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Have a Good Holiday – Next Week I Will Continue Blogging About Franchises

May 28, 2010 by Frank Goley, Business Consultant

In the meantime, if you want more information on Franchising, check out my article:

http://www.businessconsultingabc.com/Finding_The_Right_Franchise_Opportunity.html

I hope you and your Family have a Great Memorial Day Weekend…Best, Frank

Posted in Business Franchise. Comment

Finding the Right Franchise Opportunity

May 27, 2010 by Frank Goley, Business Consultant

A Franchise System can be a very effective way to open and operate a small business, especially for those without a lot of experience in operating and owning their own business.  There are many advantages in using a Franchise System, such as, turn-key operations, marketing and business planning; large corporate support; lower learning curve; established accounting, cost control and management systems; brand identification; training programs; national and regional advertising; customer service programs; market trend responsiveness; supplier and vendor discounts; among others.  However successful Franchise Systems are expensive. The fees / costs consist of a franchise fee, royalty fees and start-up costs.  So it is very important to have a solid due diligence process in place to determine if a particular Franchise Opportunity is right for you, and whether the costs to establish and run the franchise match the effectiveness of the Franchiser’s Package Offering.

Types of Franchising Systems

Product / Service and Trademark Franchising

This is an arrangement which the franchisee is granted the right to sell a well recognized brand.  Most franchisees concentrate on one franchiser’s product/ service line, identifying their business with the franchise.  Examples include:  Automobile Dealerships, Gas Stations, Soft Drink Bottlers, etc.  The franchiser exercises little control over the franchisee’s business, with the product/ service integrity being the biggest concern of the franchiser.

Structure and Responsibilities

– Franchiser provides a Standardized Product

– Franchisee Pays Franchise Fees and Responsibilities include:

ü  Marketing                   

ü  Training

ü  Control System

ü  Operating System

ü  Accounting System

ü  Building, Equipment, Signage

Business Format Franchising

Franchisee is granted the right to use a turn-key marketing system, with substantial assistance and guidance from the franchiser.  Types of franchises include Restaurants, Retail, Hotels, Business Services; Automotive Products, Parts and Services; Convenience Stores; Entertainment Centers and so on.

Structure and Responsibilities

– Franchiser provides:                                 

ü  Building Plans

ü  Equipment & Signage

ü  Marketing System

ü  Business Plan

ü  Operating System

ü  Training Personnel

ü  Accounting System

ü  Control Systems

– Franchisee provides:

ü  Fees

ü  Compliance

ü  Reporting

How to Determine if a Franchise Opportunity is Right for You

Franchise Analysis Checklist

Ø  About The Franchise

ü  Has your attorney approved the franchise contract?

ü  What legal grey areas have been identified?

ü  Will you have exclusive territory?

ü  Does the franchiser work with any other franchise handling similar products and services?

ü  What are the Franchise Contract termination penalties?

ü  If you sell your franchise, will you be compensated for goodwill?

Ø  The Franchiser

ü  What is the franchiser’s number one focus?

ü  How have franchisees in the past run into trouble?  Difficulties?

ü  What skills franchisees need most?

ü  How are conflicts resolved?

ü  Request the bios of Top Management.  Do they have entrepreneurial backgrounds?

ü  Do the franchiser’s earnings claims differ from their Franchiser Disclosure (FDD)?

ü  Has the Franchiser executed detailed due diligence on your qualifications?

ü  How many years has the Franchiser been operating?

ü  Does the franchiser have a reputation among the franchisees, competitors and business world for honesty, integrity, accountability and fair dealing?

ü  Has the franchiser shown you certified and audited financials on franchisees in your region and area which you can validate? 

ü  Does the franchiser provide Executive Management and Personnel Training Programs?

ü  Does the franchiser provide any Capital or Credit?

ü  What merchandising Programs and Training does the franchise offer?

ü  Will the franchiser assist with site location?

ü  Does the franchiser have adequate financing to implement its Franchisee Plan?

ü  Does the Franchiser have a highly trained and experienced management team?

ü  What can the Franchiser bring to the table which you can’t adeptly do yourself?

ü  Has the franchiser complied with State Laws in the past?  What State Laws are in place regarding Franchise Sales?

Ø  The Franchisee

ü  How much Equity Capital will you need to:

§  Purchase the Franchise?

§  Operate until Break-Even?

ü  Where will you get the Equity Capital?

Note:  Please see my Articles on Small Business Finance for extensive resources and information on obtaining business capital and commercial finance.

ü  Are you prepared to give up some independence for the advantages offered by the Franchiser?

ü  Do you believe you have the qualifications to succeed as a franchisee?  What other Personnel resources can you provide?

ü  Are you prepared to spend a majority of your business life with this franchiser?

Ø  The Market

ü  Does an adequate market exist in your area?

ü  Will the market support the price level of the franchiser’s products and services?

ü  What are the population demographic trends for your territory over the next 5 years?

ü  What will be the demand for your product and service in 5 years?

ü  What is the non-franchise and related franchise competition in your territory and region?

Examine Franchise Opportunities

v  Determine which franchises are growing fastest.

v  Research market growth possibilities.

v  Consult Entrepreneur Magazine for its comprehensive Franchise 500 Listings.

v  Utilize the U.S. Commerce Department’s Franchise Opportunity Handbook, which is published annually.

v  Contact the International Franchise Association for assistance.

Determine What the Franchise Can Do for You

Typical Franchiser Services

ü  Start-up help, to include market analysis, site location, financial advice; building and equipment design and purchase.

ü  Successful Operational System.

ü  Accounting and Cost Control System.

ü  Monthly operating results support; performance standards; financial auditing; franchisee financial comparative analysis.

ü  Financial Assistance:  land, building, equipment, inventory and working capital.

ü  Site purchase assistance.

ü  Standardized Construction, Design and Signage.

ü  Training Programs.

ü  National and Regional Advertising Program.

ü  Brand Recognition Promotion.

ü  Customer Services Standards and Program.

ü  Responsiveness to market changes.

ü  Supplier discounting via large volume ordering.

Franchise Due Diligence

Examine more than one franchise and compare / contrast through a standardized checklist (see previous section).  Investigate franchises in the same line of business.

Speak with Existing Franchisees

Ø  Contact several franchise owners listed in the FDD, as well as, not referenced by the Franchiser to solicit their experiences.

Ø  Seek out franchisees that have been in the business over 5 years.

Ø  Talk with experienced franchisees about what to expect during the first year of operation- the typical success or failure period for a franchise.

Ø  Ask franchisees to share their Business Plan with you.  This gives you an inside track on the operational and planning expectations for a typical franchise, along with keys to success.

Ø  Ask franchisees what the Franchiser does to justify all the fees charged.

Ø  Determine how well prepared franchisees were when opening the franchise.  Surprises?  Franchiser weaknesses?

Ø  How effective are the Marketing, Promotion, Branding and Advertising Programs?  Do they bring the right customer to franchisees?

Ø  Determine the real financial numbers.  How much to open a franchise?  How quickly a franchise started making money?  Get the real story and compare it to the Franchiser’s disclosure to determine credibility.

Ø  Do your research and homework prior to meeting with Franchisees so you don’t waste their time and you appear serious.

Ø  Make a good, professional impression on franchisees as they often will report their impressions to the Franchiser.

Ø  Understand where the franchisee is coming from:  i.e.  Someone close to your territory may give you faulty information if he feels competitively threatened.  Or, a franchisee may overstate his/ her success.

Ø  If allowed by the FDD, consider a Joint Venture with an experienced Franchisee.  An 80/20 relationship can make a lot of sense to both the new and experienced franchisees in a proximate region or area.

Ø  Try to spend an entire day with each Franchisee.  This is the only way to get a true fell for the franchise and determine why the franchisee is successful (or conversely, why he/ she is blowing smoke).  Build a relationship with franchisees, and you will be more apt to receive honest, diligent and detailed feedback.

Ø  Ask franchisees if the franchiser encourages the franchisee to share feedback, ideas, successes, failures and whether these experiences get incorporated in the field.

Ø  Is the franchisee happy with their life post franchise opening?  Is the business enjoyable?

Ø  For more ways to get a franchisee to open up to you, visit Entrepreneur.com

Seek Professional Advice

v  Franchise Attorney and Accountant

v  Franchising Consultant

v  Business Consultant

v  Finance Consultant

Understand your Legal and Ethical Rights

Ø  The International Franchise Association serves Franchisers in more than 50 countries and has a code of Franchisers’ Ethics and Obligations to Franchisees.

ü  Franchiser members pledge to comply with all laws and make complete, accurate, non-misleading disclosure statements and documents.

ü  Franchiser members pledge to only accept franchisees that meet prescribed qualifications.

Ø  Understand your rights if the Franchiser attempts to buy back the franchise.

Ø  Issues to explore:

ü  Captive Supplier Pricing

ü  Inadequate Service

ü  Slashing Support Services

ü  Fraud

ü  City and State Laws & Regulations regarding Franchises

Posted in Business Franchise. Comment

Family Business Continuation and Succession Considerations and Strategies

May 26, 2010 by Frank Goley, Business Consultant

What makes a family business unique, and quite often is the key to its Competitive Edge is its close family connections, experience and expertise.  In order to sustain this unique edge, a family business needs to plan early, carefully and thoroughly so successors can be developed and groomed from the family ranks.

Succession Issues

§  Treating all family children fairly

§  Reactions from non-family employees

§  Family communications and conflict

§  Estate Taxes

§  Executive and Management level organization and structure

§  Determine how best to select successors:

o    Groom one child from an early age to take over?

o    Allow family members to compete and choose replacements and successors with the aid of the Board of Directors and/ or the Family Council?

o    Choose successors without the aid of a third party?

o    Form an Executive Committee of family members (3-5members)?

o    Allow the children and/ or family as a whole to choose incoming leaders?

How to go about choosing future leaders and successors really is a factor of a particular family business’s history, current structure, planning, success, future growth forecasts, available resources (human, technical, strategic and financial), aspirations, goals, wishes and a host of contingent variables.  The complexity of succession issues really dictates the use of an experienced Business Consultant, Attorney and Accountant to help develop and implement a successful Continuation Plan.  The Business Consultant should be the quarterback of the planning process:  he or she should coordinate the inputs of the current leadership, Board of Directors, Family Council, key non-family employee, legal, human resources and accounting; along with the Consultant’s experienced advice, to come up with an acceptable, flexible, successful Business Succession Plan.

A Business Consultant can be a great investment when replacement choices are limited.  If faced with this challenge, a family business needs to utilize professional help to:

ü  Analyze present key position assignments, responsibilities and performance to determine current capabilities and weaknesses, as well as, future succession management and leadership gaps.

ü  Take a Close look at the current company structure and determine if the structure needs to be modified to meet future human resource challenges.

ü  Do present family members need cross-training, leadership education and mentoring?  Or are there key non-family employees who can fill future leadership gaps?

In order to find a solution to a leadership and management future gap threat, it is important to have sound, objective, experienced third-party professional advice and expertise at hand.  Moreover, all present managers and key people, family and non-family, should be included in the decision making and planning process when replacement choices present an inherent challenge.

Business Continuation and Succession Planning

In a family enterprise, succession occurs when the family business owner/ leader/ founder passes away, becomes incapacitated, exits the company or retires.  You can never start too early in planning replacements; along with succession and continuation contingency planning.  Having explained the various areas and issues to consider when planning for future Company leadership and management, we will now examine the importance of Operating Authority Planning; how this authority will pass from one generation to the next when planned for, as well as, putting in place emergency, contingency authority planning when the family business’s leader and/ or top management suddenly departs.

Ø  Sudden Departure Planning:  Sudden death or incapacity in a business’s upper leadership echelon can be paralyzing if not properly planned for.  It is very important to consult an experienced Certified Financial Planner, Estate Planning Attorney and Business Accountant to ensure a Business Continuation Financial Plan is in place, which sets up the necessary wills, trusts, insurances, investments and other vehicles to ensure the business can have a successful financial transition.  This is often accomplished with Key Person Life Insurance and Disability Insurance.  It is very important these advisors work in concert with the Company’s Business Consultant, Financial Consultant and Business Attorney so that the Business Succession and Continuation Plan link both Management & Leadership Planning with the Operational Authority Planning.

Ø  Planned Departure Planning: As previously discussed, there should be a Leadership and Management Continuation Plan in place.  This ensures a smooth transition and can be overseen by the Company’s Board of Directors.  This Departure Plan will kick in automatically with the Operational Authority Plan if a sudden, unplanned Leadership Departure occurs.  The Continuation and Succession Strategy should be implemented in stages so the existing Company leader can ensure a smooth transition.  Having finances in place to take care of any dips in sales and profits during this transition is key and should be part of the plan. It is important that the outgoing Company leader can retire comfortably and has a retirement life plan in place.  When it is time to go, according to the plan, the family Company leader must cleanly go and not hold on.  It is time for the next generation to move the Company forward.  A Certified Financial Planner and Compensation Structure Expert should be consulted to determine the best way to set up a successful Retirement Plan for outgoing family members- their retirement comfort is key toward continuing a clean break from the business.

Ø  Selling Stock to Family Members:  A successful transition is only complete when the outgoing business leader/ owner sells his stake in the business to the remaining family members as per the Operating Authority Plan.  The advantages of this type of transition are numerous:

ü  Business remains in the family.

ü  Business continues to provide a source of steady employment to family members.

ü  The family’s status and stature are preserved.

ü  The former owner/ leader is freed up to actually retire and travel.

ü  A successful successor(s) instills confidence and happiness throughout the family.

ü  Strengthens family bonds rather than causing additional friction and conflict.

ü  Future success rewards the family very well financially.

Ø  Selling the Business Option:  After several generations, sometimes family contracts or its members choose alternative careers and businesses.  It is better to sell a successful venture than one withering and dying on the vine.  This option should be included in the Operational Plan and be well thought out, utilizing the expertise of a Business Consultant, Registered Investment Advisor, Valuation Expert, Business Broker, Attorney and Accountant.  If planned for properly, a business sale can be a great thing for a multi-generational family.  The proceeds and resulting investments can secure future education funds, new business ventures, philanthropic organizations and other generational family interests and passions. 

§  Some things to consider when selling the family business:

ü  The business owner/ leader ought to plan a transition period into the business sale process.  An immediate retirement can reduce a Company’s attractiveness to a buyer as having the founder/ leader/ owner around during the transition is often preferable. 

ü  Utilized Valuation Experts and Accountants to evaluate assets, project profitability and determine good will mark up, among other value determinants.  A prestigious accounting firm conducting a full audit and investigator go a long way in deriving a premium sales value which is acceptable to the buyer.

ü  Building up profits, retaining earnings and instituting cash flow management strategies can go a long way to attracting good buyers.

ü  Structuring the deal with the family retaining a small, passive stake in the business can be very attractive to a buyer as it instills confidence in the new leader and management, while giving the family the opportunity to profit from the Company.  This can also make a premium price structure more palatable to a buyer.

ü  Shift assets to heirs to lower your basis in the business, thereby, decreasing and spreading out the tax load.

ü  Ensure financial records are up to date and audited with projections tending to air on the conservative side, while having realistic marketing outlooks and inherent assumptions.

ü  Need to understand what you and your family members will lose from the sale and plan accordingly with your financial advisors.  Things to consider:

·         Pension/ Retirement Investment Plan

·         Stock Plan

·         Health, Life, Disability & Long-Term Care

·         Company cars·         Club dues

·         Perks & Benefits

ü  Tax implications can be substantial in a business sale so utilize a good tax planning firm, along with garnering advice from your Certified Financial Planner.

Tax and Estate Planning Implications

One of the biggest threats to the successful continuation and succession of family businesses are the constantly changing tax laws.  Utilizing an experienced Estate Planning Attorney, Tax Attorney and Business Attorney, along with a solid Business Accounting Firm, to ensure you not only maximize present profits while minimizing your tax liability, but also successfully plan to pass your estate and business onto heirs in the most tax preference way.  Some Estate Planning considerations to keep in mind while planning for business continuation and succession:

Ø  Major concerns typically are the perpetuation of the business and maintaining liquidity.  Without sufficient cash to pay estate taxes, heirs have little choice but to drain cash from the business when it most needs it or worse, be forced to sell it or sell many of its prized assets.

Ø  Good Estate Planning can:

ü  Reduce the need for beneficiaries to remove funds from the business.

ü  Maintain beneficiaries’ interest stakes by keeping funds in the Company.

ü  Provide a smooth transition when developed in conjunction with the Management/ Leadership Strategic & Succession Plan and the Company’s Operating Authority Plan (see previous sections for more details).

Ø  Selling the patriarch’s / matriarch’s stake in the business, in advance of any Succession Plan implementation (whether a planned or sudden departure) to family members can be the best estate planning a family business can employ, while giving the business leader control of the Company until the agreed upon relinquishment.

Ø  There are a host of structural tools which can be used to minimize estate tax liability, that should be fully explored with your Financial Advisory Team, such as:

§  Gifting

§  Stock Sales

§  Trusts

§  Limited Liability Corporations

§  Family Limited Partnerships

§  Share holder Buy/ Sell Agreements

Ø  Critically Important:  Establishing a valuation of the business which is in compliance with IRS regulations is critically important.  Overvaluing, as well as, undervaluing a business for tax purposes can both be highly expensive mistakes.  This is why having an excellent Tax & Financial Team of Advisors in place is absolutely essential.

Conclusion

Not everything can be planned for, but if you adopt the strategies prescribed in this article, which are commonly unique to a family enterprise, running and managing the successful family business is significantly improved, while ensuring successful next generation business continuation and succession.  Family Businesses have a unique set of Competitive Advantages, which if planned for, can be used to exploit new markets and ensure future profitability and success.  In the end, if you, the family business owner / founder / leader successfully plan, build and manage the family enterprise, you will need to give up control and ultimately ownership in your cherished accomplishment.  If built well, the family business will continue to reflect the leader’s / founder’s ambition, innovation, initiative, entrepreneurship, character, values, integrity, ethics; all those things in testament to hard work and perseverance.  This is the legacy of the business, clearing the way for future generations.

Posted in Business Leadership, Business Management. Comment

Generational Issues in a Family Business

May 25, 2010 by Frank Goley, Business Consultant

Children may not automatically want to be part of the family business.  Sometimes children who have grown up in the business become bored, uninterested or lack the desire and drive necessary to successfully run the business in the future.  They may actually take the business for granted, assuming it will always be there for them. Understanding this going in, a family business can more effectively plan for generational issues in the growth and future of the business.

Preparing the Next Generation

The questions to ask are:  Why do children join a family business?  What are their motivations?

– To Influence the Family:  This can be a good thing or a bad thing, depending on the kid’s underlying motivations.  A Family Business should foster a mission which positively influences family members, not provide ammo for the children to attack each other.  Positive Influences include:

§  Family Education Fund/ Emphasis on Continuing Education

§  Foster an Atmosphere of Openness & Learning

§  Set good examples for kids to aspire toward

§  Ingrain the values of Business Integrity and Ethical Responsibility

§  Foster & Promote Civic Duty

§  Promote & Support Community Volunteer Work, Projects and Board representation

– To Help the Family Succeed:  Success for the Family Business should translate to the success of the Family.  Future generations can have better lives, pursue their passions and be happier if part of a cohesive team striving for a better future for the entire family- not just those in the business.

– An Opportunity to Further one’s Career:  It isn’t necessary for every family member to remain with the business.  Family members should be encouraged to pursue their passions, and the family business can be the proving grounds, the incubator, for family who want to pursue other careers or possible spin off another related business.  Often, children find that after working for other companies early in their careers, the Family Business is a great career destination, allowing them to reach their full potential and constructively apply their expertise and experience.

– Like the Family Business:  Having a passion for the industry and business the family enterprise occupies is often a major reason why family members join the Company.  What also plays into this is the requirement to work outside the Company to gain expertise and experience.  When the family member returns to the family business, there is inherent respect for the opportunity given and the successful growth history of their predecessors before them.  Having a firm understanding of what makes the family business special and unique creates a strong loyalty and passion for it.

– The Challenge:  If family members worked in the family business from a young age, were taught the value of a dollar, went off to college and to work for an outside Company for a several year period, then returning to the family enterprise can be a fantastic challenge to pursue.  For this reason, it is important the family business provides qualified family members with a real growth opportunity, a challenge to inspire drive, loyalty and passion in their career maturation.

– Sense of Duty and Responsibility:  Some of the older children in the family’s next generations may feel the duty and responsibility to serve their family interests and ensure future succession success of the business.  This becomes apparent after the younger children become involved in the Company and sometimes the older child moves onto another career since his or her passion was extinguished by the stress and forbearance of fiduciary responsibility.  Or, it is sometimes the older children who spin off a subsidiary or new Company after feeling they have accomplished their role in the Company.  It is important to encourage the family’s children to pursue their passions, no matter what industry, and gain outside experience; however, sometimes it is a necessity to have the older child assume responsibilities early on if resources are scarce in the Company’s particular Growth Stage.

Resource:  For more information on Small Business Growth Stages, the inherent characteristics, risks and issues, please see my article:  Strategies for Managing Small Business Growth.

– To Make Money:  While this is often the number one reason family members join the family business, it is closely followed by the “Liking the Business” category.  This relationship certainly makes sense:  making money is a major requirement of any career but it is strongly linked to liking what you are doing, the passion factor.  A well-prepared family business provides ample growth opportunities for family members to nurture their passion and be well rewarded for it through a competitive Compensation Package.

Considerations when planning and preparing for the next Generation in a Family Business

§  When family members are young, have them work on simple jobs on a part-time basis.o    This provides insights into the business, helps them understand the business from the bottom up, gives them a strong work ethic and encourages them to pursue and finish higher education.

§  Work for an outside Company after graduating from college to broaden training and background.o    If the family members worked in the lower ranks of the business before and during high school and during the summers in his/her college years, then outside experience can justify moving a family member into a higher position level upon entering back into the business.

§  Some tips when preparing for the next generation to join the Company: 

o    Never allow a family member to work in senior management until that member has worked for someone else for a few years.

o    Rotate the family member throughout different positions to cross train, as well as, pinpoint interests and skills.o    Promotions only come when earned, just like everyone else in the Company.

o    Devote time every day, preferably over breakfast, for face-to-face mentoring, teaching and training.

o    Don’t take business issues and matters back home.

o    Reward the family member with responsibility so he or she can learn to manage the business in order to potentially take over or have executive level responsibilities in the future.

o    Make sure the family member knows you trust him or her.

o    Allow them to make mistakes and fail; give them room to grow and learn.  Help them when asked; give them autonomy.

Next Generation Issues and Solutions

Here are some common main generational issues characteristic to family business operations and how to effectively deal with them.

– The Business Owner Who Won’t Delegate:  A very common problem in family enterprises is the owner or CEO who can’t let go.  Many owners have a strong personal connection to the business which prevents them from allowing next generations to assume more responsibility in the business.

§  The second generations are “entrepreneur successors” in training and the business owner patriarch or matriarch should be very careful not to stifle that passion and drive.

§  An inherent attitude that an owner’s or founder’s shoes cannot be filled is common in a family business; therefore, it is vitally important to the future continuation of the business for a clear path toward ascendancy for the next generation be established through training, mentoring and delegation of responsibility.

§  Best Advice:  Hire a Business Consultant to help you work through these issues in order to develop a clear ascendancy plan that is fair, yet, challenging.  Establish clear goals and expectations so next generation family members can strive to attain goals and career growth, without stifling their passions and drive.  The Business Consultant can bring valuable experience and objectivity to this often controversial issue.

– Next Generation Gaining Acceptance, Respect and Credibility:  If a family member has worked from the bottom up during their formative years, gone off to college to earn their business related degree(s) and gained valuable expertise and experience working for an outside firm, give him or her the respect they deserve.

§  Next generation members will work hard in the business if they are praised, encouraged and accepted as equals.

§  Be careful not to set expectations too high, they should be in line with the family member’s training, education, personality, skills and experience.

§  A next generation member should express strong interest in the family business so the family knows of his or her passion, drive and interest level.

§  The next generation member should know what their capabilities are and communicate that clearly to the family owner(s).

§  A next generation family member should conduct a self-analysis of goals and skills:o    What are my strengths and weaknesses?o    What areas do I need to work on or need help on?

o    What other parts of the business do I need to learn about?

o    What are my leadership qualities?  Are they sufficient?

o    What training, mentoring and continuing education do I need to fulfill a leadership role in the family business?

o    Am I happy working in the family business?

§  Three Stage Training Program for Family members joining the business:

o    Stage 1:  Initial learning stage to fully understand all the aspects and divisions of the Company:  Cross-Training.

o    Stage 2:  Specialization in a particular skill.

o    Stage 3:  Become a generalist, learn to manage, motivate and lead.  Need to have strong strategic Management Skills.

Resource: My article on Leadership Qualities of a CEO may be helpful…

§  The next generation should have mentoring relationships not just with the family founder/ owner/ CEO but also with experienced business people in their industry, preferably one from other family enterprises.  Long-term development mentoring support is a vital component in a next generation member’s growth.

§  As previously discussed, a next generation family member should work outside the family business as this will increase his or her knowledge, experience, confidence, and most importantly, enhance credibility with family and non-family employees alike.

Posted in Business Management. Comment

Common Family Business Issues and Conflicts

May 24, 2010 by Frank Goley, Business Consultant

Family Businesses can have their unique set of issues and conflicts. Having policies and systems in place to handle these typical hurdles can make running a family business a lot more effective and profitable.

Family Business Issues

Ø  Family members go straight to the top, head family position, skipping protocol and the organization’s structure.

Ø  Personality clashes and unrestrained emotional reactions among family members can cause inefficient operations and make it a hard environment to recruit talent.

Ø  Lines of authority and adherence to an organizational structure, with responsibilities clearly defined, should be firmly established and separate from the family’s personal authority lines. 

Ø  Due to the nature of a family business, the number of competent family members from whom to choose managers can be limited.  Therefore, it is important for the family business to ensure family members obtain the necessary experience and skills to assume management or find suitable outside-the –family managers.  This issue speaks to the next section in this article, Next Generation Preparations, so we will expand on it subsequent.

Ø  Family businesses must fight the common phenomenon of maintaining the status quo.  Just like any healthy, growing business, company leadership and management should keep up with the times and not be complacent with past successes.  Planning, Market Trending, Training, RE-Training and Continuing Education are incredibly important for a family enterprise, as complacency is a common challenge as the Company matures.

Ø  Family Management Gaps can be a touchy issue as family companies are often run and managed by family members.  However, if a qualified family member is not available for a post, it is important to fill the management position with someone outside the family who has ample experience and history with the Company and the family members.  Bringing in outside Professional Managers can be a mistake as they can alienate suitable non-family employees and lack an established relationship with the family members in the business.  Only hire outside management if no qualified alternatives exist within the Company.

Family Business Conflicts

Family businesses are naturally pre-disposed to conflict so it is very important to establish firm ground rules and roles:

Ø  Define responsibilities and accountability clearly.

Ø  Assign jobs and positions relative to experience, training, skills, capabilities and interests.

§  If jobs and positions aren’t clearly defined and respected, you often have siblings performing similar jobs or have over-lapping responsibilities, causing unhealthy competition and a constant vying for attention toward parents and authority positioned family members.  Additionally, clicks can form within a family company which is counter-productive, causing unnecessary strife and conflict.

§  Family Businesses should work with a Business Consultant to develop, design and implement a fair and firm organizational structure which promotes professionalism and shuns clicks and in-fighting.

Ø  Keep emotions out of the decision making processes in a family business.  Be sure you are fighting the issues, not the emotions or personality conflicts.  Discussing and agreeing to plans prior to major Company changes and events take place fosters a professional environment of respect and cooperation.  Keep the personal family business where it belongs, at home.  Again, an experienced Business Consultant can be very useful in this area to assist in developing business rules, regulations and protocols, along with, decision making structures and processes.  Additionally, it is important to develop structures, policies and rules to guide non-family employees and interactions between family and non-family employees.  Non-family employees often feel alienated and unimportant if these accountability, responsibility and organizational systems, processes and structures aren’t clearly defined and effectively implemented and adopted throughout the Company.

Best Advice

Form a Family Council.  This council should be composed entirely of family members who are key to the future of the business and have significant interest in the business.  The Council should have clear and open communications.  Family members should feel free to share their thoughts, concerns and ideas.  This forum ought to foster understanding and trust among family members, addressing and fixing issues which develop as the business matures and grows.  It is the vehicle to develop and put in motion Company plans; particularly the business’s Long-Term Strategic Plan.The council should provide the Company Strong Strategic Direction, Objectives, Goals, Milestones and Performance Standards. 

The Council can be headed by the Company’s Chairman (if a family member) so the board of Directors has a true understanding of the Company’s long term direction and growth goals.  While the Council takes in consideration all Key family members’ inputs and opinions, it is not’s necessary to have 100% family participation on its Board.  The Family Enterprise’s Board of Directors should contain the top family executives (Chairman and President/ CEO, etc.); however, it should also consist of non-family members to ensure objectivity, different viewpoints and experience levels.  The Council is for family discussions and providing strategic direction to the Board, which in turn, contains a mix of family and non-family alike.

Posted in Business Leadership, Business Management. Comment

Compensation Strategies in a Family Business

May 21, 2010 by Frank Goley, Business Consultant

A Family Business can be tricky when determining compensation for the family while ensuring it is fair across the board for the company as a whole. Compensation and profit sharing can be difficult issues as some family members believe they contribute to the overall success of the business more than others in the family.  Here are some helpful tips when considering compensation levels:

v  Compensation should be based on job performance, experience, contribution and skills, not family position.

v  Benefits are useful financial incentives and rewards, but it is very important family benefits conform to those given to non-family employees.

v  Stock Plans, Deferred Profit-Sharing Plans, Pension Plans and Stock Purchase Programs can be very effective in placating unhappy family members.  These type of Plans also do not hamper cash-flows significantly, so profitability is maintained, yet has the synergistic effect of attracting, holding and pulling family members together.

v  Often Family Members are given a Managerial title and role but be careful not to show favoritism.  If a family member does not have the qualifications to be a manager, then for the sake of the business and employee relations, the family member should be given a position which matches his/ her experience level.

v  There should be a double standard when analyzing a family member employee and non-family member employee.  The family member should be held at a higher standard and be required to work up the ranks of the Company.  This way the family member does not take the position for granted, sets a good example and is highly qualified for management when that time comes.  While gaining experience with another outside Company is recommended and beneficial for family members, they should enter the family business on a level which gives them a firm understanding of the entire Company and how it works.  Once the family member has cross-trained in the Company’s various departments, gaining invaluable insight into Company operations, an appropriate position and title can be assigned and rewarded.

Resource:  For detailed analysis and strategies relating to Small Business Compensation Planning, please refer to my article:  Compensation Planning for Start-Up Ventures and Growth Stage Companies.

Posted in Business Management. Comment

Starting and Joining a Family Business- The Advantages and Challenges

May 20, 2010 by Frank Goley, Business Consultant

Family Business account for over 80% of all US businesses, contribute 50% of our Gross National Product and provide half our workforce.  However only about 10% of family businesses make it to the third generation due to the unique challenges family companies encounter. 

Starting a Venture with your Family…

There are certain advantages to starting a family venture:

ü  Initial costs and losses are easily shared.

ü  Later success benefits the family as a whole.

ü  Enables the family to be together.

ü  Family may trust each other more than outsiders. 

However, there are many challenges which come up during a start-up venture that need to be addressed:

Ø  Tips for Spouses jointly running and starting a business:

ü  Follow business rules; romance is for non-business hours.

ü  Clearly define each spouse’s role.

ü  Accentuate each other’s talents.

ü  Keep business and personal life separate- understand the inherent conflicts of interest.

ü  Set strong ground rules and understand you won’t always agree.

ü  Define your expectations specifically and clearly.

ü  Set aside family time.

ü  Involve young family members in the business for fun, short tasks and jobs.

ü  Have a system for recognizing and rewarding hard work and accomplishments of family members.

Ø  Understand clearly what the business relationships of Family Members are.

Ø  Have a solid Business Plan which clearly defines the company structure, responsibilities, roles, strategic direction and so forth.

Ø  Clearly identify who is the lead entrepreneur.

Ø  Identify the strengths and weaknesses of each family member.

Ø  Understand each family member’s business experience and background.

Ø  Establish how much money each family member will contribute.

Ø  Agree up front how equity will be divided.

Ø  Honest and clear communication between family members.

Ø  Professional, business environment and structure.

Ø  How and where non-family will be incorporated into the venture. 

If You Join an Early Stage Family Venture…

Advantages for family members joining a new family venture are numerous:

ü  Family can help and are inexpensive during the development period.

ü  Family wants the opportunity to help the business as it benefits the family as a whole.

ü  Flexible hours, days and pay are attractive to family member initially, using minimum resources.

ü  The business brings family back together.

ü  Family members join the family venture because they are frustrated with their current work place and environment.

Issues to consider for an early stage family Venture:

Ø  Largely interpersonal issues.  Experience role reversals.

Ø  Resentment can build if a family member isn’t adequately challenged and rewarded.

Ø  Issues concerning power, rivalry and jealousy are common between family members.

Ø  Take in consideration a family member’s personal interest, skills, experience and training when assigning areas of responsibility.

Ø  Define, exactly, each family member’s area of responsibility.

Ø  Define who each family member is accountable to, as well as, for.

Ø  Determine compensation structures- salary, bonus and equity stakes.

Ø  How will a disagreement be handled?

Ø  What will be done if a family is not contributing?

Ø  If a family member wants out, what is the buyout plan and continuation plan?

Ø  Are you going to allow family members to be non-participating, passive investors in the business?

Best Advice:  Defining upfront the various rules, expectations and structure unique to a family business is vital for its success.  These unique requirements need to be well developed and delineated in the Company Business Plan and continually discussed in periodic family meetings.  This way, every family member feels they are vital and contributing to the overall strategic direction and future of the family venture.

Joining a Family Company As a Mature Business…

This can be the biggest challenge for a family member:  Where do I fit in a Family Business which has been in operation for a period of time and/or for successive generations? 

Some characteristics and challenges to consider for a later stage/ mature family business:

Ø  Having a policy that everyone starts at the bottom and works his or her way up through the ranks no matter their experience level, can initially set back family members joining the existing enterprise.  However, they will soon realize it is very important not to show favoritism between family members and non-family employees.  This nips in the bud issues of favoritism, entitlement, jealousy and resentment.

Ø  Family members can sometimes be transient, interim or temporary employees to help during seasonal demand, a particularly tough business environment or during high growth periods.  This phenomenon can increase spirit de corps, but it can also cause strife.  Again, having family meetings to decide such matters and ensuring the majority is on board with bringing in temporary family help, is critically important. 

Ø  Some family members may use the business as a stepping stone on a career path or starting their own venture.  Planning for this potential loss and contingency should be part of every family business’s Management Plan.  Also, establishing non-compete rules upfront and protecting the proprietary nature of the business if a family member moves on should also be part of the Company’s Planning Structure.

Ø  The issue of the family successor is huge in a mature family enterprise.  How will a family business choose its next successor?  Is there room for the next generation?  What are the expansion options for family members?  Is the Company growing enough to support new family blood?  Does the current management structure and style permit the flexibility and latitude the next generation seeks?  This all speaks to the importance of having well developed; family- contributed Business Planning in order to maintain successive-success for future generations.  This phenomenon becomes more urgent and important in maturing family operations.  We deal with this future outlook issue in subsequent section in detail, along with conflicts, limitations and issues faced by a family enterprise.

Advantages a mature stage family business enjoys are numerous, but the following are common, and often, keys to success: 

ü  Each family member is contributing to the overall benefit of the entire family.

ü  Family members can enjoy making and reaching goals together

ü  Be a member of a very special team which is very close knit.

ü  Everyone pitches in to do the hard work- getting things done, that “need doing”.

ü  Family teamwork translates into identifiable and quantifiable progress.

ü  A feeling among family that is “our business”.  It is “what we do”.  It is all about ownership and legacy.

ü  Special attitude shared by family members pushes them to work hard for the success of the business.

ü  Bringing in new life, new skills and added experience into the maturing business.

ü  Mature family companies often have and keep market advantage and competitive edge as new generations often ensure the company doesn’t stagnate.

Posted in Business Leadership, Business Management. Comment

Employee Morale – How Does it Affect Employee Performance?

May 19, 2010 by Frank Goley, Business Consultant

 “Employee X” wrote an eye opening article in the January ’09 Entrepreneur Magazine, titled “Why I Finally Quit.”  Employee X, wishing to remain anonymous, is “a bright, 28 year old employee with a degree from a top university and a ton of high-level computer experience [who chose to] bail on the Company he really believed in.”  He was willing to accept a salary “$20,000 below market rate with pretty pathetic benefits while working up to 60 hours a week in a high stress environment.”

Why He Took the Job

1.     He was part of a team that would create a revolutionary product.

2.     Had strong incentives to help the Company achieve success with a Stock Option Plan.

Why He Left the Job

1.     Owners hired new managers from the outside and the corporate culture completely changed.

2.     The trust employees had built together was immediately extinguished by constant distrust and monitoring by the new management team.

3.     One evening at 9pm, Employee X was asked by a Manager from a different department why he was leaving work so early.

4.     Low Employee Morale set in under the new management scheme; hours were long with little payoff; no downtime between projects; and labor lawsuits were filed by employees.

5.     Employee X asked for and received a $10,000 raise but it was “too little, too late”.

6.     A mass exodus of employee talent ensued.

7.     Employee X went to work for a 10 year old company in the same industry; got paid market rate and overtime; and most importantly, has “an employer who invests in me [Employee X] as an employee, via everything from extensive training to Company barbecues….”

8.     When asked what would keep at his new job five years from now, Employee X responded, “if they let me telecommute at least a few times a week, I’d be more than happy to do whatever it takes to help my new employers succeed.”

Lessons to be Learned from this Story

1.     Company A could have successfully retained Employee X if they had held on to their team oriented corporate culture which fostered trust, sharing, openness, growth and hard work that was acknowledged.

2.     Instead, Company A’s lack of effective Compensation Planning and Proactive Performance Team Building lead to a situation where a happily underpaid, hard working, talented employee base went looking for greener pastures.

3.     As illustrated, retaining talent isn’t about pay.  It is more about contribution to the Company’s success; progressive compensation structures; open communications; trust fostering culture; team oriented success; investment in an individual’s growth; and smartly placed perks.

Resource: For more information on an integral part of a Company’s Compensation and Retention Plan – Perks and Employee Morale, please refer to my article on Small Business Recessionary Tactics.

Conclusions

The Central Point of this article: Compensation Planning, to be effective for both the company and employees, needs to address certain key areas in a comprehensive, yet targeted package:

1.     Built-in Incentives which aren’t a burden to the company’s cash flow or tax liability yet provide key employees rewards for growth.

2.     Business Continuation Planning and Key Employee Protection

3.     Performance Pre-View System which proactively rewards individual and team success toward achieving the Company’s Strategic Plan’s Goals.

4.     A Comprehensive, Cohesive Benefits package which isn’t held to be the Golden Parachute, but rather, a strong component of a Company’s overall Compensation Plan, yet minimizes the financial burden on the Company.

5.     The level of Pay is not the central component of an effective, attractive Compensation Package.

6.     Effective implementation of a Company’s well-designed Compensation Plan is vital to and oriented toward Employee Moral.

Posted in Business Compensation Strategies. Comment

Employee Performance Reviews – Are They Effective and How do They Fit in a Company’s Compensation Structure?

May 18, 2010 by Frank Goley, Business Consultant

The Annual Employee Performance Review should be a thing of the past.  Performances should be gauged by comparing the Actual and Targeted Budgets for Company Divisions, and how employees in those business units contributed or hindered the Company’s Budget.

Dr. Samuel Culbert, consultant, author and professor of management at UCLA (Reference: Wall Street Journal, October 20, 2008, The Journal Report, Human Resources Section, “Get Rid of the Performance Review” by Samuel A. Culbert), argues that the traditional Performance Review is detrimental to company performance; a prime cause of low morale; and damages inter-company communications and teamwork.  Dr. Culbert lists the negatives resulting from how traditional Performance Review is typically implemented:

1.     Two Different Mindsets:  The boss is thinking about performance improvements, missed opportunities, skill limitations and team dynamics.  The subordinate is concerned with compensation and job advancement.

2.     Performance doesn’t Determine Pay Levels:  As much as prevailing market forces do along with, employee experience and Company Budget constraints. 

3.     Subjective Objectivity:  It can be argued that a Performance Critique is as much an expression of the evaluator’s self-interests as it is the subordinate’s strengths and weaknesses.  The newest performance review method, 360 Degree Feedback, gives anonymous feedback on an employee without any credibility built into the evaluation method.  It is too easy for self-interests to emerge and axes to be ground with such a subjective, unaccountable performance evaluation method. 

4.     One Size doesn’t Fit All:  Cookie cutter Employee Performance checklists often create a situation of boss pleasing behaviors verses doing a good job.  Different people with different functions and backgrounds shouldn’t be judged on the same rating scale and one size fits all system. 

5.     Personal Development is Impeded:  Subordinates are often intimidated by a Boss’ involvement in job performance as the Performance Review Structure discourages self-honesty about an employee’s short comings and areas which need improvement.  Subordinates feel self-analysis and self honesty could very well come back to haunt them during the evaluation.

6.     Hindrance to Effective Teamwork:  The most important team dynamic, that between boss and his or her subordinates, is undermined by the Performance Review process.  The Boss is preaching teamwork, but the Performance Review process is one-sided, as the boss sees him or herself as the evaluator and doesn’t engage his team of associates.  Dr. Culbert, calls it like it seems to the subordinate:  “… a ubiquitous need for subordinates to spin all facts and viewpoints in directions they believe the boss will find pleasing.  It defeats any chance that the boss will hear what subordinates actually think.”

7.     Immorality of Justifying Corporate Improvement:  At first I thought, as a Business Consultant, this is an awfully “strong” statement by Dr. Culbert, but after reading the first sentence in this section, I think he makes a valid point:  “I believe it’s immoral to maintain the façade that annual pay and performance reviews lead to corporate improvement, when it’s clear they lead to more bogus activities than valid ones.”  Performance Reviews tend to dispirit the employee and create distrust and cynicism.  The amount of inefficiency created by “cover your butt” mentalities is probably much more significant than managers know.   

Dr. Culbert laid out 7 key areas where Performance Reviews do nothing to enhance performance, and in fact, create severe inefficiencies within a company, causing a negative impact on the Company’s bottom-line and poor employee morale.  Dr. Culbert’s solution to the “one-side-accountable, boss administered / subordinate-received performance reviews is simple: “…two-sided, reciprocally accountable, performance previews.”  Let’s break this down into parts:

1.     Two-Sided:  Open communication between the boss and his or her team members on a daily basis.

2.     Reciprocally Accountable:  The boss is accountable to the subordinate as much as the subordinate is accountable to the boss in meeting pre-scribed expectations and goals. 

3.     Performance Preview:  A meeting of the minds between boss and subordinate where they together layout a joint business plan for the month, quarter and year with periodic scheduled “check-ups” along the way not so much to gauge progress as much as discuss difficulties, as well as, successes in meeting the plan’s goals.  This will result in modifying the plan along the way as circumstance dictates.  Everyone under the Boss clearly understands the Company’s goals, the team’s goals and how each team member will contribute to it.

Dr. Culbert’s reasoning behind Performance Previews makes great sense:

1.     Boss’s role is to “…guide, coach, tutor, provide oversight and generally do whatever is required to assist a subordinate to perform successfully.”  I like this system because it is the boss’s job to ensure subordinate success. 

2.     Eradicates self-serving boss behavior and 360 Degree finger pointing, hold-a-grudge fellow employee tactics.

3.     It is a Pro-Active Process, not reactive.  Keeps the focus on the future and the subordinate is viewed as partner who contributes significantly to the Company’s success. 

4.     Replace the one-size fits all Evaluation Check-off List with custom-constructed Inquiries tailored for each employee the boss oversees.  Once the boss has exhausted all his questions about how a subordinate thinks he or she can better and best perform work, the boss should ask the subordinate what else the boss needs to know.  The boss needs to know how the employee will achieve performance goals, and what help the employee requires from the boss.  An individual and team business plan is built so all team members know their roles, the boss’s expectations and company performance goals.  The Business Plan becomes a pro-active tool for the Boss to manage and assist his or her team.

Dr. Culbert argues when the Performance Review is taken away and replaced by the Performance Pre-View, “…people will find more direct ways of accomplishing tasks.  Accountability comes from team work; what the boss-subordinate team accomplish together.”  While job improvement comes from the individual worker, an environment characterized by  “…a trusting relationship where they [subordinates] can ask for feedback and help when they see the need and feel sufficiently valued to take it.” 

As a Business Consultant and Entrepreneur with over 20 years experience working with different corporate cultures, I completely agree with Dr. Culbert’s Performance Preview strategy as it contributes to the company’s bottom-line profits, while the Performance Review framework detracts from company goal achievement and inhibits profitability.  In the end, shouldn’t Performance Systems be about a Company’s Profitability and individual’s growth?  Of course it should be.  Bravo Dr. Culbert.   Performance Pre-Views should replace Performance Reviews in a Company’s Compensation Structure to achieve better subordinate-manager relationships and common-goal-teamwork toward achieving a Company’s Strategic Goals.

Let’s take this a step further to see its real benefit. Doesn’t Performance have a lot to do with a company’s Compensation Strategy, contributing significantly to the bottom line?  Well, I say, everything!  Fostering an atmosphere and structure of bilateral relationships between managers and team members should be built into a Company’s Compensation Plan, as that achieves:

1.     Common goals toward achieving company success.

2.     Higher individual productivity

3.     Accountability between team members and management, as well as, upper management and the executive level.

4.     Happier employees work harder and smarter

5.     Retain highly valuable, well trained, experienced employees as this system fosters trust, improvement, loyalty and advancement.

6.     Achieves the same objectives as do Stock Option Plans.  As people improve and add to a Company’s success, the reward of stock appreciation is the financial payoff, more so than pay raises.

However, the question to be asked is where do Benefits fit into Compensation Planning for new and growing small companies?  Well, I argue that it is more a part of employee morale than it is a part of the compensation package.  Ok, so you maybe scratching your head on this one as Benefits are often viewed as an integral component of a compensation package.

Where most companies dangle the Benefits Package, which in turn can be very expensive to the company, as a carrot to attract and retain talent, the most progressive companies understand its importance in the grand scheme of things.  Young, growing companies have a hard time affording comprehensive Benefits Packages and find them to be a big strain on cash flow.  However, if your Compensation Package includes Stock Options, Tax Preference Compensation, Key Person Protection and a Proactive-based Performance System, then the Benefits Package becomes less the focus, as does pay scale for that matter.  Let’s not, however, diminish the fact that Benefits are critically important to retaining and keeping talent, but if your Compensation Structure is designed as previously indicated, the entrepreneur will find employees who are willing to defray the cost of Benefit Packages with the Company via cost sharing, HSAs, etc.

A Benefits Package should be comprehensive in its offering, i.e. Health, Disability, Life Insurance and a Retirement Investment Vehicle, but if designed as part of a whole, a progressive Compensation Package whose sum of the parts is very competitive in attracting and retaining top talent, then it becomes more a question of structure than importance.  The best advice I can give to companies, as a Business Consultant with a Financial Planning background working with small businesses:  hire a Financial Planning Expert who specializes in designing and implementing Benefits Packages which aren’t seen as the focal point of a Compensation Package but a part of.  If designed and packaged properly, a Benefits Program does not necessarily have to drain cash flow, and for minimum financial contribution on the employee’s end, it can still be an attractive incentivized component of the overall Compensation Package. 

I highly recommend using a Financial Services Company to package the entire Benefits Plan as the bundling will save you significant dollars, and the employee will have a cohesive, very comprehensive plan which offers a singular, un-complicated customer support system.  It is vitally important a Company utilize the expertise of a Benefits Expert to find a Financial Services Company which offers substantial-breath of investment options and benefits to satisfy a wide range of employees, managers and executives.  A well-crafted Benefits Package should pay for itself and not be a burden on Company Cash Flow. 

I also make the contention that Pay Scale is not very important in the overall scheme of things as long as pay is not the focal point but a part of a Progressive, Incentivized, Comprehensive, Competitive, Proactive based Compensation Plan.  Highly talented and experienced people will work for less pay than the market offers if a Company offers a Compensation Package as prescribed in this article. The Performance Preview plays into this fact that a fair employee and executive evaluation and education system considers Compensation Structures and Benefits, and if done properly, will save the company tons on their Compensation Program yet still promoting higher levels of profitability. It is necessary to have a good balance between the two areas to attract and retain talent at a level a company can afford and still have plenty of room to grow.

Posted in Business Compensation Strategies. Comment

A Business Consultant’s Process to Help a Business Succeed

May 17, 2010 by Frank Goley, Business Consultant

As a business consultant and planner with many years experience helping companies to succeed, I have refined my business consulting process for best business results. This article will go into detail what a good business consulting process entails, and what a business owner can expect when working with an experienced business consultant.

Steps Taken in a good Business Consulting Process

– Learning about the Business

§  Tour the Company’s facilities

§  Read all the company materials

§  Meet with the Board of Directors, all executive heads, founders and owners, Department Heads and Key Employees.

§  Understand the product or service

§  History of the business

§  Business track record

§  How the business is run

§  How decisions are made

§  How problems and opportunities are handled

§  Company process, trade marks

§  Company’s competitive advantages

§  Financial track record

§  Banking and finance connections

§  How the company is organized quality control

§  Employee incentives, benefits, and wages

§  Meeting the company’s advisors and consultants

– Identifying Problems

§  Problems seen by ownership and management

§  Problems/ issues identified by the business consultant

§  Business consultant given unrestricted access to the company so that problems can be identified

§  Identify revenue points and expense ratios for all products and services

§  Understand tax implications

§  Key: open, clear communications between the consultant and the company’s people.  Trust is vital.

– Identifying Opportunities

§  For every problem/issue, there is a hidden opportunity

§  Opportunities seen by ownership, management, and key employees

§  Opportunities discovered through the business consultant’s process

§  Understanding margins, sales history, and sales growth

§  Understanding and identifying new products and services

– Analysis

§  Business consultant analyzes the identified problems and opportunities while keeping in mind, a clear understanding of the business

§ Business consultant decides which problems and opportunities are important and which are not

§  Identify potential future problems

§  Identify symptoms of problems provide certain conclusions and facts based on the analysis

§  Provide certain conclusions and facts based on the analysis

– Solutions

§  Business consultant provides a plan which provides solutions and identifies opportunities

§  Business consultant illustrates how certain expenses can be reduced and how certain profit areas can be maximized

– Feedback / Adjust Plan

§  Business Consultant receives feedback from the business and its advisers on the proposed Business Plan

§  Business Consultant oversees implementation of the business plan

§  Business Consultant tracks progress of the plan

§  Plan is readjusted as necessary moving forward

§  Business Consultant ensures plan is integral to the Company and intertwined into the fabric of the company.

When an Entrepreneur is thinking about starting up a new business, A Business Consultant can apply a given Business Start-Up Process Analysis to determine if it is a feasible opportunity:

Ø  Analyze and Evaluate the Opportunity

ü  Opportunity timing window

ü  Profit potential for an adequate return?

ü  Can the opportunity be expanded?  Diversification options?

ü  Obstacles

ü  Market needs

Ø  Develop a Business Strategy & Model

ü  Effective Barriers to Entry

ü  Identify and Define Customers

ü  Supplier Relationships and Buyer Conditions

Ø  Resource Audit

ü  Skills and Resources Existing

ü  Resource Gap Management Plan

ü  Internal Skills and Resources Needed

ü  Lacking Resources to be Out sourced

ü  Unique Aspects of Business Model

ü  Cost minimization Strategies for Resources

ü  Regulatory Compliance

ü  Critical Milestones which will minimize the Ventures overall Risk

ü  Contingency Resources

Ø  Acquiring & Leveraging Needed Resources

ü  Control Mechanisms

ü  Motivations of Resource Providers

·         Incentives

·         Will opportunity produce an adequate return?

Ø  Venture Deployment

ü  Management Systems

ü  Attracting and Retaining good Employees

ü  Role of Entrepreneur

·         Management Delegation

Ø  Getting and Distributing Value

ü  Harvesting Options: Be Acquired, Merger, IPO, Secondary Offerings, Sell Company, Liquidate &  Distribute

ü  After Tax Yield Considerations

ü  Factors triggering a Harvest

ü  Factors preventing Harvest

ü  Consideration of Company Participants:  Creditors, Investors, Partners, Owners, Founders, Key Management & Employees, The Entrepreneur

When considering purchasing an existing business, a Business Consultant can employ an effective Business Acquisition Analysis, such as:

v  Products & Services Analysis

v  Management Team Appraisal

v  Operational Analysis

v  Market Position

v  Competitive Factors

v  SWOT Analysis

v  Financials Analysis

v  Valuations

v  Risk Assessment

If the Business Consultant is worth his salt, then the fees paid for the consulting will more than pay for themselves in the extra generated business profits. Ask the consultant what his or her process is, it will tell a lot about their capabilities and experience. Hiring a business consultant is an investment in the future success of your business.

Posted in Business Consultants. Comment