reduce their tax liability. After all, they don't have Wall Street and shareholders to please. The less their tax obligation - the more discretionary money they have personally available.

Unfortunately, when it comes time to sell, it's also time to "pay the piper." However, many business valuation professionals are aware of this incongruity, and make allowances for it in their approach to valuing the company. It is called "recasting" or "normalizing" the statements.

Due to all of the recent publicity concerning the accounting irregularities among some of the country's largest companies, Fortune magazine stated that America has lost its way. In fact, the magazine's exact words were: "Stop the abuse of restructuring charges. The cost of things like plant closings and lay-offs is just part of doing business and should count as an operating expense, not as a special one-time charge." These words were specifically addressed to very large, publicly held firms, but the examples can carry over to smaller privately held companies.

For example, determining what is capitalized and what is expensed can be a gray area. Some costs are clearly expenses, and others clearly should be capitalized. But there can be a fuzzy distinction among other expenses. Research and development is a gray area. It develops new products that, in turn, hopefully create future profits. Despite the long-term outlook for R&D, many companies expense this item. Another example is advertising. Its purpose is to create long-term brand awareness and to sell products or services in the future. However, advertising is also normally expensed. By expensing these items, the profits of the company decrease, and the tax ramifications are reduced. Does this fairly represent the earnings of the company?

However, in selling private companies, it is common procedure to reconstruct or normalize the earnings of a company to attempt to show a prospective buyer the company in the best light. By normalizing the income statement, the "real" earning power of the firm can be shown, which can translate into a higher price. Using a multiple of EBITDA, one can show a company is worth a million dollars more by simply identifying the "add backs" of $200,000. One way of doing this could be by eliminating any extraordinary items; e.g., non-recurring legal and consulting expenses, a new roof on the plant or tooling for a new product. As Fortune pointed out so vividly: "The cost of things like plant closings and lay-offs is just part of doing business and should count as an operating expense, not as a special one-time charge." Recurring legal expenses, major annual equipment maintenance procedures, etc., are really just part of doing business.

Sellers and their outside advisors should be careful in normalizing the income statements of the companies they are working with - expenses that are just part of doing business should not be added back to create higher profits. It may seem very easy to add back $100,000 on the premise that a new CEO will be paid $100,000 less than the current one. Chances are - it won't happen. By the time a new CEO is provided appropriate incentives and generous "perks," there will be no savings.

The moral here is that the reconstructed earnings should not be puffed up to impress a potential buyer. The buyer is no fool - he or she will see right through it all. Some normalization is required and accepted, but excess add-backs will surely come back to bite the seller.

Copyright BBP 2003

Size Break Down Of Businesses

Here is a common and much-used breakdown by the federal governments

Small Business Administration (SBA):

Very Small Business 19 or fewer employees

Small Business 20 to 99 employees

Medium-Size Business 100 to 499 employees

Large Business 500+ employees

Copyright BBP 2003

Ten Ways To Cut It

The Cost of Doing Business Really Can Go Down It's easy to be negative about cost-cutting. "Everything just costs more," a business owner will say; the subtext being, "What's the use?" Don't give up. There are ways to cut costs. The first step is to identify where the money goes . . . and why. Then look at creative ways to shave off the non-essential while keeping the shape of your business intact.

1. Look Beyond In-House

Outsourcing is the latest word in cost-cutting, and it can mean more than one thing. First--outsourcing labor. Temporary employees or contract workers are the answer for jobs that aren't included in the daily running of a business. Temps make sense for holiday rush periods or for short-term assignments or campaigns. Outsourcing certain operations, such as photocopying, mailing, and telephone answering, is an increasingly popular way to cut down on carrying these costs in-house. Another, less typical, kind of outsourcing is "hiring" temporary space. If your business needs a conference room only occasionally or only a small portion of a warehouse, consider subletting the space from another business and cut the square footage of your own operation.

2. Don't Assume Outsourcing Is Always Cheaper

It pays to keep some operations in-house. For instance, if your receptionist can do some on-line bookkeeping while waiting for the phone to ring, or if your warehouse worker can stuff envelopes for a mailing in between delivery deadlines, you should consider these as in-house candidates. In addition, there are some jobs that should stay in-house even if outsourcing may appear to be a bargain--those that involve issues of confidentiality or accounting operations that might help owners and managers to better understand the business.

3. Take Advantage of the "Free Lunch"

It may be food for thought instead of steak, but there are many free offers of benefit to business owners. Continuing education lectures, SBA seminars, informational evenings offered by local banks and corporations are often free or inexpensive ways to hone business acumen. Try these before going the more expensive route via consultants.

4. Go Electronic . . .

If you haven't yet substituted a voice mail system for a receptionist, you are paying an unnecessary yearly salary. Using e-mail can replace the need for most correspondence--saving the cost of a secretarial salary, or at least full-time. Computer programs for bookkeeping and for riding herd on inventory and payroll can also reduce employee numbers or hours. Selling on-line is cheaper than traditional advertising, and the individual targeting may pay off in more "hits," further reducing the cost of doing this particular type of business.

5. . . . But Don't Get Shocked

The cost of sending faxes, using cellular phones, and certain on-line services can get lost in the glow of their convenience. Monitor the use of all such devices. If charges seem unreasonable due to the service provider's fees instead of employee usage, negotiate with the carrier or provider. When threatened with a loss of business, they will often lower fees or at least negotiate payment schedules. Another electronic cost-saver: run certain equipment during off-peak electricity hours and save up to 30 percent annually in electric bills.

6. Shop Around

Don't be a slave to recommendations. If your computer consultant has a "pet" equipment source, or your graphic designer has a favored printer, make a few calls to see how the prices stack up. You could end up with big savings for very little effort. The same holds for seeking financing. You should always talk to at least two banks, looking for the best loan terms and interest rates.

7. Offer Discounts; Take Discounts

By offering customers early-payment discounts, you can "borrow" their money instead of the bank's. Compare the advantage of doing this against borrowing from a lending institution and see which works best for you. You can also be on the other end of discounting by checking out what may be available. It sometimes helps to join a professional organization, in order to get the best discounted rates on anything from advertising to shipping services.

8. Purchase from the Source

If you deal in a product, go to the source whenever you can. For example, the owner of a children's clothing business specializing in sweaters goes directly to the spinning mill for her yarns. Not only can she specify the exact colors she wants, but she can shop for bargains and negotiate the best prices without any costs added by the knitting factory.

9. Curry Favor

Try to cultivate business favor by patronizing one operation per service. Be loyal to one printer, photographer, designer, or copy service, and they may repay you with reduced fees and/or discounts.

10. Understand that Deductibles Still "Cost"

A deductible expense is still a cost. The only "free" part is whatever your specific tax rate will allow you to deduct, which could be as low as 25 percent, perhaps even less. When tempted to splurge on a deductible expense, always look at your profits and see how much you'd have to earn in order to justify it.

Copyright BBP 2003

What makes Your Company Unique?

There are unique attributes of a company that make it more attractive to a possible acquirer and/or more valuable. Certainly, the numbers are important, but potential buyers will also look beyond them. Factors that make your company special or unique can often not only make the difference in a possible sale or merger, but also can dramatically increase value. Review the following to see if any of them apply to your company and if they are transferable to new ownership.

Brand name or identity

Do any of your products have a well recognizable name? It doesn't have to be Kleenex or Coke, but a name that might be well known in a specific geographic region, or a name that is identified with a specific product. A product with a unique appearance, taste, or image is also a big plus. For example, Cape Cod Potato Chips have a unique regional identity, and also a distinctive taste. Both factors are big pluses when it comes time to sell.

Dominant market position

A company doesn't have to be a Fortune 500 firm to have a dominant position in the market place. Being the major player in a niche market is a dominant position. Possible purchasers, acquirers, such as buy-out groups, look to the major players in a particular industry regardless of how small it is.

Customer lists

Newsletters and other publications have, over the years, built mailing lists and subscriber lists that create a unique loyalty base. Just as many personal services have created this base, a number of other factors have contributed to the building of it. The resulting loyalty may allow the company to charge a higher price for its product or service.

Intangible assets

A long and favorable lease (assuming it can be transferred to a new owner) can be a big plus for a retail business. A recognizable franchise name can also be a big plus. Other examples of intangible assets that can create value are: customer lists, proprietary software, an effective advertising program, etc.

Price Advantage

The ability to charge less for similar products is a unique factor. For example, Wal-Mart has built an empire on the ability to provide products at a very low price. Some companies do this by building alliances with designers or manufacturers. In some cases, these alliances develop into partnerships so that a lower price can be offered. Most companies are not in Wal-Mart's category, but the same relationships can be built to create low costs and subsequent price advantages.

Difficulty of replication

A company that produces a product or service that cannot be easily replicated has an advantage over other firms. We all know that CPA and law firms have unique licensing attributes that prevent just anyone off of the street from creating competition. Some firms have government licensing or agreements that are granted on a very limited basis. Others provide tie-ins that limit others from competing. For example, a coffee company that provides free coffee makers with the use of their coffee.

Proprietary technology

Technology, trade secrets, specialized applications, confidentiality agreements protecting proprietary information - all of these can add up to adding value to a company. These factors may not be copyrighted or patented, but if a chain of confidentiality is built - then these items can be unique to the company.

There are certainly other unique factors that give a company a special appeal to a prospective purchaser and, at the same time, increase value. Many business owners have to go beyond the numbers and take an objective look at the factors that make their company unique.

Copyright BBP 2003

Why Do People Go Into Business?

41% joined family business

36% wanted more control over future

27% tired of working for someone else

5% downsized or laid off

*Source: Dun & Bradstreet 19th Annual Small Business Survey May 2000. Totals add up to more than 100% because respondents could choose more than one reason for going into business for themselves. This was in the May 2001 issue of INC magazine.

Copyright BBP 2003

Women Business Owners: Coming On Strong

If there were any doubt that women owners are an ever-growing force on the independent business scene, new studies of leading female entrepreneurs around the world supplies incontrovertible proof. The National Foundation for Women Business Owners (NFWBO) has been hard at work, researching the small business climate for women and identifying strong trends.

Fifty Top Women Show Trends

In one study done jointly with IBM, the NFWBO used as its subjects 50 top women business owners (plus 10 more up-and-coming) to compile these findings:

• These women owners cover a wide range of industry categories, for example: 27 percent in manufacturing, 25 percent in retail trade, and 10 percent in real estate.
• Slightly less than half (46 percent) of these women inherited their businesses, and more than half began their own: 34 percent by themselves, and 17 percent with others.
• As a group, the study subjects generate $139 billion in revenue and employ more than 150,000 workers. And, the numbers keep increasing.

The Majority of Women Owners Prefer "Small"

More research from the NFWBO shows another picture: that women owners, taken as a whole, prefer pared-down operations. The very smallest, in fact: among the approximately eight million women-owned businesses in the U.S., 75 percent of these are one-person operations with no employees. Ownership of such a small business gives women maximum flexibility with work schedules and offers a better chance of keeping their home lives healthy as well.

Ignoring the big-business gurus who claim that small does not equal successful, women owners continue to prefer keeping their businesses small. Although the NFWBO research reveals that fewer than one percent of these businesses have more than $1 million in sales, women owners are showing strength in numbers and gaining respect from many quarters necessary for their support and growth. The Small Business Administration, for example, offers a number of free counseling and assistant programs, as well as its loan guarantee program--all helping the woman-owned business to flourish.

Women Owners Triumph over Bank Loan Inequities

Another NFWBO study shows that women business owners, for the first time ever, are experiencing access to business loans from banks nearly equal to that of male owners. A number of U.S. banks, among them BankAmerica and Wells Fargo, offer special loan programs for women business owners. Partly thanks to the rise of women to high bank positions, the woman-owned business is being seen for its untapped potential.

With easier access to loans, women owners can now be less dependent on high-cost credit card loans for financing, and they have more leeway to reinvest earnings. According to the NFWBO, all this means that women-owned businesses have developed into more sophisticated operations.

Although male and female entrepreneurs may have equal access to loans, a related NFWBO finding shows that the sexes still approach the use of credit differently. Men owners tend to use this money to help out with cash flow or to consolidate debt; women put the dollars towards business growth.

In addition to these specific discoveries, NFWBO studies also showed that, on an international scale, women owners come from similar backgrounds and voice the same concerns about important business issues. They constitute between one-fourth and one-third of the world's independent business owners. They are also vocal, as was evidenced at an international conference in Paris sponsored by the Organization for Economic Cooperation and Development (OECD). Approximately 350 delegates from 35 countries attended the multilingual sessions and workshops.

Copyright BBP 2003