Entrepreneur & Family-Owned Businesses - October/November 2012

OWNER GOALS____________________________________________________________

Small Business Digital Deception

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Does Your Family-Owned Business Have a Succession Plan?

Letter from PartnerEDUCATIONAL CURRICULUM FOR FAMILY-OWNED BUSINESSES

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October/November2012

Contents

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2 EDUCAT IONAL CURRICULUM FOR FAMILY-OWNED BUSINESSESIn life, it seems there is an education process for everything we do. Some processes are required (K through 12th), some are elective (advanced education), and lastly, the “school of hard knocks” that teaches us everything we didn’t learn (or failed to comprehend the first time) up to this point in our lives.

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4 SMALL BUSINESS DIGITAL DECEP T IONOctober is Small Business Month and a good time to look closer at how technology makes being entrepreneurial sometimes deceptively too easy. The U.S. Small Business Administration Office of Advocacy recently released statistics that in 2010, there were 1,405,000 businesses established quarterly and unfortunately 1,432,000 that closed that same year. Ouch!

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6 DOES YOUR FAMILY-OWNED BUSINESS HAVE A SUCCESSION PL AN?Silicon Valley in California may embrace the entrepreneurial spirit as well as, or better, than any other area in the country. According to the March 16, 2012 San Jose Business Journal, three of the top twenty-five family-owned businesses in Silicon Valley (based on their most recently completed fiscal year revenues) have only the family’s first generation participating in the business.contemplating retirement.

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EDUCATIONAL CURRICULUM FOR FAMILY-OWNED BUSINESSESBY DAVID KRAJANOWSKI | CO-MANAGING [email protected] | 949.261.8600

In life, it seems there is an educa-tion process for everything we do. Some processes are required (K through 12th), some are elective (advanced education), and lastly, the “school of hard knocks” that teaches us every-thing we didn’t learn (or failed to comprehend the first time) up to this point in our lives.

As we pass businesses from one generation to the next, is there a curriculum to help educate the next generation and prepare them, as best as can be done, to assume their future roles? I believe there is and it should be a prerequisite with responsibility assumed by both generations (the obligation to teach and to learn). Let’s discuss what this looks like.

REQUIRED EDUCATION

Teaching the basics in several fields such as:

Accounting – What and why are financial statements needed? What are the basic business cycles (such as sales, purchas-ing, payroll, expenses, etc.) and how do these roll up into the financials? What are key perfor-mance indicators that serve to predict the future? What are key

measurements that indicate the current health of a business and how does our business compare to others in our field?

Banking – The lifeblood of most businesses. What are bank covenants and this concept of personal guarantees? What does a bank look for in granting new credit or expanding exist-ing lines? What do we mean by “forming a relationship?”

Human Resources – How does a business successfully navigate the employment environment in our great state? How do we hire the right people, fire the wrong ones and create a culture to continue the succession of our company?

Insurance – What are the differ-ent types of insurance required in business (including, but not lim-ited to, general liability, workers

compensation, health and bene-fits, etc.)? How are premiums set; what affects premiums; effective use of deductibles; understanding the small print, etc.?

Legal – Handshakes or con-tracts, does it matter? How does a business legally protect its rights by doing things correctly up front (such as effective PO’s, sales invoices, collection rights)? The above are just a few examples of subjects that should be incorpo-rated into the required education of the generation being groomed to take over your business.

HOW DO YOU MAKE THIS HAPPEN?

The best way is to have your trusted advisor in each field meet one on one with the next genera-tion and spend the required time to go over the subject matter. Previous generations should not be present so that the next generation feels free to ask any questions they feel are neces-sary (some which may be VERY basic).

An alternative approach is to find a source that utilizes a “univer-sity” approach to this process. For example, our firm conducts

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classes, usually on a monthly basis, that are taught by profes-sionals. We use a classroom style setting where individuals from several companies participate in a small, intimate atmosphere where learning takes place not only from the instructor, but each other as well.

SPECIALIZED TRAINING – AN MBA FROM THE SCHOOL OF HARD KNOCKS

Learning in a controlled environ-ment is one thing, but putting knowledge to practical use is another. The current generation of ownership has a responsibility to include the next generation in significant meetings, presenta-tions, problem resolution, discus-sions, etc. Start slowly and look for signs of curiosity and other traits, assuring you that your curriculum is on the right path. Signs of negativity such as apa-thy, indecision or a general sense of disinterest are warning signs to either slow down or conclude (at least for the time being), that the next generation is not ready (or perhaps will never be ready). The keys to this “MBA” program are:

•Learning from real-life situa-tions.

•Asking the next generation what they would do and WHY – how did you reach your deci-sion?

•Working through how the current generation of leader-ship reached their decision and WHY, reconciling the two decisions.

•Learning from “the Good, the Bad & the Ugly” situations. By this I mean, don’t just bring them into bank meetings when everything is great. Proper learning must incorporate the “tough” meetings when things aren’t going according to plan.

THE ULTIMATE CLASS – FAMILY DYNAMICS

The hardest lesson to teach and learn from is the class on family dynamics as the business is trans-ferred to next generations. This includes such subtopics as:

•How is the business transferred both in ownership and control?

•How does the current genera-tion learn to change roles from the #1 star quarterback and being the general on field to the role of coaching, mentoring, etc.? How many times have we seen where these transitions are not well thought out and bitter wars erupt leaving damaging scars that take years to heal?

•How does the next generation

assume the leadership role? What is necessary to earn respect and credibility from family, employees, vendors, customers, etc.?

•How is accountability defined and monitored for the protec-tion of everyone?

•How are changes to the vi-sion, business strategies and methods, etc. communicated, accepted and implemented by the family team?

•What added value can family members count on from the business and distributions from cash flow so that current and future needs are appropriately balanced?

MORE QUESTIONS THAN ANSWERS

Learning is a lifelong process. As lessons are conquered, new ones arise as our environment continues to change. The educa-tion curriculum outlined above is nothing more than a frame-work to be adapted and uniquely tailored for your particular needs and current dynamics. To learn more, or for more guidance, feel free to contact me.

DAVID KRAJANOWSKI CAN BE REACHED AT

[email protected] OR 949.261.8600

Start slowly and look for signs of curiosity and other

traits, assuring you that your curriculum is on the

right path

SMALL BUSINESS DIGITAL DECEPTIONBY BRANDY DAVIS | PARTNER, BUSINESS [email protected] | 310.477.3924

October is Small Business Month and it is a good time to look closer at how technology makes being entrepreneurial sometimes deceptively too easy. The U.S. Small Business Administration Office of Advocacy recently released statistics: in 2010, there were 1,405,000 businesses es-tablished quarterly; and, unfor-tunately, 1,432,000 closed that same year. Ouch!

Here’s one of my top insights from my 10+ years of experience in accounting: Most start-up business plans leverage account-ing software and online bill pay to get things off the ground but

unfortunately, all too often, they don’t keep their plans to upgrade to a professional business man-ager as the business grows. While digital tools can empower, they can also eventually end up undo-ing a small biz’s dream because they just can’t cover everything and well-meaning people end up losing money. It’s crucial to get organized, but as almost every aspect of your business has a tax ramification, I’ve yet to see a technology that can replace the counsel of a trained eye to watch your business. Here are some of the pitfalls that can really add up (and not in a good way):

•MissingoutonTaxDeduc-tions– Who likes leaving money on the table? Clients who handle their own book-keeping are often overly con-

servative with their deductions because they do not know the tax law and end up pay-ing more to the IRS than they need to. Keeping cash flow is important in achieving busi-ness goals, so study up or get professional advice.

•MixingBusinessandPer-sonal - I often see books where business and personal costs are completely comingled, creat-ing a disastrous tax audit issue. Keep it separate and well docu-mented. The income, expenses and deductions of the busi-ness should be recorded in the business and a salary should be taken to cover personal ex-penses.

•ForgettingtoPlanforRetire-ment – While many plan for a short-term dip in income, too often business owners fail to put away money for their golden years. There are many different ways to set up a flex-ible pension plan that affords an immediate tax deduction as well as long term peace of mind. If you don’t think about it, who will?

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It’s crucial to get organized, but as

almost every aspect of your business has a tax ramification, I’ve yet to see a technology that can replace the counsel of a trained eye to watch

your business


•FallingBehindonPayments – Running a small business, owners wear lots of hats and juggle tremendous pressures and demands. It is very easy to fall behind schedule. Credit card companies make a killing on late payments, charging as high as 28% interest. Wow! And just as bad, late payments negatively impact your credit rating and can lead to getting small business perks, such as reduced interest rates, revoked.

•OverpayingandMissingOpportunitiestoSaveMoney - It is really easy when you are busy to just pay the bill with-out looking at it completely. In a rush, you might miss an incorrect charge or overlook an opportunity to re-evaluate service plans you have signed up for. I’ve seen:

1. Out-of-control mobile phone invoices - Minutes, roaming charges, fees for the number of lines you have and data charges can add up quickly. Review your statement monthly for errors and review your ser-vice plans regularly to take advantage of promotional savings and free upgrades.

2. Fat cable bills – Take the time to make sure those charges are all really yours and make sure the package you have isn’t overkill for your needs. It all adds up.

3. Credit card scams – Fraud is rampant nowadays. It is important to review credit card statements very closely every month or you could be paying for someone else’s lifestyle.

There needs to be a process for everything and there is no time like the present to get organized and take the steps to protect and preserve your hard earned income. Don’t wait for the New Year. Be proactive and smart about things now as mistakes are even more likely if you are rush-ing to beat the March 15 corpo-rate income tax deadline.

BRANDY DAVIS CAN BE REACHED AT [email protected]

OR 310.477.3924

Silicon Valley in California may embrace the entrepreneurial spirit as well as, or better, than any oth-er area in the country. According to the March 16, 2012 San Jose Business Journal, three of the top twenty-five family-owned busi-nesses in Silicon Valley (based on their most recently completed fiscal year revenues) have only the family’s first generation participating in the business. The remaining twenty-two involve multiple generations with some that are comprised of fifth or sixth generation family members. Of those twenty-five, only six did not have the first generation participating in the business.

With multiple generations in-volved in a business, a succession plan is essential. For both public and private companies, succession planning is addressed in board-rooms across the country. Why? Because not having a plan in place can be disruptive, expensive and extraordinarily stressful when there is a need for change in leadership.

So what can you do to put a succession plan in place? I would suggest starting with SMART goals: Specific, Measurable, Action-oriented, Realistic and have a Time element.

•The most specific thing about a succession plan is that the plan be a written document. The document should identify who the business leader(s) will be, who will own the business as-sets, and whether such matters will be provided for in a will, in contracts or in a trust. Legal and tax considerations should be addressed in the document relative to transferring business assets.

•There may be born leaders, but more likely, leaders are the result of life experiences. Goals for leadership development should be established and prog-ress towards those goals should be measured and tracked.

•Having a plan to turn over responsibility is not the same as doing so. The future leaders will need to have the necessary skills or talent to fill key com-pany roles. Having no actual experience in a particular ca-pacity, the new leader’s transi-tion may be problematic. It is also important to see how oth-ers respond to a future leader’s management style. Unexpected turnover can be devastating to a valuable business.

•Keeping the plan realistic is essential. The plan should not include family members that do not have an interest in the business. Some family business-es have a policy that prohibits family members from joining the business until they first get work experience, upon gradu-ation from college. The plan may need to include a backup, such as steps to keep the busi-ness attractive to potential buy-ers and also consider the loss of key employees after the current generation leaves the business. The plan might also identify the specific cultural attributes responsible for the success of the business, such as timely service, proactive behavior, responsiveness, etc., and how to maintain such a culture.

•The plan document should lay out a time-table for achieving the above goals. Practically speaking, it would be best to start planning early and to track progress against mile-stones.

Above all, remember that a suc-cession planning document is a live document and should be re-viewed and updated as necessary.

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DOES YOUR FAMILY-OWNED BUSINESS HAVE A SUCCESSION PLAN?BY STEVE GRIMAUD | PARTNER, ASSURANCE & [email protected] | 408.294.3924

W W W.SINGERLE WAK .COM | 877.754.4557

DAV ID KR A JANOWSKI [email protected] | 949.261.8600

ROB SCHLENER [email protected] | 949.261.8600

J IM PI TR AT [email protected] | 310.477.3924

DAVID K AMATH [email protected] | 949.261.8600

STE VE CUPINGOOD [email protected] | 310.477.3924

GLENN CARNIELLO [email protected] | 949.261.8600

SALLY AUBURY [email protected] | 818.999.3924

MARK COOK [email protected] | 949.261.8600

THE SKILLS YOU NEED. THE SERVICE YOU EXPECT.

OUR FIRMENTREPRENEUR-OWNED BUSINESSESSingerLewak knows the importance of relationships to excel and meet the needs of entrepreneurs and their businesses. Our client service relationship stresses client strategy and sound advice in all aspects of business - including the transfer to a new generation, the sale, or the operation of the company in perpetuity.

FAMILY-OWNED BUSINESSESFamily-Owned Businesses have been the drivers of our economy for a long time. We understand the significance of the family business structure, as well as the day-in, day-out efforts that have made an economic impact on both your local and the national community.

We understand the inter-relationships between the Goals of the Family, the Owner and the Business. Any one of these may impact the others in a significant way. We represent this with our FAMILY BUSINESS GOALS MODEL:

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Entrepreneur & Family-Owned Businesses - October/November 2012

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