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.

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Prior to Closing — Red Flags from the Seller’s Viewpoint

Buyers are expected to perform a thorough due diligence on both the business and the seller(s). However, many sellers don’t do an extensive due diligence on the buyer(s). Deals do not always close; many are aborted in the very early stages, and others tank somewhere along the way to what was hoped to be a successful closing. So, what happens that prevents a deal from closing, especially one that began with such positive signs? Obviously, in many cases, the buyer’s due diligence turns up some items that were not revealed by the seller, and others that can’t be resolved.  Some of these items probably had early-sign red flags; other red flags occurred somewhere along the way, and unfortunately, the result was that there were pre-closing red flags.

The Early-Sign Red Flags

Sellers should seriously look at who the buyer is. This may be a corporate buyer who is just looking. On the other hand, some sellers may overlook a strong individual buyer for fear that he or she may be inexperienced in the acquisition process or might be too cautious. In both cases, the seller may want to ask questions such as the following: What companies have you already looked at? How much equity are you willing to commit? What experience do you have in what my firm does?

Some sellers have that sixth sense that allows them to size up a prospective buyer. No one wants to waste time with someone who really isn’t a buyer. The deeper a seller goes into the due diligence process with a potential buyer, the more red flags may appear. If there are too many, if the ones that get raised seem too difficult to resolve, or even if they might be resolved, if that sixth sense says “no” anyway, it is probably time to move on.

Red Flags Along the Way

Once the Offering Memorandum has been given to the potential buyer, the next stage of red flags may occur. For example, if your intermediary informs you that he or she has not heard from the prospect after receiving the memorandum, it could mean that the buyer prospect is not as interested as you might have thought. Also, if the next step involves a junior member of the prospective buyer’s management rather than the CEO or COO, the red flag should go up. If the prospect, corporate or individual, refuses to provide, or delays providing, information showing their financial capability to do the deal, the red flag should be raised. One recommendation is to set up a social event, a dinner or extended lunch between you and the buyer prospect. Visiting at a social event allows the buyer and seller to get to know each other, establish a cultural understanding and build a working relationship. If this meeting goes badly, the red flag should go up, at least half-way.

Red Flags Just Prior to Closing

The Letter of Intent has been drafted and signed. One area that may cause several red flags to go up is if the buyer’s attorney is inexperienced in the deal process, is overly aggressive, or just won’t bend. This is such an important issue that if changes aren’t made, the deal is probably in serious jeopardy of collapsing.  The seller’s attorney may be able to gather some insight on this matter.

Both sides are taking some risks in any buy-sell process, but both sides should take their due diligence efforts seriously. If a deal has arrived at “a just prior to closing” status, it is certainly vital that both sides can resolve their red flag issues. It could be tragic if the deal has gone this far without serious red flags being raised.

The whole purpose of recognizing the red flags is to try to resolve them before the deal “craters”. A positive attitude by both sides is almost always the answer, and this attitude is best accomplished by the use of a professional intermediary who has been there, knows the red flags, and knows how to resolve them.

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Do You Really Want to Sell Your Company?

Sellers have to ask this question and give it serious thought prior to making the decision to sell. In too many instances, sellers get to the proverbial altar and then back down the aisle. In most cases, this happens because the seller’s decision to sell has not been considered carefully enough.

There are the obvious event-driven reasons such as failing health, partnership, marital issues or because the business is going downhill. In cases such as these, business owners generally don’t have a lot of options. Selling the company is the easiest and most obvious one.

In too many other cases, the owner claims retirement, “burn-out,” or some other reason, none of which is necessarily a permanent state of things. Take the example of the owner of a company who is also the founder, and after a lot of hard work and probably years of financial hardship on his part, the company is now quite successful. It is, as they say, the owner’s “baby.” The first question that needs to be asked is: Do I really want to sell? The second question is: If so, why? And the third is:  What am I going to do after the company is sold? These questions involve not only business decisions, but important emotional issues as well.

Attempts to formulate answers should not be made until the owner has discussed these questions with family and personal professional advisors. There are books on exit strategies and consulting firms that deal with these issues. A professional business intermediary is also someone that has experience in this area and can provide a good idea of current pricing issues and market conditions.

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“Loose Lips Sink Ships”

The “loose lips” tagline was a common World War II phrase and was on posters everywhere. The problem continues on the business battlefront today.  Leaks of confidential information coming from, apparently, some of the Directors of HP have been in the news everywhere. This is an ongoing story. If it can happen to HP, it can happen to anyone. Leaks of confidential data are a serious issue at any time, but are especially serious if they involve the sale of a company.  Sellers are very concerned because of the impact a leak can have on their company and their employees.

Unfortunately, confidentiality is a Catch—22 issue. On one side, the seller wants to maintain it; on the other side, the seller wants to get the highest price possible, which can mean exposing the business to numerous potential buyers. The more potential buyers contacted, the better the chance of a good price being obtained—and the greater chance of a leak.

Owners may be overly concerned about leaks of confidential data, but since this is a concern, the issue must be dealt with. The shorter the time table between going to market and a sale the less chance there is for a leak. The selling process should not drag on! This is one reason why the price, terms and deal structure should be as fair as possible from the very beginning. The longer negotiations take, the greater the chance for word to leak out. If all of the red flags are dealt with early on, the more likely there can be a quick closing. That way, if there is a leak, the deal can be concluded before any damage can be done. The only other alternative is to deal with just two or three potential buyers. This, of course, lessens the chance of getting the seller a better deal.

Sellers should make sure that all documents involving a sale or potential sale are kept under lock and key, marked “Confidential,” and only transmitted to buyers in a secure manner. Confidential information should only be emailed or faxed when one is absolutely sure it can’t get into the wrong hands. Buyers and sellers have to be cautioned about the confidentiality issue. Too many times when there is breach of confidentiality, the leak comes from the seller. The seller tells his golfing partner, mentions it to a neighbor at a cocktail party, reveals it to a relative – indeed, it is usually a case of “loose lips sinking ships.”

If there was ever a reason to use a professional business intermediary, this is it. They can be the conduit between the buyer, seller and the outside advisors. Business intermediaries are experienced in preventing breaches of confidentiality, e.g. by requiring buyers to sign strict non-disclosure agreements. What’s even more important, they are pros, knowledgeable about dealing with one if it happens. This is just another reason to use the services of a business intermediary.

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Small Companies That Can’t Afford to Sell

In many cases, the sale of a small company is “event” driven. That is, the reason for sale is health, divorce, partnership issues, even decline in business. A challenging reason is one in which the owners want to retire and live happily ever after. Here is the problem:

The owners have a very prosperous distribution business. They, unfortunately, are the embodiment of a value-enhanced business (see “12 Ways to Increase the Value of Your Company,” under Selling a Business). They each draw about $250,000 annually from the business, plus cars and other benefits. If the company sold for $2 million, after debt, taxes and closing expenses, the net proceeds would be, let’s say, $1 million. Sounds good until you realize that this sum represents only 2 years income for each (and that doesn’t include the cars, health insurance, etc.) – then what? Unfortunately, many owners of smaller companies claim they want to retire when the reality is that they just want to slow down, or eliminate the day-to-day responsibilities of running the business.

Those who want to retire, but don’t think they can afford to, may want to reconsider their decision. Perhaps they can’t afford not to sell.  These owners may have already retired, at least mentally. The owner loses focus, decides not to invest the capital necessary to continue to grow the business and ultimately loses sales and profits or loses a key manager or salesperson, etc. This lack of enthusiasm will no doubt impact their business, lowering its value to a buyer when selling becomes inevitable. In the meantime, following their decision not to sell, they could lose a major customer, a major competitor might begin to eat away at sales — and profits — or a new competitor may move into the market. All circumstances that will reduce value!

Perhaps the owners will not have the “luxury” of changing their minds and deciding not to sell. If they are eventually forced to sell the firm because it is declining, they most likely won’t receive anywhere near the $2 million they might have earlier. The time to sell is when the business is at a high point. Using the services of a professional intermediary can bring the highest price possible.   If you are thinking of selling but hesitating because “the time isn’t right,” take the step that can make all the difference. Seek expert advice, which is as close as your nearest business intermediary’s office.

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Are You Charging Enough?

A buyer was interested in a building products manufacturer that did $70 million a year in sales.  Although the business was profitable, it seemed that their margins were lower than they should have been for this industry. The buyer asked the seller how they priced their products.  As the seller was explaining his pricing strategies, he happened to mention that a price increase of 1.5 percent would not really impact sales. He failed to see that the price increase of 1.5 percent on $70 million in sales would bring $1 million in profit. A smart buyer would realize how to get an additional $1 million in bottom-line profit simply by increasing prices by 1.5 percent.

A recent book titled The Art of Pricing by Rafi Mohammed went immediately to the business best-seller list, and no wonder. The author stated: “One of the biggest fallacies in business is that a product’s price should be based on its costs.”

Here are some of the author’s suggestions:

• Restaurants: Keep the entrees priced attractively, but expect to make up the profit shortfall on drinks, desserts and extras.  McDonald’s profit on hamburgers is marginal, but it has substantial profits on French fries and soft drinks.

• Television Advertising: Sell 75-85% guaranteed slots six months in advance, then sell the balance of advertising to the spot-market with little advance notice at premiums of 50%.

• Financial Printing: Price the printing of IPO prospectuses at near break-even, and then charge exorbitant fees for last minute changes.

• Investment Banks: Quote a relatively modest accomplishment fee as a percentage of total consideration, but insert a rather substantial minimum fee.

Another notable quote from Rafi Mohammed is: “Companies should develop a culture of producing profits. Through better pricing, companies can increase profits and generate growth.  In many ways, smart pricing is like hidden profits.”

This takes us back to our first premise: Small pricing increases can greatly increase profits.

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Before You Sell Your Family-Owned Business

There once was a family-owned bakery that had sales in the millions. The bakery sold bread to restaurants, supermarkets and some retail outlets. The founder gave each of his 5 children 20 percent ownership of the business.  The kids really didn’t want to work in the business, so they turned the operation and management over to 2 members of the third generation.  For some years the business had been operating on a break-even basis, and sales were not increasing.

The founder’s children decided that they wanted to sell the business since they were close to retirement age. A professional business intermediary was retained to do this.  He contacted as many of the larger bakeries as possible, hoping to find a suitable acquirer, but there was very little interest. The intermediary continued his search, willing to do the hard work required to find a good buyer. He finally found a successful businessman who offered a price equal to 50 percent of sales – a generous offer.

The intermediary presented the offer to the five children – all equal partners.  Little did he know that he had walked into the proverbial hornet’s nest. A huge family argument ensued, and finally the intermediary was asked to leave the room so that the siblings could decide what to do.

The offer was turned down flat. There was no counter-proposal or even any negotiation on price, terms or conditions. The offer was dead. The intermediary had worked on trying to find the right buyer, figured he had – all to no avail, six months wasted.

It turns out that the major obstacle was thrown up by those two members of the third generation who had been operating the business. They feared that they might lose their jobs even though the prospective buyer assured the sellers that he would retain them.  Were they being unreasonable? The reality is that the operators were “family” – related in one way or another to the five owners, and blood is usually thicker than water.

Flash forward some 20 years.  The bakery is still in business with very little growth and still operating on a breakeven basis.  The five owners are now in their 70s, they have never received anything for their equity, and there is very little hope that they ever will.

The above is a true story.  It shows how a family can own a business and not be prepared or in agreement when it comes time to sell it. Although the bakery is still in business, it is barely hanging on. The story is sad as well as true. The proposed deal could have satisfied all of the owners’ goals and made their retirement years a lot more comfortable.

Family-owned businesses make up a lot of the non-public companies in the U.S., and according to industry reports, many of them will be up for sale in the near future.  In situations where the family owned business is owned by more than one person, it is crucial that a meeting be held with all of the family owners prior to electing to sell, unless a strong buy-sell agreement has already been agreed to.  This agreement should establish, among other things, specific guidelines about what happens if one family member wants out of the business.

At this meeting, the company attorney and accountant should be in attendance along with a business intermediary.  The reason to include the intermediary at this early stage is that he or she knows what the pitfalls are, what buyer concerns will be, and what should be done prior to going to market.

One of the major problems when there is more than one owner is communications. For example, one owner who is active in the business decides that he needs a new, expensive car and that the company should pay for it. This is the kind of issue a decision-forming meeting should bring to light and address. Strict guidelines should also be in writing concerning salaries, benefits, etc.  When one family member wants to cash out or another one spends a lot of money furnishing their office – it is too late to have an agreement drawn up to cover these possible roadblocks. The time is now!

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Selling: Do You Need a Fairness Opinion?

Much has been written about “fairness opinions” due to the financial manipulations among companies such as Enron, Tyco and others.  The conflict in the use of fairness opinions  was (and is) that an investment banking firm not only handled the sale of a company,  but also got paid for doing a fairness opinion.  For example, when the Bank of America decided to buy Boston’s Fleet bank, B of A paid the investment banking firm of Goldman Sachs $3 million as a retainer, $5 million for a fairness opinion, and was prepared to pay a success fee of $17 million if the deal actually was completed.

Keep in mind that a fairness opinion is prepared by one or more financial experts, or by a firm, to protect the shareholders; in other words, to assess whether or not the deal is fair to the real owners of the business.  It also protects the officers and board of directors from shareholders who feel that their company is paying too much for the business being acquired.  It is also apparent, from the example above, that the investment banking firm makes money, and a lot of money, through the entire purchase from beginning to end.  They don’t have much of an incentive to really come in with a “fair” fairness opinion.  However, regulators are looking at this obvious conflict of interest very seriously, and changes in the current regulations are almost sure to happen with full disclosure being only the first step.

So, how does all of this impact the privately held company?  It is vital that an owner of a privately held company who has minority or family shareholders should also seek a fairness opinion.  It may not have to be done by an investment banking firm and probably shouldn’t be prepared by the owner’s accounting firm, for the same reasons outlined above.  A third party evaluation should be done to insure that a minority owner doesn’t come out of the woodwork and claim that the business was sold for much less than it is worth – at least according to the dissident shareholder.

A professional intermediary can be an excellent resource in the preparation of a fairness opinion for the privately held company.  They can provide several valuation professionals and/or firms and also assist in the gathering of the necessary financial records.  Generally speaking, a fairness opinion is prepared after the selling price is agreed upon.  In the sale of a privately held company, the price may fluctuate throughout the negotiations, but a third party valuation can set the bar.  And, it’s very possible that using a business intermediary to market the business will bring a price above the valuation, pleasing everyone.

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What Do the Following Companies Have in Common?

This is just a partial list: Church’s Chicken, Uno Chicago Grill, Charlie Brown’s, Domino’s Pizza, Burger King, Cinnabon, Sizzler.  The first response would be that they are all in the food business, and that’s correct.  Now name the second thing that they all have in common?  Give up?  Well, they (and many others) have been purchased by private equity firms.  And, apparently, this is just the beginning.  The huge Dunkin Donuts chain is being sought after by two or three private equity firms.

Why the interest in restaurants from groups that most people associate with high tech?  Many firms got burned during the dot com and high tech meltdown.  Now these same private equity firms are looking at businesses that are stable, with more predictable earnings, and that are also very familiar businesses, time-tested and still have a lot of growth ahead.

One industry expert said in Nation’s Restaurant News, “What’s really driving this is the success of these deals, the numbers that the private equity companies are getting when they sell…”  For example, he noted, “Restaurant Associates bought Charlie Brown in 1975 for $3 million and sold it to Castle Harlan seven years later for $50 million.  Castle Harlan got almost three times that price – an appreciation of $90 million with the sale to Trimaran.”

If private equity and similar firms are now buying restaurants, what businesses are next?  If you are the owner of a small growing company or chain of businesses – is a private equity firm in your future?  A professional intermediary may be able to answer that question for you and if you are considering selling – they can also help.

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Does Your Company Have Pricing Power?

If Starbucks raised the price of a cappuccino, sales most likely would not be affected. If your attorney raised his or her hourly rate, would you switch law firms?  If a company or service firm does not have pricing power, then its value is less than it should be. Here are a few ways to develop or increase pricing power:

  • producing a discernible branded product or service
  • innovating with patent production such as Apple’s i-Pod
  • providing such exceptional service that competitors are not able to replicate it

An interesting question for company management is – how should they set their prices?  Sometimes the answer is that management figures out at what price the item can be sold and then works their costs backward.  The more traditional way is to add up the cost of labor, material, and overhead plus an acceptable profit.  But times have changed, and in many cases, the power of pricing has moved from the producer to the customer.  Today, Wal-Mart tells most of their vendors what they will pay for certain items, and Ford tells their suppliers the same.  On that basis, many companies are beholden to the Wal-Marts and the Fords of the world and do not have the benefit of pricing power.

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