2007 Issue 9
4Ds That Could Destroy Your
Business
Don't Lose Your Business
Secrets Along With Your Employee
Accountants Do A Lot More
Than Count Beans
6 Writing Tips For A Winning
Proposal
 
4Ds That Could Destroy Your Business
Heart attack, auto accident, illness, a resignation,
family dispute. Most of these unanticipated, but
by no means unusual or uncommon events, fall
under ‘The 4Ds’ - Death, Divorce, Disability or
Departure. The occurrence of any one of them can
instantly throw a business into disarray.
Unpleasant though they are to consider, when one of
them befalls the owner of a business that
doesn’t have a plan in place for dealing with
the fallout, then the result can be more than
unpleasant – it can be catastrophic.
Disorganization, loss of business opportunities,
loss of customer or market share and a decrease
in employee morale and productivity are the
least of the repercussions. Family or partner
discord, heirs left unprovided for and the
demise of the business are real possibilities as
well.
When Kenneth Wilson, the owner of Wilson Products Inc.
died unexpectedly, his three daughters found
themselves in charge of his $12 million aircraft
parts business. While all three had grown up
around the company they had never been trained
to take on the management of the business and no
other arrangements to cover a hiatus in personal
management by their father had been arranged
either. The business was completely vulnerable
and with the aerospace industry also going
through rapid change, the business floundered.
By 2005 it had to file for bankruptcy. With $20
million in orders on the books for work through
to 2010, the Wilson’s couldn't find a buyer, and
the company's assets were auctioned.
Where management knowledge about how the business
works is restricted to one person, the death of
that person leaves the business rudderless.
Continuity of management can be maintained only
if there has been a long term plan for training
up family into their eventual managerial
responsibilities or using a board of advisors
that has had a long term association with the
business and can steer it until more permanent
arrangements are made.
Death can leave heirs financially unprotected. Will
business partners pay the owner’s heirs the
value of their interest in the business? Maybe.
But not in the case of Terri Gettman. When her
father died without any written plan outlining
what was to happen to his minority stake in a
Georgia based paper making machinery
manufacturing business, it was an opportunity
for the other partners to cut the family out of
the business without due recompense.
Death entails payment of estate taxes on the value of
a business. If they haven’t been planned for it
can involve hurriedly trying to raise finance to
cover them. But in many instances banks aren’t
prepared to come to the party when the business
has just lost its major asset – the owner. The
business may have to be sold simply to pay its
tax liability.
Rarely do you see divorce listed as a cause of
business bankruptcy, but with nearly half of all
marriages ending in divorce, in circumstances
that frequently turn ugly, subsequent litigation
has destroyed many privately held businesses. In
the absence of any type of divorce planning,
such as a buy-sell agreement, all assets may be
legally required to be divided 50-50. To come up
with the cash to pay their divorce settlement
owners have had to sell their business. That may
not be the worst part of the story. In a court
enforced sale the owner may have to accept a
discount price. In one case, with offers from
two potential buyers to choose between, the
owner was forced to accept the lower bid because
it was for cash on the spot. The judge agreed
with his ex-wife and her attorney, who argued
that it wasn't fair for her to have to accept
whatever financial risk might be attached to the
higher bid because, unfortunately, it had
provisions for an extended payout.
Disability and departure are equally problematic
for the survival of a business that hasn’t
developed a contingency plan to handle them.
Partners can decide to leave for a number of
reasons. They may decide to leave for another
opportunity or simply to take life easier. But
the same issues remain. Who is going to do the
work? What is owed the leaving partner? Where is
the money coming from? Both disability and
departure can bring huge financial and emotional
pressures in their train.
Planning for the 4Ds
Emotionally charged as it may be to contemplate the
4Ds, planning for them should be an integral
part of overall business and personal financial
planning for business owners.
The last thing you want to happen is to be forced to
sell your business in a hurry because of
unforeseen circumstances or to leave the
business in a dire position when you die.
Failing to consider unpleasant circumstances or
to plan for dealing with their consequences is a
sure way to put the future of the business and
the welfare of the family stakeholders at risk.
An estate plan, a buy-sell agreement, a
succession plan, a pre-nuptial agreement can
each feed into an overall transition plan that
protects the business and its dependents in the
eventuality of one of the 4Ds occurring to the
owner.
The key to avoiding difficult situations arising from
the 4Ds is to start succession planning as early
as possible, revisiting the plans on a regular
basis and dealing with ownership and management
issues separately.
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Don't Lose Your Business Secrets Along With Your
Employee
Your top salesperson has just resigned to start their
own business. Next you hear she’s been in
contact with the customers she dealt with when
she worked for you – your customers! And the
next you know some of those customers are
switching to her firm.
The danger presented by ex-employees extends further
than the possibility that they might hijack your
customers. They can take knowledge of your
proprietary processes and other trade secrets to
use on their own behalf or that of their next
employer. That means your competitive edge may
walk out the door with them.
A non-compete agreement (NCA) is a way of protecting
your business’ competitive edge by preventing
employees from using your proprietary
information against you when they leave you. Any
employee likely to come in contact with valuable
business knowledge should be required to sign a
non-compete agreement.
Develop a legally defensible NCA
NCAs are court enforceable only when they are
constructed properly. An NCA is likely to be
most defensible in court when it conforms to
generally accepted practice. This involves
writing it up so that it defines limitations
that apply to an ex-employee using the
information they have about your business that
can be considered both fair and specific.
To be fair and specific an NCA should cover three
areas in particular and place reasonable limitations around each:
- Scope,
- Time, and
- Geographical area
Scope refers to the items that are covered by the
non-compete agreement. While many things can be
protected including procedures, techniques and
client or customer lists, a court will need to
be convinced it is in fact something vital to
the operation of your business. You must be
careful about defining the scope and demonstrate
by other measures that you consider the item is
important - mark documents that include the
information ‘confidential’, lock them up, put a
computer access password on them, limit the
number of people who have access to them. Courts
won't prevent employees from using information
that isn't proprietary or treated as
confidential by the business itself.
An NCA can’t be applied for an indefinite time but
deciding what sort of time limit a court will
find reasonable can be an interesting exercise.
Try to work out some logical relationship
between the information you wish to protect and
the enforcement period you apply in the NCA. In
the case of employees who are in a position to
develop close relationships with customers the
danger of them poaching is significant so the
employer, who is considered to own that
relationship, should protect it with a
non-compete agreement. However, the non-compete
period that can be applied is not likely to be
legally binding beyond the time it would
reasonably take to get a new employee up and
running and with their own track record so that
a customer wouldn’t see any difference between
the new person and the old one. It’s a mistake
to impose time restrictions which have no basis
in how long the item being protected will remain
valuable.
A non-compete agreement may also need to cover a
geographical area such as your sales territory
or distribution network. Again, care is needed
in defining the extent of your restriction in
terms of business logic. Usually it must conform
to the area in which you operate. Courts won't
agree with a geographic prohibition that is
broader than necessary.
Fairness to the employee
Courts are more likely to accept your right to impose
an NCA when it can be demonstrated that the
employee knew they were subject to one and had
openly agreed to abide by its terms. The fact
that they will be subject to an NCA should be
mentioned as early as interview time to job
applicants and they should be provided with a
copy to review before they accept an offer of
hire. The same applies to current employees
being offered a move that puts them in contact
with protected information and requires them to
sign an NCA. Give them a chance to consult legal
counsel and ask you questions about it.
Take legal advice
An NCA can be a valuable weapon in defending your
competitive edge but it has to be drafted
according to law and that varies from state to
state.
Courts in general try to balance your right to protect
your trade secrets with the employee's right to
make a living. While some cases are quite clear
cut – for example an employee you trained in
general laboratory techniques can get a job as a
lab technician elsewhere but they can’t use your
patented formulas – others are not.
When it comes to NCAs the advice and assistance of a
registered attorney is a must in drafting a
defensible form of agreement.
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Accountants Do A Lot More Than Count Beans
Few business owners appreciate the wide and deep
knowledge that accountants have of their
business and of business management in general.
For one thing, their training as an accountant
provided theoretical background about how
businesses work. Then, in practice they get to
deal with clients from a large number of diverse
business types and industries and learn a lot
about how businesses actually run and the real
problems business owners face.
Many of us undergo an annual checkup with our doctor.
As a result we expect to be given a report on
how healthy we are. If a problem is diagnosed
and some remedy suggested, chances are we take
the advice and act on it. After all, he, or she
is a professional and our health is really
important to us.
How many of us use the professional talents of our
accountant though? We go along for the annual
"checkup" to get our accounts prepared and tax
return compiled. Those figures to an accountant
are like an angiogram to a doctor – they give a
picture that can be read to show how your
business is performing, where there may be
problems and where it could be improved. Failing
to discuss your financial results in detail with
your accountant is like walking out surgery
without getting the full diagnosis of your
health problem.
What do accountants really do?
Here’s a brief rundown of some of the ways in which
your accountant is able to offer advice and
practical suggestions to improve your business.
-
Tax planning: Beyond simply preparing tax
returns accountants advise on the best tax
structure to minimize your obligations on a year
by year basis and on estate planning to ensure
your heirs receive what you want them to without
the involvement of legal complications and tax
incidence.
- Business advice: Increasingly, accountants are
being drawn into business advisory work by their
clients who are seeking to improve the
performance of their business and need specific
solutions. Accountants can advise on matters
ranging from setting up internal controls to
protect against fraud, to strategic planning to
improve competitiveness, to coordinating the
sale of a business, to developing the succession
plan to transition the firm to the next
generation of owner/managers. Some take up
positions on the advisory boards of growth
focused businesses who want a source of
objective and competent advice added to their
planning.
- Management accounts preparation: Businesses
should prepare management accounts at least once
a quarter to ensure they are on track with their
business plan. Compiled regularly and
systematically the information in management
reports can be analyzed to reveal warning signs
of developing problems in operational and
financial areas. Your accountant can provide
advice on how to manage around them as well.
- Personal finance advice: Your accountant
understands that for a business person their
personal finances are integrally linked to their
business finances and will offer advice on both
fronts. For example, while serving as your small
business accountant they might assist you in
developing a retirement plan or an estate plan.
This planning will ultimately leave you and your
dependants in a stronger financial position when
you eventually exit your business.
- Information technology applications: Many accountants today
are also very savvy when it comes to SME
computing technology and solutions. Not just in
advising which accounting package would be right
for you but in such diverse areas as ecommerce
and data security.
Don't make the mistake of using your accountant only
at tax time.
A good accountant can provide a wide range of business
improvement services that include both
preventive and restorative actions. If you are
using your accountant solely for their tax
service, then you aren’t making use of them in
an area where they can offer real value – small
business management advice.
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6 Writing Tips For A Winning Proposal
Many business owners are reluctant to respond to an
advertised request for proposal (RFP) or to
write up and send off unsolicited proposals even
though a successful bid could mean good
business. Their reluctance may be strategy based
– if we win this will it overstretch us and
drain our cash and time resources? But sometimes
it arises from the simple feeling that "I
don’t think I have the skill to write up a
proposal”. Here’s 6 tips on how to go about
writing a proposal that will make it easy for
the recipient to grasp what you offer and decide
if it’s for them or not.
-
Cover the basics the recipient will want to
know: A proposal must include clear statements
on WHAT you are proposing, on HOW you plan to do
it, on WHEN you plan to do it, and on HOW MUCH
it is going to cost. After you have written your
proposal check back and ensure they are all
there and easily identifiable by the recipient.
-
Make the title count: Use the title to sell your
solution by showing how it answers to the real
needs of the recipient – ‘Vandal Proof
Mailboxes For Public Housing Estate’. That
may take some reading between the lines – RFPs
are likely to stress features whereas you need
to point out the benefits.
-
Include an abstract of your solution: An
abstract is a condensed version of the whole
response placed at the beginning of the
proposal. It summarizes the content and
highlights the major points you want to make.
Your proposal may be one among many so getting
the reader’s attention early is critical. A good
abstract that has no superfluous information but
briefly covers the What, How, When and How Much
can get your response on the short list for
later detailed attention.
-
Present information logically/highlight the
important points: Proposals need to be both
informative and persuasive. The best way to
persuade someone is to present a logically built
up case that amounts to demonstrating why yours
is the best solution. Arrange the pieces of
evidence so that the most important are at the
beginning and work down to the least important.
Bullet points, boldface type, and colored font
can all be used to highlight the most important
information so that even in skimming the
document these parts stand out. Charts, tables,
graphs and illustrations make hard to grasp
details easier to comprehend and replace
paragraphs of text.
-
Write for the audience: A winning business
proposal is all about communication. Every
industry has its own particular jargon. The
words, terms and expressions used by engineers
are different to those used in the medical
profession. The proposal needs to use the terms
that will be understood by the particular
audience.
-
Make it look professional: Your proposal should
look like a serious document. Design a title
page that includes all the relevant information
(title of the proposal, the firm it is for, your
company name and address, the date, and your
copyright symbol) and also a relevant image of
some sort. Have it printed on good quality paper
by laser printer and bound in some way. The
whole job can be done cheaply and professionally
by a print shop.
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