SOFTWARE: Taking the pain out of fixed assets page 26
SMALL & MIDSIZED BUSINESS JULY 2006
Don’t Sell Yourself Short
To sell his company, Hugh Glidewell didn’t clean up his books — he made the business better.
The bottom line on
SMB Finance, PO BOX 530, Congers, NY 10920
Address Service Requested:
Feel like farming out
Creative ways to
2 Editor’s Letter
Our July lineup. July 2006
4 Eye on Operations
Painless tax payments v New
business credit cards from Discover
v CFOs own risk management
12 Preening Yourself for an Acquisition
6 Tech Briefs Forget “cleaning up the books” and slashing expenses: If you want to make
Sage’s new Quantum v A network in your company an attractive sale prospect, you need to concentrate on strategy,
a box v QuickBooks and Web stores timing and growth — things a good finance officer should focus on anyway.
v Accounting software’s triumvirate
9 Benefits Focus 18 The Economics of VoIP
Phone service over the Internet holds out the promise of rock-bottom prices.
Show that you care, with a
Find out if the promise holds true for you.
11 Risk & Regulatory 22 Inside or Outside?
Now’s the time to buy business Outsourcing financial functions is a hot topic these days — but is it right
interruption insurance — not after for your company?
24 Anything But Cash
30 Verticals The more innovative you are in rewarding and encouraging employees, the
Inspecting the foundations of the more innovative they’ll be in their work — and the longer they’ll stay at it.
32 Parting Shot
26 Software Review: Fixed Assets
Our reviewer surveys the field of fixed asset software to find the applications
Manship Media CFO Ralph Bender on that can give you the most help with this often-painful process.
Louisiana’s recovery, and the
evolution of the CFO.
JULY 2006 SMBFINANCE 1
Corporate Reporting & Compliance
“We use Checkpoint® for critical financial reporting,
SOX compliance and corporate governance answers
from names we know and trust – like WG&L, RIA and
Best of all, everything on Checkpoint® is linked
together, so now we can easily get from all our key
source materials – SEC, GAAP, FASB, GASB, AICPA,
IASB, even COSO – to the guidance and analysis we
need to get the job done.
Since everything is in one place, we find what we need
right away. Even updates we can’t get anywhere else,
like PCAOB Interim Standards and daily news e-mails.
All the financial tools we need for our company are
right here, on Checkpoint®.”
NEW Resources for Corporate
Reporting and Compliance
Only on Checkpoint® from
Over 85% of the Fortune 1000 rely on RIA and PPC.
Checkpoint® for their research needs
Checkpoint® is one of the leading accounting
research platforms available – and relied on
by over 90% of the Top 100 Accounting Firms
The CPA Technology Advisor
[2004, 2005, 2006]
Research • Guidance • Workflow Tools • CPE
ppc.thomson.com 1.800.950.1216 ria.thomson.com/frm/corp
® 2006 RIA. RIA and Checkpoint are trademarks used herein under license.
ness owners have a business credit card. series of challenges in its loan program,
The new card has a feature allowing according to a report from the Government
FASB, AICPA eye business owners to write special checks to Accountability Office.
private co. reporting pay merchants and suppliers who don’t The report said that with respect to
The Financial Accounting Standards Board accept credit cards. The card doesn’t carry using technology to monitor loans made by
and the American Institute of CPAs have an annual fee and includes a cash-back 7(a) lenders between 1997 and 2002, the
issued a proposal aimed at improving the rewards program on office supplies, gaso- SBA had been unsuccessful in developing
financial reporting process for private com- line and other purchases. More information its own system to establish a risk manage-
panies. The groups are asking for feedback is available at www.discoverbiz.com. ment database, as required by law.
on changes to FASB’s standard-setting pro- Meanwhile the GAO’s preliminary find-
cedures, which would allow the board to ings from ongoing evaluations of the SBA’s
consider differences in accounting stan- An owners’ retirement plan response to the 2005 Gulf Coast hurricanes
dards for private companies within general- CCA Small Business Group, a provider of indicated that the SBA’s workforce and new
ly accepted accounting principles. retirement plans for sole proprietors and loan-processing systems were overwhelmed
Under the proposal, FASB would imple- small businesses, has unveiled its new by the volume of loan applications.
ment certain improvements to enhance OurMax plan, a Web-enabled, high-deferral
the transparency of its standard-setting retirement plan for small business owners.
process for private companies and consid- A type of defined-benefit plan that allows Filthy accountants
er input from private company con- business owners to save up to $200,000 Of the more than 600 cubicles in nine dif-
stituents. The seven-page proposal is avail- annually for retirement, CCA’s OurMax can ferent professions examined by
able at a joint Web site maintained by the work in addition to an existing 401(k) plan. researchers from the University of Arizona,
two groups, www.pcfr.org. The comment More information is available online at the bacteria levels found in accountants’
period, which is open to anyone, ends www.ccasbg.com. offices finished second only to the levels
August 15. found in schoolteachers’ classrooms. Dr.
Charles Gerba, a microbiologist at the
SBA loans face challenges University of Arizona, said that the phones,
Painless tax payments While the Small Business Administration desks and keyboards regularly used by
Well, as painless as possible: Under new has improved oversight policies and con- teachers, accountants and bankers har-
temporary and proposed Internal Revenue trols for its flagship 7(a) loan program since bored nearly two to 20 times more bacte-
Service rule changes, nearly 950,000 small the 1990s, the organization still faces a ria per square inch than other professions’.
businesses are eligible to file and pay taxes
once a year using the new Form 944, rath-
er than quarterly using Form 941. Eligible Because your plate Who owns the risk?
businesses are those with an estimated wasn’t full enough
employment tax liability of $1,000 or less. Corporate success has a thousand fathers, but
corporate risk has to make do, at best, with one — CEO 20% Other
and it’s often a company’s chief finance executive. Executive
CFO 44% 9%
Discover targets small biz According to a recent survey of 230 financial
Discover Financial Services, a business unit executives by internal controls software vendor
of Morgan Stanley, is the latest company to Oversight Systems, if a company held a single Auditor
try to secure a piece of the business credit executive explicitly responsible for overseeing 5%
card action. It is targeting businesses with the management of all risk across the enter- Chief Risk Officer/
No Single VP of Risk 8%
up to $1 million in annual revenues, esti- prise, CFOs were more than twice as likely to Executive 14%
mating that only 35 percent of small-busi- be tapped for the task than CEOs. SOURCE: OVERSIGHT SYSTEMS
4 SMBFINANCE JULY 2006
Driving the Success of Small and Midsized Business
Our readers buy your products and services
and we've got the results to prove it!
Within the next 2 years, SMB Finance readers
intend to purchase the following products
45% Copiers/Scanners/General Office Equipment
33% Accounting/Finance Software
31% Accounting/Auditing Services
31% General Hardware/Software
31% Employee Benefits
22% Bank Relations
20% 401k/Pensions/Defined Contribution Services
20% Phone Systems
86%of our readers either
60%of our readers say
executives who look make or influence their company plans to
to SMB Finance for final purchasing INCREASE technology
information about decisions*. spending*.
new products, services
*March 2006, Publisher survey results
For more information, contact:
Jack Lynch, Advertising Director Collene Ellenberger Patrick O’Leary
(212) 803-8803 (212) 803-8802 (212) 803-8848
firstname.lastname@example.org email@example.com firstname.lastname@example.org
up fee of $59.95; prices for Web store plans small and midsized accounting and enter-
range from $7 a month up to $250, prise resource planning software markets.
Sage rolls out depending on the provider. However, the Boston-based firm did
Peachtree Quantum note that integrated business application
In conjunction with the launch of the suites from NetSuite and SAP also gained
Peachtree by Sage Accounting 2007 line, TaxWare certified for SSTP increased presence and penetration.
Sage Software has announced the new Taxware, a provider of global transaction The report says that the market oppor-
Peachtree by Sage Quantum, which can tax calculation and compliance solutions, tunity for vendors is growing. Many SMBs
support up to 10 named users in delivering announced that its flagship products — still maintain and manage their financial
additional performance, data security and Taxware Enterprise and TaxSolver — have data on Excel spreadsheets, which pro-
larger transaction volumes. been certified by the states that are mem- vides vendors with opportunities to seize
More than 150 small business owners bers of the Streamlined Sales Tax Govern- greater market share. Additionally, the
participated in usability and design studies ing Board. Taxware is the first company to increasing need to electronically exchange
conducted by Sage’s in-house Customer- gain both Certified Automated System and information with larger customers and
Connected Design Center. Included in this Certified Service Provider status, providing partners adds to the demands to improve
information gathering process were businesses with a choice in how they wish operational efficiency.
Peachtree customers, small businesses to deploy certified sales tax compliance Within the market, the Yankee Group
that utilize paper and pencil to manage technology. Both models protect business- said that Intuit’s QuickBooks and Quick-
accounting, and customers of competing es from liability through the use of state- Books Online still dominate companies
accounting software packages. supplied data and ongoing testing and re- with between two and 99 employees, fol-
More information about Quantum is certification testing by state regulators. lowed by Sage Software. Microsoft leads
available at www.peachtreequantum.com. the 100-to-999 employee midsized comp-
Sage has also rolled out new versions of any market, followed by Oracle and Sage.
its Peachtree software for the construc- Easy networking
tion, manufacturing, distribution and non- Not everything in life or IT has to be hard.
profit industries; information is available at Take Chili Systems’ ChiliBox, a network Warehouse Automation
www.sagesoftware.com. server appliance for small businesses that for MAS 500
makes setting up a network for a small Business software developer Sage
office or even a home simple and painless. Software unveiled a new Warehouse
Minding the e-store The ChiliBox server links from two to 20 Automation module for its Sage MAS 500
Just as QuickBooks makes accounting easi- computers, and acts as your router, e-mail ERP enterprise resource planning software.
er for small businesses, Intuit’s new server, firewall, back-up server and more. Intended for distribution companies that
QuickBooks Merchant Service for Web It even allows for secure remote access use wireless networking equipment, the
Stores (www.quickbooksmerchantservice) over the Web, and now comes in a wire- module transfers data gathered from hand-
should make e-commerce easier. Intuit has less version. held barcode scanners and radio frequency
partnered with leading online store For more information, visit www.chilisys- communication devices and enters it auto-
providers to create an end-to-end, tems.com or call (866) 532-4454. matically into the Sage MAS 500 ERP sys-
QuickBooks-compatible solution that lets tem. Handheld devices supported by the
businesses create a Web store, sell online, Warehouse Automation module include the
accept credit card payments and link all Accounting software Intermec CN2 Series, the Intermec 700
the business data directly with their ruled by triumvirate Series, and the Intermec CK60 Series, plus
QuickBooks accounting software. Market research firm the Yankee Group any handheld device utilizing Microsoft
There’s a monthly fee of $17.95 for the announced that Intuit, Sage and Microsoft CE.Net or Windows Mobile 2003/2005
QB Merchant Service, plus a one-time set- have reconfirmed their dominance in the operating systems.
6 SMBFINANCE JULY 2006
You’re Never Too
Small to Care
Care management’s not just for the big guys anymore.
By Carolyn Hirschman
It didn’t take a fancy claims analysis or premiums have forced many of them to
much shopping around for John Keach to raise employees’ costs or to eliminate
add a wellness program to the employee coverage. This cost pressure has prompt-
benefits offered by his small bank. He ed some small employers to look for
Many on when the bank’s health insur-
signed small and midsized compa- long-term savings with care-manage-
watch larger employers plow the field.
anceare taking a measuredprogram. to
nies company offered the approach ment programs. have decid1(k)s.
the“We just thought it made sense,” says
buzz over consumer-drive approach Such programs aren’t as common at
That’s what MMany small and mid-
to the buzz over consumer-driven health
the chairman and chief executive of 280- small companies areat large a measured
sized companies as taking ones, but
person Home Federal watchin Colum-
benefits, preferring to Bank larger their use is growing. Among employers
approach to the buzz over consumer-
bus, Ind. “We thought it would behowev-
employers plow the field. Others, a good with 10health benefits, preferring to
driven to 499 employees, 41 percent
er, have decid1(k)s.
way to control [health] costs, and it was offered at least one disease management
watch larger employers plow the field.
That’s what MMany small and mid-
a way to provide an additional benefit.” program last year, compared with 31 per-
Others, however, have decid1(k)s.
sized companies are takingjust for big
Care management isn’t a measured cent in 2004, reports Mercer Health
That’s what MMany small and mid-
approach to the buzz over consumer-
companies. An increasing number of Benefits. Nurse advice lines a measured
sized companies are taking were offered
driven health benefits, preferring to
small employers are adding wellness, dis- by 41 percent in buzz over consumer-
approach to the 2005, up from 35 per-
watch larger employers plow the field.
ease management and similar services, cent in healthThe proportion using
driven 2004. benefits, preferring to
even as however, have decid1(k)s.
Others, some drop basic health coverage. health-risk assessmentsplow from 13
watch larger employers rose the field.
That’s what MMany small and mid- percent however, have decid1(k)s.
Others, to 18 percent.
MAKING THE CASE
sized companies are taking a measured Wellness programs strive to prevent
That’s what MMany small and mid-
When it comes to health benefits, small
approach to the buzz over consumer- at-risk workers from developing diabetes
sized companies are taking a measured
employers have it rough. Their fast-rising
driven health benefits, preferring to and other to the buzz over consumer-
approach chronic diseases. Disease
JULY 2006 SMBFINANCE 9
management helps ill people better
manage their conditions so they don’t get
Not just for the big guys
worse. Weight-loss programs and man-
Percentage of employers offering wellness programs
agement of complex and catastrophic
cases are also part of the mix. ALL SIZES 62%
Many employers offer these programs
to save money, but saving money isn’t
the only reason to offer care manage- SMALL (1-99 EMPLOYEES) 48%
ment, especially since programs often
don’t yield a return on investment for
two years or more. Firms also want to MEDIUM (100-499 EMPLOYEES) 61%
boost employee health and productivity
and to create a caring culture.
“We thought it was important to let LARGE (500 OR MORE EMPLOYEES) 76%
our employee population know their
health care was important to us,” says 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Valerie Witt, a benefits specialist at SOURCE: SOCIETY FOR HUMAN RESOURCE MANAGEMENT
Johnson Memorial Hospital in Franklin,
Ind. The 850-employee hospital added a aggregate data for the employer to guide SHOPPING AROUND
wellness program last year to keep its future wellness efforts; and a health- Care-management programs historical-
benefits competitive with those of other coaching program to motivate and guide ly haven’t been available to small firms,
area hospitals, she adds. “We did a lot of lifestyle changes in workers at high risk but that’s starting to change, consult-
communication at the beginning,” Witt for chronic conditions. ants say. Providers pool the business of
says, because some employees were con- “We really don’t recommend just one small groups, making programs more
cerned about confidentiality. of these,” says Chas LaPierre, director of affordable for small businesses and
Principal Wellness Co. in Indianapolis. more profitable for vendors. Still,
WHERE TO START “Without all those things, you’re really options may be limited.
To pick a cost-effective program that’s just adding to the cost of health care.” Employers that buy health insurance
best for your workforce, first determine For disease management, employers from Principal Life Insurance Co. get its
your needs based on employee demo- can analyze medical and drug claims to wellness services for free if they reach 75
graphics and medical-cost drivers, figure out which programs to offer, but percent participation in the wellness
experts say. Most small groups should the effort is justified only for groups of program, LaPierre says. Otherwise they
focus on wellness for all workers, rather 500 and up, which are large enough to pay a variable rate.
than disease management for a relative generate reliable numbers, says Joseph Self-insured companies generally buy
few, says Jack Bastable, who heads the Marlowe, Aon Consulting’s vice president care-management services on a per-
health and productivity management of health and welfare. member basis through a third-party
practice at CBiz Inc., a Cleveland-based Most large national carriers offer dis- administrator, with disease management
business-services administrator. ease-management services as part of costs varying by program. Johnson
“The greatest savings long-term come their health plans, but “it may not be a Memorial Hospital pays Principal about
from the opportunity to keep people comprehensive program. It may be limit- $12 per member per month for its well-
who are healthy from getting sick,” ed to case management,” he adds. ness program, Witt says.
Bastable explains. Consultants and brokers can help To judge a program’s success, com-
At a minimum, companies can dis- small companies assess program quality pare participants’ average number and
tribute or guide employees to free health before diving in, Marlowe says. Aon, for cost of medical claims before and after
information and host seminars with local example, has negotiated a small-busi- the program began, Bastable says.
health professionals. A full-fledged well- ness price for disease management with Vendors also regularly report participa-
ness program typically includes on-site Matria, the vendor it has used and vetted tion rates, aggregate clinical data and
clinical screenings for blood pressure, for large employers. other information for employers.
cholesterol, body mass index and other Whatever the program, incentives — “We also want to see behavior change
basic indicators of health-risk assess- usually, lower health premiums — help trend the right way. We can track that,”
ments, in which people self-report smok- drive participation. Home Federal Bank LaPierre says. Did more people partici-
ing, exercise and other habits; one-on- reduces workers’ premiums by $40 per pate in high-risk interventions, for exam-
one consultations to explain results to month and gets 95 percent participation ple? He advises waiting at least two years
individuals and suggest changes, such as in its program, plus a 3 percent lower to judge wellness results. “It’s not a quick
weight loss or more exercise; a report of health insurance premium, Keach says. fix,” he says. SMB
10 SMBFINANCE JULY 2006
added to a property insurance policy or
included in a business insurance policy
as a rider or an endorsement.
For smaller businesses it can be sold
by itself, but it’s usually rolled in with a
general business insurance or property
insurance policy, explained Robert P .
Hartwig, senior vice president and chief
economist at the New York-based
Insurance Information Institute.
“You need to make sure that it’s part
of the business or property policy,” he
emphasized. “About 85 percent had it
after 9/11, but many did not have
enough. Their assumption was that they
didn’t need more than two or three
weeks’ worth of insurance, but they did
not envision a terrorist attack that kept
parts of the city cordoned off for weeks.”
In practice, policies contain elements
that make it difficult to determine
whether a specific loss is covered. “A
business interruption policy usually
requires physical damage as a trigger, but
in today’s world e-damage is often a trig-
Business interruptus ger. There’s no coverage for it unless you
have it endorsed,” said Chesler. He also
noted the fine line between a partial
Don’t wait for the big one to hit before buying business shutdown and a slowdown or productiv-
interruption insurance. By Roger Russell ity loss. The partial shutdown is typically
covered, while a productivity loss is not.
Most businesses are ignorant of the activities due to a casualty, according to
need for business interruption insurance Michael Levy, chair of MostChoice.com, PICKING YOUR POLICY
until it’s too late, according to experts. an Atlanta-based lead-generation service. It’s critical that businesses assess their
“Many companies don’t pay attention “Water is one of the most common needs in the event of a business-sus-
to business interruption insurance at causes of physical damage to businesses pending incident, said the III’s Hartwig.
all,” said Robert D. Chesler, an attorney today,” he said. “A severe but rarely con- “Many businesses buy enough to repair
and chair of the insurance law practice sidered cause is sprinkler discharge. or rebuild their buildings and restore
group at the Roseland, N.J.-based firm of Sprinklers can go off easily. ... Gutters can inventory, but do not have enough cover-
Lowenstein Sandler PC. “The basic cov- clog and cause an overflow. Computers age to tide them over the loss of income
erage you get is very thin.” and other electronic devices such as and higher expenses,” he said.
“Business interruption insurance is phone systems can suffer serious, irre- Among the factors to consider in
critical to us because of our multiple versible damage.” selecting coverage is the financial
sites,” explained Tiffany Hott, chief exec- strength of the insurer, the size of the
utive of TestQuest, a tutoring and testing SCATTERED COVERAGE deductible and the amount of the premi-
service with locations in New York, New Chesler, who advises companies on their um payments.
Jersey and Florida. “Insurance costs have insurance programs, noted that not And now may be the time to buy.
skyrocketed, but you can never foresee every contingency is covered in such “Nationally, business interruption insur-
every unexpected possibility. You can policies. “The best advice is to go over a ance pricing is soft,” said Trey Hutt,
never be over-insured, but you have to policy very carefully, and make sure it owner of the Hutt Insurance Agency in
balance the cost against the risk.” matches potential injuries to the busi- Panama City, Fla. “It’s fairly soft now
Business interruption insurance cov- ness. After 9/11, a lot of companies were nationwide, but it’s very different along
ers the profits that would have been surprised they didn’t have it.” the coast, and that’s growing. The hurri-
earned and operating expenses that con- Business interruption coverage is typ- cane issue is working its way up along
tinue despite the absence of business ically not sold as a separate policy, but is the East Coast.” SMB
JULY 2006 SMBFINANCE 11
Caveat vendor: When it comes to
selling a business, you have to do more
to get your ducks in a row than just
smooth out your ruffled financials —
but knowing how to make your
company an attractive prospect can be
a real feather in your cap.
By Rich Stolz
Preening yourself for an acquisition
Photography by James Warwick/Getty Images
JULY 2006 SMBFINANCE 13
icture the scene: Your chief exec- might like a little change of pace. “I had been struggling might-
utive invites you into his office, ily at this business, and for whatever reasons, the business had
shuts the door firmly behind you become more successful than I had ever really dreamed.”
and asks you to take a seat. Although Glidewell didn’t relish the financial management
You know something’s up. end of the business, his systems were in good shape — due in
Then he lowers his voice and part to the fact that securing commercial landscaping con-
says, “I’m thinking about selling tracts often requires posting performance bonds. “The bond-
the business. Can you help me ing companies were very strict about getting the kind of
through this process?” detailed financial information” that a prospective purchaser
You swallow hard, think quickly about your future, then — (or broker) would demand, Glidewell says.
possibly with manufactured self-confidence — reply, “Sure.” But when Glidewell began discussing the possible sale with
Your ability to be useful will not only greatly influence the Harkins, he quickly learned what a strategic-minded and ana-
success of the transaction, but perhaps determine whether lytical financial executive could do to help him fetch top dollar
you land on your feet after the deal closes. for Pro Landscapes. “I was very tied up in the day-to-day oper-
Indeed, the sale of a business may represent the ultimate ations of the business; the larger, macro things you tend to get
opportunity for a financial executive to demonstrate his value to rather slowly” — if at all, he says.
to the organization and its shareholders — not to mention
future employers, including the new owners of the business. GO FOR THE TWO IN THE BUSH
Conversations with business brokers and owners make one And yet those “macro things” tend to be the ones of greatest
thing very clear about what’s required for a smooth business value to buyers. “People buy businesses because they feel they
sale: It’s not really about having “clean” financials. can expand them pretty significantly. Otherwise, why not just
“My belief is, you can’t ‘clean up’ the books,’” says Jeff Snell, buy a risk-free government bond?” Harkins asked.
president of Enlign Business Brokers, in Raleigh, N.C. “The When he sought out the financial expertise of Harkins,
whole notion is hokey to me. “If I’m looking at three years of Glidewell believed that he had “already done about as much as
accounting data and the owner is saying, ‘We have this note I could to position the company” for a sale. And he had good
here,’ or ‘We have this customer who pays cash,’ or ‘I use mul- reason to think so: Pro Landscapes had racked up a very
tiple accounting systems that never get integrated into a final impressive financial track record. After its first year of opera-
report,’ he’s really doing that because he’s washing something tion, the company grossed about $1 million. After a dozen
out of the system.” years, its gross exceeded $12 million (with an average annual
Odds are, a jury-rigged accounting system really can’t — or growth of about 23 percent). In addition, Glidewell’s operating
won’t — be cleaned up. When Snell sees the telltale signs, “I’m margins remained consistent, so profit growth was as impres-
not likely to work with them.” sive as the top-line picture.
Adds Patrick Harkins, who spent over 20 years as a chief But Harkins wasn’t content to let Pro Landscapes rest on
financial officer before launching Anchor Business Advisors those numbers: “As a CFO, you really have to help the CEO
Inc., in Atlanta, clean books “are a given.” “You’d better hope think strategically.”
you’re generating good financial information; otherwise you’ve When he served as CFO of a middle-market manufacturing
got a whole set of other problems.” company in Chicago, Harkins helped to facilitate a leveraged
buyout of the company by the management team. Before
THE EARLY BIRD TAKES HIS TIME approving the loan needed to swing the deal, the lender
The biggest requirement for a successful sale isn’t even finan- required managers to work with a business strategy consult-
cial. It’s time. ant. In that process, Harkins and others analyzed the company
“I like to start working with a company two or three years from top to bottom, clarifying which pieces of the business
before the sale,” Harkins explains. And it is during that period were truly profitable and had growth potential.
that financial executives (and perhaps others on the senior The ultimate result was a consolidation of divisions and the
management team) can take the steps and perform the analy- curtailment of some operations. The loan was approved, the
ses that will help the sale succeed. deal was consummated, “and we paid off the debt pretty
One of Harkins’ clients is Hugh Glidewell, who came to him quickly,” Harkins recalled.
two years ago with the notion of selling Pro Landscapes, a $12 Flash forward to 2004.
million, 60-employee Atlanta-based regional commercial land- Harkins guided Glidewell to think about — and identify —
scaping business that he had been building from the ground new growth opportunities for Pro Landscapes. One idea was
up since 1993. “I had vaguely thought about selling the busi- landscaping new housing developments on military bases.
ness for a year or two before I met Pat,” he recalls. Glidewell realized that he had several residential construction
After some 30 years of working in the landscaping business, clients that were beginning to do a booming business on mili-
and a dozen years in Atlanta, Glidewell concluded that he tary bases. “It was enough that we could realistically project
14 SMBFINANCE JULY 2006
CALLING ALL SMALL
BENEFITS AND HR
September 17-19, 2006
REGISTER BEFORE AUGUST
The Hyatt Regency Chicago Hotel | Chicago, IL
4TH AND SAVE!
TACKLE YOUR KEYNOTE PRESENTERS
TOP CONCERNS Michael La Bianca
VP, Human Resources
AND BOOST YOUR
2005 Fortune 500 list – #95
2006 Fortune magazine’s “100 Best Companies
to Work For” list – #5 (Companies with over 10,000 employees)
From Parent to Partner: The Changing Role of the
Company and the Government in the Employee
HOT TOPICS Beneﬁts Equation
How to make your employees become a partner in
N New Ways to Save on Pharmaceutical driving down beneﬁt costs. A lawyer and accountant
by training, Mike La Bianca will discuss the changing
N Mini-Medical: roles of employees, employers and government in
The New Low-Cost Group Health Plan this process.
N Little Things That Mean a Lot
to Your Employees
N Communication for a Multicultural Syndicated Columnist and Political Analyst
Workforce PBS’s The NewsHour With Jim Lehrer
N Mini-Medical: “Wittiest Political Journalist in America”
The New Low-Cost Group Health Plan
The Wall Street Journal
N The Latest Strategies in FSA, HRA, Mark Shields will share first-hand accounts and
and HSA Plans impressions of the current state of Washington politics
N What your CFO Wants from You and will present them against the backdrop of political
history. Washington is the seat of beneﬁts compliance
N New Formulas for Calculating and regulation. How are changes there affected you
and your company?
N Communicating to Employees
Through Cell Phones
S. Gary Snodgrass
N Clearing the Legal Hurdles EVP and Chief Human Resources Ofﬁcer
to Disease Management
Exelon — Nation’s largest utility company
N Using Incentives to Boost Health
Plan Outcomes Fortune 500 list – #145
Critical Challenges Facing HR Today
How do great organizations best leverage their
human capital to win? How to foster positive
employee relationships while moving from a state
of entitlement to a state of earning?
www.sourcemediaconferences.com/conferences/BMFE06/ | 800-803-3424 | 212-803-6093
that the company would double in size over the next two or enterprise. In Glidewell’s case, projecting rapid growth from
three years with that new operation,” Glidewell says. landscaping military bases no doubt got the attention and
Of course, a buyer needs some evidence that such a dream whetted the appetite of the entrepreneur who bought Pro
is more than, well, a dream. But because Glidewell wasn’t hell- Landscaping last year.
bent on an immediate sale of Pro Landscapes, he had the time “It’s a good selling tool,” he says. “But the price was
to land a few military base contracts to demonstrate that this totally driven by EBITDA [earnings before interest, taxes,
was indeed a serious growth opportunity. depreciation and amortization]. Without the EBITDA, you’re
“If you want to get full value for cash flow from a new com- not going to get a buyer.”
ponent of revenue, you need to do it for at least a year. One OK, but what is true EBITDA? On this matter, financial
month is not ‘real,’” says Enlign’s Snell. executives can rely on basic number-crunching skills to help
prospective buyers get an accurate (and, one hopes, attractive)
DON’T FOUL YOUR OWN NEST picture of profitability.
Just as buyers are looking for real growth opportunities, they Jandali helps that process along by recasting financials. “We
also, of course, want to see real profitability. Thus the tempta- calculate what we call ‘seller-discretionary cash flow,’ basically
tion arises when a sale is looming to hastily slash expenses. the free cash flow that a company has.” In addition to adding
Doing so may seem like a quick-and-dirty recipe for higher such expense items as interest, depreciation and other items
operating income, but if pursued too crudely, it can backfire, used for a standard EBITDA calculation back to the bottom
brokers warn. line figures reported on tax returns, Jandali also cranks back in
For one thing, you could spoil all the “fun” for the “discretionary” business expenses.
new buyer. A company’s tax returns are used as the starting point
Lou Phelps, of Phelps, Cutler Associates, in Savannah, because, as Pat Harkins points out, skeptical buyers under-
Ga., who serves as a strategy and financial consultant to stand that “nobody’s ever reported more income on a tax
media companies, points out that buyers “love to buy prop- return than they have earned.”
erties where they can say, ‘Oh, gosh, we could cut this. We Discretionary expenses may be in the eye of the beholder,
could cut that. We can make it much more profitable than he notes. Sellers will try to add back in as much as possible to
[the current owners].’” raise reported cash flow, and buyers (and bankers) will scruti-
“When you’re already running a
totally Cadillac, pencil-sharpened
operation, and therefore you want
Top myths on selling a business
top dollar, the buyer is going to ask
himself, ‘Where do I take it from here
to recoup the top dollar that you’re Jeff Snell, president of want to buy my business. A too-high listing price with
asking me to pay you?’” Phelps says. Raleigh, N.C.-based Enlign Reality: For non-public an unsubstantiated valua-
Phelps’ comments are echoed by Business Brokers, is on a companies, what a com- tion will either invite an
Malek Jandali, CEO of VR Business mission to shatter what he petitor is buying is rarely offer from an uneducated
Brokers in Atlanta. The issue isn’t so considers to be myths what the seller thinks he is buyer (which will likely ulti-
much cutting costs, he says, as about selling a business. selling. He is generally look- mately fall apart), or con-
knowing how to run a company with While several “myths” point ing for something specific, sume a lot of time and
the optimum level of resources — to the need for a broker, such as additional geo- effort without eliciting a
something that a financial executive their validity is not neces- graphic coverage or a key qualified offer.
should be helping a company sarily undermined by their employee. ✱ Now is (or is not) the
achieve with or without the self-serving nature. ✱ The more people that time to sell my business.
prospect of a sale. Following are highlights know that my business is Reality: “Timing is every-
“Cutting costs doesn’t mean firing from five of Snell’s Top 10 for sale, the better. Reality: thing,” but your business
people or having crappy technology,” list, available in full on his Selling a business is not goals will dictate the right
Jandali said. “It means working more web site, www.enlign.com. like selling a product or time to sell. The average
efficiently. It is achieved with the ✱ I know what my busi- service. You can only time to properly value a
right management, the right goals ness is worth. Reality: Such accommodate one buyer, business, market it, identify
and working as a team. It’s not only “gut feelings” are often and bidding wars more a qualified buyer and per-
about the figures. Most numbers based on incomplete or often result in both poten- form due diligence is longer
come from behavior where people outdated information, and tial buyers walking. than most business owners
have a stake in profitability.” don’t take into account the ✱ Throwing out an unre- think. A business is worth
In the end, the key to a successful myriad differences alistically high price and the most when the owner
sale will be the buyer’s sober assess- between businesses. seeing what happens is probably least likely to be
ment of the basic profitability of the ✱ A competitor will sometimes works. Reality: considering selling.
16 SMBFINANCE JULY 2006
the company’s post-sale management
team will have “the depth, breadth and
Glidewell was able ability” required to keep the company
to prove to buyers successful after the owner checks out or
fulfills a post-sale employment contract.
that a new line of The seller should be prepared to pro-
business could duce an organizational chart, plus pro-
files of key managers, noting their
double the size tenure with the company and compen-
of his company sation history.
— because In some situations, it will be hard to
put a good face on the management
he had already bench-strength and finances of the
landed a few company. Not everybody can point to
contracts to the kind of stellar financials that Pro
Landscapes was able to put out.
demonstrate What then?
its potential. Jeff L. Peskind, managing director of
the New York-based JLP Credit
Opportunity Fund, specializes in evalu-
ating companies whose financial per-
formance is lackluster — or worse.
Peskind’s advice? “Investors know
nobody’s perfect. They know people
make mistakes. The best thing to do is
lay out your plan [for improving finan-
cial performance] as clearly as possible,
to get people comfortable that, first, you
have a plan, and second, that you are
aware that you have problems.”
LET A LITTLE BIRD TELL THEM ...
With any luck, however, the CEO won’t
chose a period of acute financial distress
to ask you to lead the cheerleading
squad for the sale of the company. Not
surprisingly, that role, according to busi-
ness brokers, should be left to them, in
bad times or good.
nize all add-backs, and possibly disregard them. “You just have In addition to all the expected (and often legitimate) why-
to ask yourself if the expense was really necessary for the busi- you-need-a-broker arguments — access to buyers, market
ness to generate revenue.” knowledge, negotiating skills, etc.— is the suggestion that a
For example, the cost of sending an executive to a confer- broker can help you by running you down. Well, sort of.
ence at a luxury hotel in Hawaii, or a limo service for the CEO, “Owners often will brag about how phenomenal their
are good add-back candidates, he suggests. company is,” notes Phelps of Phelps Cutler. The ironic result
is that they’ll get a lower price, she maintains. “The broker,
PAY AND THE PECKING ORDER away from the seller’s management team, can say, ‘Yes, sales
A bigger item, in the case of a company run by its principal have been good, but truthfully you could put in an even
owner, is chief executive compensation. If he’s paying himself stronger team over time and really bump this thing up more.
a $500,000 salary but a competent general manager could be And let me show you how.’”
recruited by the new owners for half that amount, there’s a Which suggests that when you are asked, in that solemn
legitimate $250,000 add-back. private meeting with the CEO, to help with the process of
Which brings up another key issue in facilitating the sale: preparing the company for a sale, you place “golden parachute
management structure. contract for the CFO” at the top of the list of ingredients
Harkins points out that buyers will want assurances that required for a successful sale. SMB
JULY 2006 SMBFINANCE 17
The Economics of VoIP
GETTING CHEAP TELEPHONE SERVICE OVER THE INTERNET SOUNDS
GREAT — EXCEPT WHEN IT DOESN’T. BY LISA SPINELLI
erry Rogers, CFO of Smith Newspapers using VoIP and predicted that 50 percent of all SMBs will sub-
in Fort Payne, Ala., heard Voice over scribe to a digital voice service by 2008. Research groups like
Internet Protocol telephone services can the Boston-based Yankee Group, on the other hand, say that
save companies thousands of dollars. only 5 percent of SMBs today use Internet phone services, and
But after researching a switch from his the numbers are not likely to shoot up any time soon.
company’s traditional phone service to
VoIP he just could not find the savings.
, INFORMATION, PLEASE
“I’ve done some looking at it, and we’re Just as e-mail can be cheaper than a phone call, VoIP services
getting such a cheap long-distance rate that it didn’t pay to give can bring significant cost savings. Offices that have multiple
it up,” said Rogers, whose company pays $45 a month for their branches or a number of remote workers who constantly call
telephone service. “There’s really no need to upgrade the hard- across different area codes may find thousands of dollars in
ware and spend money on headsets to switch to VoIP .” savings when using VoIP .
Many small and midsized businesses feel the same way But these benefits won’t necessarily materialize for all busi-
ILLUSTRATION RYAN ETTER
about the cost-efficiency of switching to VoIP according to a
, nesses. SMBs that do not make many long-distance calls
survey of 560 SMBs conducted by Boston-based technology between offices, or to clients, and yet try to use IP networks for
concern Savatar. The study found that 85 percent of those all their calls, can find themselves with telephone calls of poor
polled did not see a value in switching over to a VoIP network. quality, slower Internet connectivity and minimal savings.
Statistics vary significantly on the penetration of VoIP in the “I don’t understand [major VoIP provider] Vonage’s business
SMB space. In one study performed last year, Phoenix-based model, to tell you the truth,” said Gary Ritacco, president of
InfoTech Research Group claimed that 23 percent of SMBs were Ecomm, a voice, video and data communications provider
18 SMBFINANCE JULY 2006
A selection of VoIP providers’ plans for businesses.
COMPANY/SERVICE FEATURES MONTHLY FEE OTHER COSTS NOTES CONTACT
BroadVoice / Unlimited calls in the U.S. $29.95 $39.95 activation Other fees may apply. www.broadvoice.com
Unlimited or Canada. Users can add fee; $14.95 for ship- Additional lines cost the
Business Plan up to two “remote” offices ping/handling of same as a new line.
in other cities using alter- adapter. Alternate
nate numbers. numbers $1.95 a
CableVision/ Unlimited calls in the U.S., $34.95 for one Available only to Optimum www.optimum-
Optimum Voice for Canada and Puerto Rico. line; $29.95 for Online customers. voice.com
Business four or more. (866) 482-0091
Covad VoIP/PBXi Unlimited nationwide call- Flat rate – Per-minute pricing – Designed for up to 100 http://voip.covad.com
ing up to 101,000 minutes. $36.95 to $26 to $32 per employees. (866) 365-2923
Interoffice calls are free. $59.95 per station and 3 to 5
phone (depend- cents per minute,
ing on number depending on call
of stations) volume.
Net2Phone/VoiceLine Unlimited calls in the U.S. $29.99 U.S. or U.K. inbound www.net2phone.com
U.S. Canada and Canada, and unlimited toll-free calls cost
Unlimited inbound minutes. VoiceLine 4.9 cents a minute.
to VoiceLine calls are free.
Packet8/Virtual Unlimited in the U.S. and $39.99 per $99.99 equipment; Requires three exten- www.packet8.net
Office, Unlimited Canada, and free worldwide extension. $39.99 activation sions. Additional lines cost (866) TRY-VOIP
Extension network calls for any sub- fee; $18.99 ship- the same as a new line.
scriber. ping. Various other
fees may apply.
Packet8/Virtual 250 minutes of outbound $19.99 per $99.99 equipment; Requires three exten- www.packet8.net
Office Metered calls to the U.S. and extension. $39.99 activation sions. Additional lines cost (866) TRY-VOIP
Extension Canada. fee; $18.99 ship- the same as a new line.
ping. 3.9 cents per
Other fees may
Verizon/VoiceWing Unlimited local and long- $24.95 $19.95 set-up fee. No specific business plan www22.verizon.com
Unlimited distance calls in U.S., Puerto offered. Requires one- (800) 270-5369
Rico and Canada. Unlimited year commitment.
VoiceWing to VoiceWing
Vonage/Small Unlimited local and long- $49.99 Additional lines $12.99 www.vonage.com
Business Unlimited distance calls in the U.S., each, with 500 outgoing (800) 980-1455
Plan Puerto Rico, Canada and minutes in the U.S.,
Europe. Dedicated fax line. Puerto Rico and Canada.
3.9 cents for each addi-
Vonage/Small 1,500 free outgoing min- $39.99 3.9 cents for each Additional lines $12.99 www.vonage.com
Business Basic Plan utes a month to the U.S., additional minute. each, with 500 outgoing (800) 980-1455
Puerto Rico and Canada. minutes in the U.S.,
Dedicated fax line. Puerto Rico and Canada.
JULY 2006 SMBFINANCE 19
headquartered in Lancaster, Pa. “Long-distance carriers like
Verizon give you a $35 or so unlimited line with voicemail, The 411 on Internet telephony
caller ID and all the same features. Vonage has technological
VoIP, or digital voice, works in much the same way as e-mail, by
challenges. On the business side, there is little, if any, advantage
transmitting information over the Internet. A regular phone can be
to switching over to a Vonage-type service.”
plugged into a company’s Internet outlet and, after paying a month-
ly service fee, the phone calls travel over the company’s bandwidth.
CAN YOU HEAR ME NOW?
There is more than one model for VoIP service, though, and The information is broken into packets of data, and when the per-
prices vary depending on the service plan and provider (see son receiving the call picks up the phone, the packets are reassem-
table, page 19). IP-only vendors, such as Vonage, run on any bled in the order they were transmitted. Ideally the voice comes
Internet provider’s connection, making the service cheaper, but through on a digital voice line just as it would sound on a normal
also less reliable. Other digital voice providers like BellSouth POTS, or “plain old telephone service,” line.
and Verizon use normal “plain old telephone service,” or POTS,
lines for calls outside the office and VoIP services for interoffice require weeks before the system is up and running. VoIP sup-
calls. The quality therefore remains high with client calls, and porters point out that their system requires little capital to install
interoffice calls are reduced significantly in price. beyond the cost of service, and can be done within a few hours.
“VoIP is misunderstood in a couple of respects,” said “To invest in a regular phone system is very expensive,” said
William Fleenor, chief financial officer and partner at business David Immethun, director of marketing at Packet8 Business
and technology consulting group K2 Enterprises, based in Services, “and small businesses are looking at their total return
Hammond, La. “One is that it saves a ton of money. Certainly, if on investment very closely. Phones don’t have a payback peri-
you have multiple branches or remote workers, this can be a od, they’re a cost, but with virtual offices, the cost is paid for up
huge savings, but the savings come because the calls between front and you don’t pay for any set-up.”
the branch offices are running over the Internet. There are two Most companies find themselves looking seriously at VoIP
major considerations when looking at VoIP services — cost and when they are moving from one office to another, need to
quality. Vonage and the other pure IP networks, they beat replace an old phone system, or face expensive phone bills.
everyone on price, but ... you can’t be assured to get as good When K2 moved its headquarters last April, Fleenor decided
quality once it leaves the walls of your office.” that it was a perfect opportunity to look into cost savings for
Pure-IP network VoIP providers also operate over the same their long-distance bill and switch to VoIP “We had a tradition-
lines as the company’s Internet access. Unless a company has al PBX system for the last 10 years that needed to be replaced,
enough money to buy two separate channels — one for their but we could have moved it over to the new office,” he said. “It’s
Internet and e-mail use, and another channel just for voice — a small office with four lines coming in. For one thing, [switch-
the quality of the VoIP calls will be significantly compromised. ing to VoIP] eliminated the need for more outside phone lines.”
E-mail and Internet usage will also be compromised. Now when K2 executive vice president Randy Johnston calls
VoIP phones remain a bit cumbersome, and the most from Georgia, or chief executive officer Val Steed calls from
expensive option for digital voice services. When purchasing Utah, their calls are interoffice and therefore don’t cost the com-
the actual phone, the IP address is static, so it can be plugged pany long-distance fees. And calls from Johnston and Steed are
into any existing Internet plug (though experts say that a DSL not tying up outside phone lines — leaving the channels open
line or better helps the quality of the call), and the phone num- for customers to call. The ROI on that alone, said Fleenor, is
ber will stay the same. However, the phones cost anywhere worth the switch, but the savings of not installing more expen-
from a hundred to several thousand dollars. sive phone lines has proved a key attraction for SMBs.
Donna Mackenzie, senior vice president and chief financial
officer at Florida-based Channel Intelligence Inc., a marketer of THE PHUTURE OF PHONE SERVICE?
online shopping solutions, is not worried so much about the “The [POTS] market leaders, who own most of the business,
price of digital voice services as she is about losing communi- what they will do is try to slow the transition as much as possi-
cation with clients or branch offices if the Internet goes down. ble to VoIP What that translates to is them dropping prices,”
“The biggest concern for us is if the Internet is down, the phone said Wes Rogers, vice president of marketing and sales at VoIP
is then down — everything could come down at the same provider nexVortex, in Herndon, Va. “But VoIP tends to run 30
time,” said Mackenzie. to 50 percent lower than the regular phone bills, and the mar-
ket leaders are not lowering their prices that far.”
FASTER, CHEAPER INSTALLATION Even though POTS providers aren’t yet being replaced by
VoIP proponents are quick to indicate a number of instances VoIP services just yet, some, like Ecomm’s Ritacco, feel it is only
where the economics of VoIP make sense. a matter of time. He believes that VoIP will become so cheap
Installing a private branch exchange system — a system and of high enough quality that the global unrelated telephone
found in many offices, where local extensions branch off a main networks will have to join together to create one backbone
switchboard number — can run to thousands of dollars and phone system — a VoIP system spanning the world. SMB
20 SMBFINANCE JULY 2006
Inside or Outside?
SMBS MULL OUTSOURCING FINANCIAL FUNCTIONS. BY GAIL PERRY
or small and midsized businesses Barnes Motor and Parts owns and operates 17 NAPA auto
that are looking for ways to cut costs, it parts stores in eastern North Carolina, and hires the profession-
might seem like doing all the financial als at RSM McGladrey Financial Process Outsourcing to prepare
work in-house would be a no-brainer. After financial statements, LIFO inventory pools and payroll.
all, hiring a professional for work that you “It reduces the workload in our office, where we can either
can muddle through on your own costs concentrate on any number of things that we have to do in-
money. But many businesses are finding house, be it collections, accounts payable or whatever the case
that the cost of hiring an outside profes- may be,” Walston said.
ILLUSTRATION RYAN ETTER
sional person or firm to perform various financial functions not “Outsourcing can be a very attractive option, because the
only saves money but provides many other benefits as well. cost of maintaining a financial operation both in terms of
“I think it’s a prudent business decision if you think you can technology and in terms of people can be disproportionately
get a professional job done at hopefully a reduction in costs,” high,” said Mark Jones, chief business development officer at
said Henry Walston, president of Winston, N.C.-based Barnes RSM McGladrey Financial Process Outsourcing. “For example,
Motor and Parts Co. Inc. “It gives you another set of eyes to if you think about a business that might have five or six people
review things.” in their accounting department, they’ve got a controller/CFO,
22 SMBFINANCE JULY 2006