Generational Transfer of Wealth – The Unprecedented Exchange

“There was an amazing piece of information in USA Today recently. An article focused on the pending wealth transfer in this country and how countless recipients of this generational transfer are unprepared to manage the new funds that they will be inheriting. The two points of the article were that during the next several decades, millions of offspring in this country will be inheriting significant sums of money, and many are completely ill equipped to manage it…

Unfortunately, as pointed out in the article, too many heirs are woefully unprepared to manage the funds that they will be inheriting. Many lack basic financial acumen in order to know how to wisely and safely invest these funds. And far too many will be taken advantage of by unscrupulous family members and friends and will unfortunately squander much of their inheritance away.”

Click here for the full article.

Exit Planning – Create a “Know Risk” Strategy

“Whether it is financial troubles in Greece and the rest of Europe, threats of potential wars in the Middle East, or North Korean missile launches, we are challenged nearly on a daily basis with some aspect of doom and gloom in the news.

Because of this, now more than ever before, you need a “know risk” strategy when it comes to your financial future.”

Click here for the full article.

Private Equity – Why the Focus on the Middle Market?

“At the recent ACG meeting in Dallas, which was their largest convention of 2012, I had the opportunity to sit down with individuals from five different equity firms. The focus was to discuss ongoing trends that they see in the M&A industry during the next 12 -18 months.

One area we discussed in detail was the focus of their buying mandates throughout the next year or two. Each of their organizations has a number of “platform” companies for which they were interested in finding “add-on” opportunities. For platform acquisitions, most of them look for companies with earnings typically in excess of $4-$5 million annually. However, for add-on opportunities, many of these buyers will drop that minimum down to as low as a couple of hundred thousand dollars in earnings.”

Click here for the full article.

© 2012 Generational Equity, LLC All Rights Reserved

Don’t put off planning your financial future. Learn about the first part of selling a business with Generational Equity‘s whitepaper, Selling A Business – The Evaluation.

What’s worse is that Thompson’s educational background appears in Yahoo’s annual report, which was filed with the SEC. As CEO, he must legally confirm that everything in the document is truthful.

Thompson’s resume fraud is only the latest example in a growing trend that underlines the need for businesses of all sizes to certify that new hires are being truthful on their resumes.

Resume fraud increasing

If you do a quick search for “resume fraud,” you’ll find an endless number of examples.

In 2001 Patrick Couwenberg was removed from the bench after being appointed to the Los Angeles Superior Court because nearly all of the information in his biography turned out to be false.

George O’Leary had to leave the Notre Dame football program because he provided incorrect information about his credentials on his resume. An MIT dean quit after she fudged her background.

And these are only the ones that made the news. Many others are joining the resume-stretching bandwagon as well.

Resume fraud is on the rise, according to EctoHR’s Steve Williams. His national human resource firm has seen an increase of flagged resume and background verifications from 13.5 percent to more than 20 percent since July of 2008.

A likely reason behind the resume fraud: the employment landscape.

“As the time between jobs stretches on, a higher percentage of job seekers change their resume in an attempt to be a more attractive candidate,” Williams told two Segal McCambridge Singer & Mahoney attorneys.

Pay now or later

Far too often business owners rely on the word of their friends and colleagues without actually taking the time to properly assess a person’s skill. New hires cost too much – in time, energy and money – to make that mistake.

Business owners must conduct background checks or outsource the task to a firm that specializes in doing so. They can’t afford not to.

If someone is willing to lie on a resume to get a job, what else will they lie about? Would you be OK with an employee stretching the truth to a client? What if that lie destroyed a 10-year relationship with an important customer?

At the end of the day, a company only has its reputation to sustain it. All relationships, whether business or personal, are built on trust. Lying is a surefire way to demolish trust. 

Here are a few tips to help you avoid missing resume fraud:

• Look over resumes carefully when you’re not distracted
• Have multiple people examine resumes for the final round of candidates
• Contact previous employers and schools to verify information (this simple step can save you from hiring most folks fabricating their resumes)
• Conduct background checks
• Ask job candidates detailed questions about things on their resume
• Use Internet searches to find more information
• Allow candidates the opportunity to explain discrepancies

This issue becomes especially acute if you are in the process of selling your company.  Now, more than ever before, buyers are quite often doing human audits during due diligence.  This usually includes a full background check on managers and key employees.  The last thing you need is your deal scuttled because a background check turned up something fabricated on the resume of a key manager.

Set up a procedure allowing you to complete the vetting process on any potential new hires, especially those who might be in a leadership role in your company.

© 2012 Generational Equity, LLC All Rights Reserved

Want to learn more about growing your business? Download a free copy of Building and Exiting a Desirable Business today.

Offshore Buyers – What’s Driving Activity

“Outbound M&A activity (where a company headquartered offshore acquires a company in another country) was quite strong in 2011 and is expected to continue to be so in 2012…Some of the most aggressive outbound buyers are located in Asia.”

Click here for the full explanation as to what’s driving outbound M&A activity.

The Association for Corporate Growth Reports on Trends in Expansion

“Quite a few business owners are under the mistaken belief that they are too small to be attractive targets for professional buyers. They tend to form this misconception because the business media typically focuses on large, billion-dollar deals.

The reality is that most deals closed are far smaller – they just don’t get the press coverage because the vast majority of these lower middle-market deals are undisclosed and under-reported. This was clearly illustrated in a recent ACG survey (Association for Corporate Growth).”

Click here for the full article.

Tax Policy – What the Future May Hold

Carl Doerksen reviews the tax policy changes that will happen in 2013, which will greatly affect business owners, especially those looking to profit from selling their business.

Click here for the full article.

© 2012 Generational Equity, LLC All Rights Reserved

Don’t put off planning your financial future. Learn about the first part of selling a business with Generational Equity‘s whitepaper, Selling A Business – The Evaluation.

Recently Bill Barnett, former lead of the Strategy Practice at McKinsey & Company, wrote a piece for the Harvard Business Review Blog called When Choosing a Job, Culture Matters.

In the piece Barnett chronicles the story of Sean, a person who received a job offer at a Fortune 500 company to be its chief administrative officer. Sean would be the first person to occupy such a position within the company.

Sean turned down the offer after concluding that the role wouldn’t be a good fit in the performance-driven environment where everyone measured success by a person’s direct contribution to the bottom line.

In other words, the corporate culture wasn’t right for that specific position. It wasn’t a sure thing that Sean’s peers would have respect for him given his responsibilities.

Barnett uses Sean’s story to teach job seekers about why corporate culture matters when choosing a job. But we’re going to focus on the flip side: What can business owners learn from Sean’s experience?

The Lesson For Business Owners

Again, corporate culture matters – even when dealing with people that aren’t employees.

Job seekers are considering everything about a company before accepting an offer. They’re not only looking for good pay and benefits, they’re looking for employees that enjoy working there, room for growth within the company—and yes, a positive corporate culture.

Those on the job hunt are also being advised to consider everything. Barnett’s article is proof of that.

If you’re not convinced yet, let’s take a look at some data from the Bureau of Labor Statistics.

Almost 2.1 million people quit their jobs in February of 2012, continuing an upward trend that lasted the previous five months. Preliminary numbers indicate that March will be even higher.

What’s the relevance of this statistic? Historically, a higher volume of people quitting their jobs generally indicates that the economy is doing better.

“It turns out that a healthy economy encourages more people to quit their jobs in search of something better,” Nevada’s Workforce Connections notes. This is generally because people feel more confident in the job prospects.

For business owners, this means that current employees might be inclined to leave in the coming months if, for instance, they don’t like the corporate culture. This leaves the door open for new hires, but job seekers are also going to be looking for a positive corporate culture. As we just discussed, these job seekers should be more confident in their prospects and could turn you down if your culture doesn’t meet their standard.

If you are beginning to see a higher turnover rate among your employees or are hearing rumblings that people might be looking for new jobs, it probably is time to take a look at your corporate culture and make sure that the environment is positive and provides upward mobility. Don’t ignore the impact your corporate culture and environment can have on employee retention and hiring.

Recap

Job seekers today are considering corporate culture just as much as pay and benefits.

Career counselors are also advising people to find out more about a company’s culture before accepting a job offer.

Corporate culture is the reason Sean turned down what otherwise was a great offer for a Fortune 500 company.

Corporate culture matters when hiring new employees.

© 2012 Generational Equity, LLC All Rights Reserved

Want to learn more about growing your business? Download a free copy of Building and Exiting a Desirable Business today.

What Cash on the Balance Sheets Means for Private Business Owners

“If you are the owner of a privately held company, the next 12-24 months could be the best timeframe in years for you to find a buyer for your company due to a variety of reasons that we have covered in previous articles. However, in this article we are going to focus on the huge stockpiles of cash that corporate players have been accumulating over the past several years.”

Click here for the full article.

Why M&A Advisors Play a Critical Role When Selling A Business

“As you contemplate the various methods of finding buyers or investors for your company, keep one simple fact in mind: You will most likely only sell one company in your entire lifetime, which is your own. However, professional buyers will analyze hundreds, if not thousands, of opportunities before making the decision to invest or acquire. So who do you think has the advantage in this scenario?”

Click here for the full article.

The Case for M&A

“Over the years, there has been an ongoing theoretical debate among economists and pundits about the efficacy of mergers and acquisitions. Opponents like to produce evidence that indicate that most mergers fail to live up to expectations. Proponents point out that although some deals do fail, the vast majority help the overall economy grow by providing capital for business expansion.”

Click here for the full article.

Need to learn more about exit planning? Download this free whitepaper, Exit Planning Basics, What You Need To Know Before You Start by clicking on the link.

© 2012 Generational Equity, LLC All Rights Reserved

Sinek is not alone in his thinking, as other leaders have echoed this sentiment. Most recently was Bill Taylor in an article, “It’s Not What You Sell, It’s What You Believe,” for the Harvard Business Review Blog.

Taylor poignantly explains how outstanding companies separate themselves from the rest of the pack.

“It’s not what you sell it’s what you believe. If there is one principle that explains why some organizations — Apple, Southwest Airlines, USAA, Cirque du Soleil, the Marine Corps, Pixar — consistently and dramatically outperform their rivals, it is that every person in the organization, regardless of job title or function, understands what makes the organization tick and why what the organization does matters.”

Taylor also mentions a book by Roy Spence, co-founder of ad agency GSD&M Idea City, named It’s Not What You Sell, It’s What You Stand For.

Spence, with Haley Rushing, explains why extraordinary businesses are driven by purpose.

“I have found if your business purpose goes beyond just making money, you will actually make more money–not all the time, not every day, but at least you’re in the business of making a difference so you have a purpose,” Spence told Entrepreneur.com.

The Lesson: Who you are, what you stand for, and your company’s belief system are all just as important as the product or service you sell. Clients prefer to do business with people with which they have a personal connection and purposes that they believe in. A strong sense of purpose within your company will help you increase your bottom line now and better position it when you sell your business down the road.

Carl Doerksen, director of Corporate Development for M&A advisory firm Generational Equity, recently attended an Association for Corporate Growth meeting in Dallas where he met with quite a few professional buyers that said the same thing.

“When buyers look at businesses to invest in, they spend most of their time getting to know the people — not just the current owner, but also his staff in order to determine if they all the passion and vision to grow the business,” Doerksen said. “This passion comes from believing in what the business stands for and knowing how they each individually contribute to its mission. These are financial buyers, and for them it goes beyond just dollars and cents.”

Action Items for Private Business Owners

Answer these questions before you go home tonight:

• Why does my company exist? What is my company’s purpose?
• Why should anyone care that my company exists?

If you can’t provide concise, compelling answers to these questions, then you have some work to do. Don’t worry, but make it a priority to figure it out. This strategic leadership is crucial to your company’s success.

Want to learn more about growing your business? Download a free copy of Building and Exiting a Desirable Business today.

© 2012 Generational Equity, LLC All Rights Reserved

Private Equity Overhang

Carl Doerksen looks at what analysts are estimating the current private equity overhang to be at before explaining why it matters to private business owners.

Click here for the full article.

Buyers and M&A Activity in 2012

“According to a number of sources, even though M&A volume for the first quarter of this year has been slower than expected, the latter half of the year should more than make up for it.

According to a survey conducted a few months ago by Deloitte, fully 40% of the 940 business professionals (most of them high-level executives in finance departments) ‘plan to tap their cash reserves in 2012 for mergers and capital expenditures.’”

Click here for the full article.

Exit Planning – Don’t put it off!

[I]f you are not prepared to run a company (and you become prepared by spending years learning to do so) and if you don’t have the passion to be in the business (which is what happens all too often with inter-generational transfers), your best option is to sell the company. The reality is that if you lack both of these characteristics, you owe it to the legacy built up in the company, the employees, and your customers to find a buyer who will successfully keep the business thriving.

Click here for the full article.

Need to learn more about exit planning? Download this free whitepaper, Exit Planning Basics, What You Need To Know Before You Start by clicking on the link.

© 2012 Generational Equity, LLC All Rights Reserved

Wal-Mart’s Current Allegations

For those of you that might’ve missed it, David Barstow of The New York Times wrote an investigative piece, “Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle,” that was published Saturday and caused quite a stir.

The New York Times reports that in 2005 top Wal-Mart executives learned of rampant bribery by its employees in Mexico and then sent an investigative team that confirmed the reports. Not only was bribery widespread, but the investigation also revealed that Wal-Mart de Mexico execs had knowledge of it and made an effort to conceal it from the company’s headquarters in Arkansas.

Wal-Mart executives then handed the internal investigation to Wal-Mart de Mexico’s general counsel, who supposedly approved the bribes and who proceeded to exonerate his colleagues.

Only in December, after Wal-Mart found out that the NYT was reporting on the subject, did the company alert the Department of Justice (DOJ) that it was conducting internal investigations into possible violations of America’s Foreign Corrupt Practices Act (FCPA).

For more details into the allegations, click here.

The FCPA

The Foreign Corrupt Practices Act was passed in 1977 and makes it illegal for American companies to bribe foreign officials. There are also books and records and internal control provisions included in the act, but we will focus on the bribery part today.

Avoiding bribery seems simple enough, but if you’re a small business owner that’s never had to deal with the FCPA, you might be wondering: What exactly is illegal?

“As a general matter, the anti-bribery provisions prohibit the corrupt payment of money or ‘anything of value’ to a ‘foreign official’ in order to ‘obtain or retain business,’” according to FCPA professor Mike Koehler.

He goes on to explain what a foreign official is:

The FCPA defines foreign official, as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.”

But the FCPA does not define department, agency, or instrumentality.

As a small business owner, if you’re considering conducting business in another country – especially one where bribery is prevalent – you need to first have a basic understanding of the FCPA (try reading The Lay Person’s Guide to the FCPA put out by the DOJ) and then make sure that you retain legal counsel to help you avoid any noncompliance with the act, especially since the DOJ has been handing out harsher enforcement penalties as of late.

The largest fine doled out under the FCPA has been $800 million, which Siemens AG had to pay. The next highest is Halliburton and KBR with $579 million.

Bottom Line: FCPA Compliance Is A Serious Matter

The takeaway from Wal-Mart’s situation is that FCPA compliance is a serious matter.

Attorney Matteson Ellis, who runs the FCPAméricas Blog that explores corruption in Latin America, articulates the message perfectly:

With press reports like the one from The Times, the attitude of “create a paper compliance program, but do not follow its rules” is something of the past. The days are gone when compliance efforts can be half-hearted. Unless management is fully committed, it runs massive risks under the law and with public relations. No executive wants his or her picture, like those at Wal-Mart, prominently displayed by a bribery headline. Compliance counsel would be wise to send The Times article to their management and boards as a precaution.

Keep this in mind: If you are planning to eventually sell your business and you operate in foreign countries where bribes are common practice, you can bet that potential buyers will closely scrutinize your compliance standards relating to payments of any kind. Be sure that your practices are in compliance with local and foreign laws long before you sit down to negotiate a deal with a buyer.

If you’re interested in seeing where most FCPA violations occur, The Mintz Group has created an interactive map breaking down FCPA fines by industry and identifying which countries are prone to FCPA violations. See it at fcpamap.com.

Want to learn more about growing your business? Download a free copy of Building and Exiting a Desirable Business today.

© 2012 Generational Equity, LLC All Rights Reserved

Succession Planning

“One of the fundamental issues with many privately held businesses is the fact that they are completely dependent on their owners for success far too often…the truth is that one day you will eventually exit your company. When you get to that point, if your business is totally dependent on you for its ongoing success, you will have a challenge finding buyers who will pay you a premium for your company.

This concept was demonstrated a few months ago when a lower middle-market equity firm, Milestone Partners, announced it was raising its fourth fund in order to invest in smaller companies.”

Click here for the full article.

Private Equity Activity

Carl Doerksen takes a look at recent data from Pitchbook, which shows that private equity firms have been investing in more add-on acquisitions – acquisitions of companies that complement companies the private equity firms already own during the past several years.

Click here for the full article.

M&A Activity – What 2012 May Hold

“Recently the publication President & CEO published an article regarding their expectations for middle-market M&A activity in 2012. As is true of other analysts, President & CEO is very positive about activity this year.

In fact, according to the publication, ‘The global market for companies with revenues between $5 million and $1 billion, the bulk of which are less than $500 million, is on track to exceed every year in recent history except 2007 in terms of the number of reported deals; over half of these transactions are with companies with revenues between $5 million and $150 million.’”

Click here for the full article and more information about why 2012 M&A activity should pick up.

Need to learn more about exit planning? Download this free whitepaper, Exit Planning Basics, What You Need To Know Before You Start by clicking on the link.

© 2012 Generational Equity, LLC All Rights Reserved

A recent case that started a few days ago is one that Oracle brought against Google. Oracle claims that Google’s Android operating system copied Java code, a “programming language and computing platform first released…in 1995.”

While the trial’s outcome will be important for software developers regarding what constitutes copyright infringement, Oracle’s history with Java provides a lesson about opportunities for all private business owners.

Growing Via Acquisition – The Preferred Method

Java did not always belong to Oracle. In 2009 Oracle bought Sun Microsystems, the company that created Java in 1995, for $7.4 billion. Once the acquisition was complete, Oracle CEO Larry Ellison hailed Java as “the single most important software asset we have ever acquired.”

That’s what Java is, an asset. And the asset was so valuable that Oracle was willing to pay top dollar for it. Fast forward to the present day, now Oracle is in court with Google to make sure that its $7.4 billion asset is protected.

Many companies prefer to buy existing technology rather than try to develop it internally. Acquiring patents and intellectual property is much faster than the typical R&D process. Plus, the technology is already proven.

But Oracle is not the only company looking to grow its business through acquisitions. There have been many others in the technology field.

• AOL announced that it was planning to sell 800 patents to Microsoft for $1 billion and change last week.
• Facebook bought software and technology patents from IBM in March.
• Google bought Motorola Mobility for approximately $12.5 billion in August 2011.

For more in-depth reading about the technology industry’s patent war, check out Steve Lohr’s New York Times piece.

The Opportunities For Business Owners

The rush for patents underscores two main opportunities for business owners: the chance to develop intellectual property that’s attractive to larger companies and the chance to properly plan an exit.

Each business has the opportunity to create game-changing technology or systems in their industry. If owners can do this, then buyers will be chomping at the bit to purchase a company for that asset alone. And this is true of all industries, not just software development.

The second opportunity is exit planning, which isn’t usually viewed as an opportunity. Business owners have heard it a thousand times: “You need to plan your exit. You need to plan for retirement.” While everyone knows exit planning is something that they need to do, hardly any actually do it.

Instead of looking at planning an exit strategy as mandatory, business owners should look at it as an opportunity to cash in on their years of dedication to their companies. This is their one shot to get the most money for their time and energy spent.

If owners plan their exits, then they can get the maximum value for their companies. If they don’t spend any time planning, they’ll probably leave money on the table.

While all of the companies looked at today are in the technology field, there are big players in every industry looking for ways to expand and lock down a larger part of the market. This means that the more strategic business owners are with their company, the more likely they are to receive top dollar when they decide to sell.

Want to learn more about growing your business? Download a free copy of Building and Exiting a Desirable Business today.

© 2012 Generational Equity, LLC All Rights Reserved