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2010 Executive Tidbits
IBM, P&G, General Mills, McKinsey, and McDonald's have the best manager training programs according to Fortune 2009. |
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Check out Keith's other site:
Virtual Writing Coach |
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The Executive Connection SM
a publication of The Virtual Executive Coach SM
"Vision + Accountability = Success!"
www.virtualexecutivecoach.com
April, 2007
In This Issue:
1. Preview
2. Executive Summary
3. Due Diligence
4. Helpful Hints
1. Preview
The Executive Connection explores the creative and analytical process of business development, team-building, and executive development.
We are an interactive community of executives and small business owners who desire to network with like-minded high-performance executives
to enhance our knowledge, skills, and aptitudes in the competitive business world.
Published monthly, the Newsletter offers coaching suggestions around the topics of: business development, financing, marketing, networking,
incorporations, mergers, human resources, governmental regulations, and tax laws.
Topics are presented from the perspective of Keith Barton and represent only his ideas on creating and running your business.
Because we are an interactive community of executives and business owners, other viewpoints are welcomed and may be printed in future monthly
newsletters with permission from Keith Barton.
2. Executive Summary
April, 2007
Dear Executive Connection Subscriber,
This month's newsletter features information on due diligence.
3. Due Diligence
I have a current client who is thinking about going into business with a vendor of his previous oil and gas equipment company (no non-compete
agreement exists). While friends with his prospective partner, this 60-year old former CEO asked to talk to me about sizing up his offer (the
names and business sector have been changed for this article). After massaging the numbers and before filing any incorporation papers, company
charter, and by-laws (including stock options and voting rights), my client's questions addressed three main issues:
- Can I trust this guy?
- Who will control the business?
- What happens if one or both of the partners become incapacitated or deceased?
After the attorneys, accountants, and bankers do their review of assets, liabilities, inventory, customer lists, and performance trends over the
past ten years, the numbers told my client he should make the move and join his friend in this new, potentially highly profitable venture. But he
came to see me because of the three nagging questions that I think everyone asks after the numbers are crunched and the money is secured. Let's
take the questions in order.
Can I trust this guy?
This goes to the heart of doing business with a partner. The adage was that friends should not do business together. Despite the allure of similar
goals and comfort level, my client was angry and confused that his partner refused to talk specifics; e.g. buy-sell agreements, key-person insurance,
survivor issues in the event of disability or death, voting rights vis a vis the future direction of the company.
My client was offered 49% of the stock (a minority position) which he was unhappy with because while his partner had the inventory and engineering know-how,
my partner had the contacts (read contracts) through his extensive networking and 20-year reputation with customers. This translates into a concept called
good will which lends a certain monetary value to any operation. However, his partner had a difficult time understanding the concept and didn't feel my
client deserved at least a 50% share of the company.
With no clients, there would be no business with debt on a building, inventory, and on-going maintenance costs. Furthermore, in past negotiations for over a
year, the partner kept changing his story as to how quickly he could fill orders (backlog is a deal breaker if customers had to wait longer than 90 days to
receive their equipment). Another red flag was the fact that my client could never pin the guy down for specifics; his typical response was oh, we are friends
and we'll work it out no need for lawyers and accountants.
Who will control the business?
He who owns the majority of the stock (in this case 51%) controls the company and can buy out minority shareholders at will unless specifically addressed in
the company charter under a buy-sell agreement. My client was nervous if he was going to invest 100k of his money plus put his reputation on the line (he
already had a 4.3 million dollar contract lined up if the partner would agree to a 50-50 stock split).
Rightfully so, my client did not want to proceed with further negotiations unless his partner would budge from his majority position. In a dual owner business
my bias is that the ONLY way this can work out is a 50-50 voting right and stock options whereby consensus rules (in essence each partner has veto power over
any decision). Regardless of how much equity is in the business and who contributes to the equity, sweat equity must be taken into account (in my client's case,
his ability to secure the business via contracts). The two need each other without the technology, no product; without the consumer, no one to sell the product
to and no income.
Survivorship
The reason for buying key-person insurance is to keep family members out of your business. Chances are, they don't want to be in your business
anyway (unless it's a family-owned business) and the insurance pays the survivors of the deceased partner from an insurance policy equal to the percentage
ownership of the business. This negates the necessity for probate and lawyers meddling into your financial affairs. It also allows the business to run smoothly.
Of course, depending on how the business charter is drawn up, the surviving partner now owns 100% of the business without having to buy out the deceased
partner's shares and preserves cash flow. Many business owners neglect this most important aspect of a business partnership which can create the most problems
later on in the event of the untimely death of one of the partners.
Related to this is disability insurance in the event one or both of the partners is injured and cannot perform their duties; both short and long-term disability
insurance is available and major insurance carriers provide this product line.
4. Helpful Hints:
- If you have a friend or family member who is partner in a business (either limited or managing), talk to them about why they incorporated the way they
did e.g. LLC, LLP, subchapter S, C-corporation?
- Talk to an insurance agent about disability insurance, costs, and protections; also ask about key-person insurance.
- Contact your secretary of state’s office and ask for an “incorporation” packet and sample forms for a charter, stock options, survivorship, and other
information found in the articles of incorporation.
SUBSCRIPTION INFORMATION
The Executive Connection SM is a free publication. If you want to continue to receive this Newsletter, you can
SUBSCRIBE by clicking here or by sending a blank email message to
keith_barton@att.net
with the word SUBSCRIBE in the subject line.
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Be assured your name and email address are confidential. We do not sell, rent or share our mailing list with anyone.
Contact Information:
Keith Barton, Ph.D.
Voice: 281-583-5005
Fax: 281-583-5008
Web: http://www.virtualexecutivecoach.com
E-Mail:
keith_barton@att.net
(c) Copyright 2010,
Virtual Executive Coach SM and A. Keith Barton, Ph.D.
All rights reserved.
Distribution Rights:
The Executive Connection SM is copyrighted, but you may retransmit or
distribute it to whomever you wish as long as not a single word is changed, added, or deleted, including the contact information. However, you may not copy
it to a web site.
Republication of The Executive Connection SM in paper media is encouraged and permitted by individuals, organizations and associations, as long
as the issue is reprinted in its entirety, without change, and includes the contact information.
With advance permission, we are happy to edit an issue to fit your space requirements. Republication also is encouraged under other circumstances.
However, the advance permission of
A. Keith Barton, Ph.D. must be obtained in the event that changes in the text are desired.
The Executive Connection SM Mission:
The Executive Connection SM is dedicated to helping first-time business owners and executives to recognize resistance to change, while they create
and manage their own businesses. My goal is to help you transform your vision into a successful business venture with the addition of accountability structures
and silent partner.
The Executive Connection SM is a publication of The Virtual Executive Coach SM and Keith Barton, Ph.D.
We would like The Executive Connection SM to be as interactive as possible. If you have feedback, comments, topics you would like addressed, or can
suggest additional resources to benefit us all, please email us at any time. Send your e-mail to
keith_barton@att.net
.
Please forward this issue to anyone you think would find The Executive Connection SM interesting and beneficial. Your recommendation helps us
keep growing, and ensures an excellent exchange of information and techniques.
Archives:
You can read previous issues of The Executive Connection SM in our archive section.
About Keith Barton, Ph.D
Dr. Barton received his Ph.D. in 1972 from the University of Texas at Austin and has been a practicing therapist for over thirty years. He is a graduate of
MentorCoach and is accepting new clients.
He has been an adjunct professor at the University of South Carolina, consultant to Fortune 500 companies in executive development, founded and managed
Texas Community Living Ventures, Inc., in 1986 for providing group home services to persons with mental retardation, and has been running a clinical practice in Northwest Houston since 1990.
He writes part-time with the goal of completing one novel a year. His desire to coach others derives from his passionate interest in helping others become
attuned to their creative powers of storytelling.
Dr. Barton has training in coaching, cognitive and family therapy and health psychology. He has published articles, made presentations and conducted workshops about:
Small Business Development
Employee Wellness Programs
Anxiety and achievement
Stress management
Self-esteem
Communication skills
Leadership styles
Core values in the workplace
Executive Development
High-performance groups
Physician support groups
Writer support groups
© 2010
The Virtual Executive Coach SM and Keith Barton.
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