Year End Review

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Year End ReviewIn previous articles we’ve made the case for having an annual meeting to make sure your staff are properly rewarded for the year that has passed and are properly oriented for the year to come. But, have you considered doing an annual meeting for yourself? A Year End Review, you could call it. Enough time has passed since the beginning of the year that you can’t defer to holidays and time off. We are well and truly into the year, but it’s also a perfect time, if you haven’t already done so, to look back.

How did it go?

The question that sits above all the other more specific ones is “how did last year go?” Did you feel good about it? Why or why not?

This assumes some things: that you had a plan or orientation for last year whereby you have something to judge or compare it to. If you didn’t have a plan, well that’s only fine if you actually intended that, most probably because you are happy with your performance and hit the cruise control button for your life last year. And you might be ready to do that again this year. But the point is that’s not laziness. That’s being intentional. It’s knowing what you want and then executing it.

The same cannot be said of the person who put up some goals, entirely missed them, and then moves into the next year setting new goals without examining what went wrong with last year.

If you own a business

How did we do against last year’s numbers? What will we do this year? Am I still excited about this? Why or why not? Do I want to sell? If not, do I have an exit strategy?

If you want to own a business

Why do you want to own a business? Have you talked to a broker about it? Have you taken at least a basic look at how you would finance it? How serious are you about it?

If you have a job

How was your pay and performance this last year? Are you happy with them? Why or why not? What will be your exciting challenges this year? Will there be any? Why or why not? Is this really what you want to do – short, medium, or long term?

If you want to get a new job (or own a business – see above!)

Why are you unhappy at your current job? What are the top things that you dislike that you would like to see rectified in a new situation? How serious are you about making this change? Why or why not?

We have a pretty good record of hitting our goals here at Apex, but we don’t let that build complacency.  We’re always looking to improve and do better every year. Give us a call to see if we can be of help in your goals for this year.

Apex is actively searching for top quality candidates to join our team of Advisors. If you’re interested in a career helping people buy or sell a business, think you have relevant experience, and want to find out more, please call Doug Hubler, President of Apex, at (913) 433-2303.

Certifications Matter: What Do All Those Letters Mean After Our Names?

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letters
Photo Credit: woodenearth.com

We really have a wealth of experience in our office here at APEX.  

People come from insurance, real estate, and financial services backgrounds.

And when they become brokers they often bring CFP, CPA, real estate, and even health and life insurance certifications and licenses with them.  

Those certifications give them added insights into transactions involving those specialties.

But we also have certifications for the brokerage industry, and so in this article, we’ll shed a little light on those.

CBI: Certified Business Intermediary

This is really an entry-level certification that can help those new to brokering gain some broader experience beyond what they may have experienced “in the trenches” working on deals. You need to:

  • Have spent three of the last ten years as a full-time broker, or
  • Have a college degree, or
  • Have equivalent work experience which can be substituted for two of the three-year requirement, and
  • You need to have taken at least 60 credit hours of courses in various aspects of brokering and transactions, and
  • Be the lead broker on three transactions in the last 12 months, and
  • Have attended at least one conference, and
  • Be a member in good standing of the IBBA (International Business Brokers Association), and
  • Swear to uphold a code of ethics, and
  • Pass an exam with at least a 70% score.

This needs to be recertified every three years, with conference attendance, a number of continuing education hours, and fees.

CM&AP: Certified Mergers & Acquisitions Professional

Some see this as an additional step beyond CBI. It’s aimed at those who are continuing to develop their mid-market transactions, and it comes with at least 40 hours of coursework, usually completed within a one-week conference.

It’s also a certification that many private equity firms pursue to better educate their principals, less for the letters and more for the education. This shows you that this certification is really of value, given that non-business brokers pursue it.

M&AMI: Mergers & Acquisitions Intermediary

This is the next step up from a CBI certification and can be seen as a compliment or a logical follow-on from a CM&AP certification.  Requirements include:

  • A CBI and 20 hours of coursework, or
  • 40 hours of coursework if not holding a CBI, and
  • Proof of three years full-time as a broker, and
  • At least three transactions in the last three years greater than or equal to $1M in value, and
  • Conference attendance

It has similar recertification requirements to the CBI, and in a nod to sensibility, you can synchronize your recertifications for the CBI with your M&AMI, meaning if you complete requirements for the M&AMI  then you’re automatically recertified as a CBI.

All of our brokers bring different approaches and experience and certifications to the table, but we all share a passion for doing deals the right way. Give us a call to see if we can help you!

Starting a Rotary Club from Scratch in Brookside/Waldo

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Waldo Brookside RotaryMany of our brokers are involved in giving back to our community. We will occasionally share some of those stories with you.

“It’s important to take care of where you live, not just your own street…but your neighborhood. You naturally want to improve it in every way.”

With an attitude like that, it’s easy to see why Steve Weaver simply saw starting a Rotary Club in the Waldo/Brookside area as something logical to do.  

For those who don’t know, Rotary Clubs are local chapters of Rotary International, a fraternal organization dedicated to positive community initiatives and worldwide change. (One of their recent worldwide initiatives was polio eradication. Due in large part to Rotary and the Bill and Melinda Gates Foundation, the disease has been isolated to Nigeria, Pakistan, and Afghanistan).

 There are quite a few clubs in the Kansas City area, but they were pretty “established” and in the mold of a breakfast or lunch meeting. By picking 5:30 pm on Wednesdays at Waldo Pizza as a meeting time, Steve and the other 52 charter members of the club were signaling that they were definitely onto something different.

After some time on the International Committee and as Sergeant-at-Arms, Steve currently serves as the assistant treasurer for this club. As part of the leadership team that helped to found the club in the first place, he had a chance to participate in a one-year program called Rotary Leadership Institute.  

While the program focuses on all aspects of Rotary and club management, Steve noted that he particularly enjoyed the classes on more effective messaging. Those classes helped people move towards action, as well as workshops on how to lead people with varying viewpoints.

While there’s currently some movement behind a project to build a park/community space in an area that formerly housed a school, the Club’s main community focus is their 7540 Project.  

The 7540 Project

Many people don’t know that, when someone is in foster care, the state takes care of a fair number of their needs. But at 18, they age out of the system and there’s no corresponding program to help in the transition.  

Unfortunately, this all too often leads to these young and vulnerable people becoming homeless, dropping out of school, and/or engaging in crime.

It’s always easy to complain about the lack of responsiveness of government. But rather than complain this club set up 14 apartments to provide housing and ongoing support to these members of the community.  

The members engage in mentoring, job training, and often come by for meals that they bring or help make. Far from just giving a handout, this initiative offers a “hand up”, and it’s already leading to some life-changing results.

To learn more about this Rotary Club and its initiatives, visit their website.

Why Due Diligence Matters

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due diligenceEarlier this year, Todd Edwin Rood was sentenced in federal court for lying about the assets and liabilities of a company he’d sold just the previous year, Rood Machine & Engineering, in Kearney, Missouri.  

In addition to a jail sentence of four years without the possibility of parole, he’s been ordered to pay $1.3M in restitution to the defrauded parties.

On top of that, he has to pay $1.2M in a judgment to the government, which accounts for the false gain he made in defrauding the bank and the buyer.

Manipulating the Books

The tricks Rood used were not particularly complicated but were nefarious. He had his bookkeeper reclassify two loans ($120k) and loans from his parents ($120k) as income. 

He also directed his bookkeeper to record as income sales that were totally fictitious ($340k). These simple “adjustments” inflated the income of the company by almost $600k while simultaneously reducing his liabilities.

Using these fake numbers, Rood was then able to present the company for sale for about $2M. The buyers sought a $1.7M SBA loan, and the SBA required them to invest an additional $200k into the business themselves.  

They also sought a quick sale of their home, which cost them around $40k, as Rood claimed to have terminal colon cancer. The total loss to the bank and the buyers was a little over $1.3M, which hopefully, will be paid via the restitution in the court judgment.

Here at Apex, this is just another story for the “You can’t make it up” file.  Although Rood wasn’t a client of ours, it doesn’t mean we haven’t seen situations like this (or even worse) come up.  

But it’s because we’re doing our job. We encourage our clients to bring an impartial third party with an objective eye to review their books.

We can (and do) ask hard questions about assets, liabilities, and growth. These questions often bring issues out into the open where they can be dealt with before we ever bring the business to market.  

We know that if it seems too good to be true, it often is. Benefit from our experience honed over thousands of business sales. Let us pair you with professionals who can assist with due diligence so that you don’t become a sad part of a story like this one. 

Lessons from the latest PR Disaster at Facebook

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FacebookIn all likelihood, you’ve already heard about the far-reaching Cambridge Analytica/Facebook scandal. In case you haven’t, here’s a brief summary:

Cambridge Analytica, a British political consulting firm, used a personality quiz application on Facebook, presented as “for academic purposes,” in order to gain access to over 50 million user profiles since 2015. It did this in a perfectly legal manner, as Facebook’s user agreement freely gave access to the profiles of the friends of everyone who took the “personality quiz.”

While this news may seem to be “Facebook’s problem” it really underlines some themes all of us need to be clear on at our own businesses, with our employees and clients.

Privacy and Security

While Facebook took some consolation in pointing out that this was “not a hack”, many users were displeased. Elon Musk deleted his and his company’s Facebook accounts and started the #deletefacebook trend on Twitter.  Facebook has never truly taken user privacy seriously, and worse, they didn’t make it easy for users to protect that privacy.

Unlike the old days of paper shredders, data is more sturdy. Once it gets out into cyberspace, it’s very hard to retrieve and “shred.”  Therefore, it’s important to make sure that, whether in paper or digital format, data of your employees and clients is carefully safeguarded, and if necessary, periodically destroyed.  

Do you have these policies in place at your company? If not, there’s no time like the present.

Ethics

Cambridge Analytica, in the wake of this scandal, has been able to claim, rightfully, that nothing they did was illegal. Users had waived privacy rights (or simply, as 99.9% of us do, clicked past the terms of service without reading) not just by using Facebook, but by taking the survey.  

Facebook makes money precisely by selling their deep, rich data to companies like Cambridge Analytica. So, it becomes clear that “Is it legal?” is an insufficient question in our fast-moving world of data portability. The question has to be “Is it moral?”

While some might rightfully note that the question of morality should have always been in our minds, the fast-moving world of the Internet has gone a long way toward blurring the legal/moral line. It’s times like this we can slow down, take stock and recalibrate.  

Questions of “Is it legal vs Is it moral” only make sense in a company that has stated values. If you and your employees believe that clients are to be protected, not exploited, then you’ll pay more attention to gray areas like this.

Even better, your clients will always appreciate and respect “opt-in” possibilities for whatever you might choose to do, whether it’s a survey, a study, or a simple analysis of what they’ve done over time.  

Increasing pressure on government may see more regulation before too long. But rather than wait for that regulation to hit your company, start a discussion and have policies in place that can be adapted, rather than be created, when the changes from above may come

Apologies Necessary

While some observers have pointed out that this debacle is a setback to Mark Zuckerberg’s not-subtle presidential aspirations, he did manage to utter the phrase “We made mistakes” which tone-deaf “leaders” like those at Equifax and United failed to do when their companies publicly stumbled.  

Nobody likes mistakes, but almost all of us hate denial of mistakes or a failure to apologize. Walk through “disaster” scenarios at your own office and have templates of press releases or responses ready to go.

That way, if something terrible happens, you’re ready for it and don’t have to do the critical thinking under pressure.

Considerations When Forming a Business with Multiple Partners

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PartnersIn a previous article we discussed things to ponder when considering a business partnership. In this article, we’re going to deepen and broaden the conversation by considering the question from the aspect of bringing on multiple partners.  

Partnerships continue to rise, according to IRS data, as do the profits from those partnerships, so this topic deserves our consideration, even if our gut initially tells us “No.”

Why

You need to start with why and ask yourself if you really need business partners. Would those partners provide an accelerant for what you’re doing? Are they necessary for you to do the business at all?  

Further things to think about include:

  • Do you share the same vision for the business?
    Lifestyle business or a growth business?  Does everyone have the same answer to that?  If not, there’s going to be a problem.
  • Do you have the same enthusiasm and energy for the business?
    To invest time, money, and mental energy, this can’t simply be a “would be good to do” but something more like a “have to do.”  Make sure you’re selecting people who share the passion for what you’re building, not just because they have the right resume.
  • Do you have complementary skills?
    If you’re going to explore bringing on multiple partners, make sure that your skill sets complement one another. Naturally, there will be some overlap, but there’s no point in having five Operations people and no Salespeople, or vice versa. The right people on the bus aren’t just defined by personality, but by what they bring to the table. When there’s overlap, it might make sense to pick the best one of multiple choices.
  • Do you get along? Do you have any track record of working together on anything in the past?
    This is key. Without this personal experience, you’re simply taking a guess.

What

We’ve all witnessed partnerships fall apart, sometimes spectacularly and publicly. These situations can often be traced to things that were never said or addressed.

When you first begin ideating about starting a company together, make sure everything is on the table. Spell out rights and responsibilities. Give special attention to what happens when someone leaves and how that happens.

By highlighting from the beginning that an agreement isn’t about when things go right, but how to smartly handle the business when things go wrong, people are free to objectively share all of their concerns.

Be clear on how decisions are made and who makes them, as well as how profits are to be paid out. Do your best to create an environment for open, honest discussion, leaving as little as possible unsaid or unplanned.

Speaking of partners, we’re always looking for the right people to join our team here at Apex. If you know someone who might be a good fit for us, send them this article or connect them with us via email!

Delegation Isn’t Sufficient: You Have to Trust, As Well

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delegateDelegation.

It’s one of the surest and most necessary components of the growth of any business, yet it’s sometimes looked at too simplistically.  

“You get to do this now,” only works if your colleague or employee knows he/she has your trust. Without that trust, what you delegate can be undermined from day one.

Delegating Well

In order to delegate, you must first prepare. Write down tasks and competencies without any particular person in mind so as to help you avoid biases or avoid writing things down.  

If you think “he already knows that” what happens when “he” leaves?  (You’ll also find this task of writing down things to delegate will spark other ways you can improve the way your business runs.)

Once you’ve prepared to delegate, have a meeting in which you walk through all aspects of what you’re assigning them, and more importantly, let them know that you will not be there to watch over their shoulder, but rather trust them to make decisions (and make mistakes!)

You made mistakes when you started working on this particular task/issue/skill set, so will they. Give them permission to make mistakes as part of the learning process and they will tell you when something happens rather than try to hide it from you. It’s yet another way to foster extreme ownership.

Keep the lines open

Make sure to check in at regular intervals to make sure your delegate has everything he/she needs. Sometimes they just need an opportunity to chat about something that they considered innocuous but that you could use to give them great insight.  

Often, when they ask you how you would do something, reverse first: “I can answer that, but first I want to hear your instincts and thoughts.” It signals your confidence in them, but more importantly, it gives you the opportunity to say, “Yes, and…” or “That’s exactly what I would say/do,” which is a great boost to his/her confidence and mindset. Remind them of your trust and confidence (and mean it).  

Use it as a building block

Successful delegation is a two-way street. It should free you up to do more of the work that you do best, and it should give your delegate an opportunity to grow in skill and ability. Both of you then have the chance to offer each other more opportunities for growth. Delegation is a machine for growth, but trust is the oil that makes it run.  

As a business owner, you create more enterprise value by proving to a potential buyer that the business operates successfully as a team rather than depending solely on the owner.

Equity or Profit Sharing? What’s the Right Way to Reward Employees?

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reward employeesIn today’s competitive marketplace, it’s important to consider key differentiators for your company when it comes to attracting (and more importantly, retaining) key members of your team.  

Both equity and profit sharing send the signal that “You’re a direct part of how these profits happened, so we want to share them with you.”  

But which one is right for you?

Key Staff

While we advocate keeping cultural fit in the forefront of your mind when you hire, even those who fit the best with you may not be with you long term. Life changes or spouse relocations can intervene and take some of your most talented people away.  

In most small businesses, it doesn’t make sense to do profit or equity sharing with every single person in the company, but rather with those who it would be devastating to lose.

The difference

Profit sharing can include equity, but it usually just means sharing a proportionate share of “profits” (however you determine that at your company) based on a formula everyone understands ahead of time.  

This can also add extra eyes to your financial statements who are now at least slightly more incentivized to look for ways to save or opportunities to grow.  

If your business is younger and still growing, this is a positive way to demonstrate your core tenets and that’s particularly attractive to millennials who enjoy being valued.

Equity sharing is actual long-term ownership in a company through stock, stock options, membership shares, or other vehicles.  It involves serious legal and accounting advice and often a vesting schedule that ensures employees don’t leave with those shares prematurely.  

If your business is mature and stable, this might be a way to lock up some of your best people for some time to come.

A Caveat

Rookie business owners often make the mistake of thinking that their best and most engaged employees are necessarily interested in some kind of equity or profit-sharing model. “Then, like me, they’ll be even more motivated to build something.”  

The reality that most business owners know is that employees are meant to be precisely that: employees. More than ever there are opportunities for your employees to create “side hustles” on their own and launch small businesses.

So rather than assume such equity or profit sharing schemes would motivate or excite your employees, start with why and ask them (at an annual meeting, for example) what they think you could do to give them more opportunity to engage, earn, and stay with you long-term.

It’s just one more way to indicate that you’re an engaged owner who actually takes the time to ask questions, and even more shockingly, listens to the answers.

Check with your CPA and Financial Advisors on the tax and savings benefits of Profit/Equity Sharing. If you need assistance with connections, contact your Apex Advisor.

2017/2018: Good Times to Buy and Sell a Business

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buy sell2017 was an eventful year in many respects. Politics, cryptocurrency, and social issues were constantly in turmoil and at the forefront of discussion.

However, those of us who own, operate, buy, and sell business have seen a lot of good growth and have a fairly bright outlook for next year. Why? Here are a few reasons…

The Stock Market

While it’s probably a bit of a stretch to attribute entire rises in the stock market to one person in the White House, it’s clear that currently business confidence in the U.S. is at a recent high.

Stocks are continuing to grow and advance and that also leads to an openness in people willing to buy businesses to diversify their portfolios.

Tax and Regulation Reform

Early on in his presidency, President Trump signed an executive order squarely aimed at going after red tape: for each new regulation, two regulations would be removed. Further, at the time of this article, the government is looking to pass a large tax reform bill.

Whatever you might feel about that executive order or the particular bill, it’s clear there seems to be an appetite to finally deal with this long dormant dragon and make life easier for business owners.

This also leads to confidence from sellers – who expect to see it become easier for them to run and sell a business, and from buyers, who expect fewer regulations and hence ease in continuing to operate businesses they’ve bought.

Low interest rates

Interest rates continue to remain low, making business loans a no-brainer for any who have the confidence, desire, and drive to build something for themselves. Combined with a helpful SBA, this drives confidence in buyers.

More buyers in the market

In 2017 we’ve seen more buyers in the market, for all the reasons given above. Overall optimism about business and growth leads people to take leaps that they may have been waiting to make for some time.  

2018 looks to be a bright continuation of 2017. If you’re looking to cash in on your hard work, or to invest some of your hard-earned cash in a future you own, contact us today!

Annual Meetings: Not Just for Shareholders

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Annual MeetingMost of you may be familiar with the “annual meetings” required by law for corporations. For small businesses these meetings are often virtual and imaginary, a function that’s simply required for corporate compliance.  

For others, it’s a real and genuine chance to meet their shareholders in order to look over financials for the last year and cast a vision for the following year.

But some of the best companies also ensure that there’s an annual meeting with employees as well, in which their input is solicited and their efforts are specifically recognized.

The Meeting Itself

You could take a half day or a whole day, but make sure it’s not entirely devoted to business. Make sure you’ve got some good food set aside – whether you choose to do it onsite or offsite. Also, make sure that you’ve given them at least some sense of the agenda so they can prepare ahead of time.

Things to cover

  • Financials
    Now you don’t have to give your employees a full set of financials. What you can do is put together a custom report with some key numbers which may lead to some questions that can promote conversation. You can ask where you think growth is coming from, where savings could be gained, what the overall reaction is to growth/decline, etc. The major intangible for the employees is the feelings of trust and inclusion you will foster by sharing these numbers. They’re unlikely to have experienced this in previous jobs and you have a chance to make them feel special and valued. 
  • Brand audit
    As businesses grow and develop (and sometimes pivot) the original sense of the brand can drift. This isn’t a bad thing – it’s a natural part of the journey. However, it’s important to use opportunities like this to recalibrate. If you ask your employees what the brand means to them (and these are people ostensibly working in and around the brand on a daily basis) and you don’t like what you’re hearing, it’s a chance to make a course correction. On the other hand, you may hear something you hadn’t even considered, and can double down in that direction.
  • Employment audit
    Think of this as a group version of an annual review. Ask people what it feels like to work there. Would they recommend it to their friends? Why or why not, etc. By making it a group activity, people will feel safer sharing things that they might not in an individual format.
  • One good/bad thing
    Ask them both:

    • What is one thing we do exceptionally well?
    • What is one thing we can really improve?

This will allow you to revel in something positive while also being honest and focused on ongoing improvements.

The secret weapon in all of this is safety. Your staff must know there will be no recriminations for whatever they say. That means you may need to, as a leader, go first.  

You may have to be vulnerable and share some dreams/hopes/fears that you normally hold back. This gives them permission to be honest with you too. It’s obviously a delicate line to tread, but the best leaders and owners aren’t afraid of that.

Here’s to a great new year for you and your team!