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What is Your Business Worth?

When Don Gibson took over his father's Jacksonville paving business in 1996, his primary objective was to reduce its debt, boost profits and then sell it. When the time came, he was pleasantly surprised at the price it commanded.

"When we set a price, I was anticipating giving up 10% to 15% in the negotiations," Gibson says. With the help of his business broker, Gibson, 36, negotiated a sale price that was only 5% below his original asking price. He received $625,000, about 25% of which was seller-financed.

The experience was so positive, Gibson decided to sell his window cleaning business, which he had bought in 1994. He was able to get the full asking price, $315,000, double what he had paid.

If these numbers are inviting, read on.

"We're about to enter the largest transfer of wealth in the history of the U.S. over the next few years," says Mike Richards, president of the Florida Business Brokers Association.

The types of small businesses being sold and the nature of the buyer has changed in recent years, according to Dick Mier, broker-salesperson for VR Business Brokers of Jacksonville, who handled Gibson's sales. "It used to be Main Street -- the butcher, the laundromat," he says. Now the high demand is in light manufacturing and distribution.

Buyers basically used to be people buying jobs for themselves, Mier says. Now they tend to see businesses as part of an investment strategy. Then there are the professional buyers, Mier says, who usually buy a company, work it for two years and sell for a profit.

So what is your business worth? Typically, CPAs will put the number at two times annual earnings. But professional business brokers use a much more elaborate pricing strategy, which takes into account hard assets, provable earnings and "goodwill" -- the reasonable expectation that customers will continue to patronize the business.

Richard Brinkley, CEO of VR Business Brokers in Fort Lauderdale, discourages business owners from relying on any formulas based on financial records alone for appraising their business. He says business brokers typically have to recalculate the owner's books to present a truer picture of what the business is capable of generating.

"Your CPA is presenting the business in the absolute worst possible light to pay the least amount of taxes," says Brinkley. "We teach you to read deeper, to find out what the business really makes." Subtract the two Jaguars, the trip to Hawaii for a trade show and other perks and, he says, "suddenly a business that was breaking even is now making $350,000 a year. So someone might be willing to pay $700,000 for it."

Business Seller's Checklist

- Keep clean financials. If you can't show it on the books, nobody is going to pay for it.

- Have a legitimate reason for selling the business. It may be retirement, illness or burnout. Expect potential buyers to scrutinize your reason for getting out.

- Increase the curb appeal. Like all real estate, presenting a clean, neat and ordered appearance goes a long way for a buyer.

- Establish a solid employee track record. Buyers like to see some tenure, which adds to the goodwill. High employee turnover is a red flag.

- From day one, have an exit strategy. This will ensure that you have the business at top value when the time comes to either pass it down to the next generation or find a buyer.

- Offer financing, if possible. This will increase your pool of potential buyers and send the right message: You have faith in the business continuing under new ownership.

- Consult a business broker. Usually there are no upfront costs, as the broker doesn't get paid the 10% to 12% commission until the actual sale.

- Insist on confidentiality. Business brokers tell nightmarish stories of owners who leak their intentions of selling, or who get exposed by a potential buyer's snooping, then lose employees and customers -- the majority of the business' value.


Health Care: Meet You Half Way
Look for the Florida Legislature to change the health insurance rules for small businesses.

by Julie S. Bettinger

Small employers can expect to see changes proposed to health insurance access in this year's Florida Legislature. Last year, in its original form, the "Employee Healthcare Access Act" (SB 1294/HB903) would have prohibited sole proprietors and other "groups of one" from qualifying for small group rates and the guaranteed availability of health insurance. The legislation failed in the Senate.

This year, business lobbyists leading the dogfight seem to have warmed to compromise language in the recent version, sponsored by Rep. Frank Farkas (R-St. Petersburg) in the House and Senator Betty Holzendorf (D-Jacksonville) in the Senate. If the bill is enacted, sole proprietors will still be allowed small group rates, but enrollment will be limited to a 30-day window in August.

Lobbyist Gerald Wester, with Katz, Kutter, Haigler, represents three major insurance carriers. He says Florida has the fifth highest insurance rates in the U.S. and, at the same time, a growing number of uninsured. Wester points to two culprits driving the high rates: Larger losses on groups of one, whose claims run as much as 50% to 60% higher, and the fact that insurance companies in Florida can't adjust rates based on claims history. As a result, they set rates high, even for small businesses that make few claims.

"Florida is much more restrictive than just about every other state in two areas -- groups of one and lack of any rate flexibility in claims experience and health status," says Wester. "We are trying to restore some balance."

In addition to setting limits on availability of insurance to sole proprietors, the new legislation would also change the one-price-fits-all approach by allowing insurance carriers to look at the health status and claims experience of an employer and use a tier rating for families.

Instead of all small businesses in a geographic region paying the same rates, those with better health records would get discounts, while those with more claims in any given year would see their rates rise by as much as 10%. Rate increases for those businesses would be limited to no more than 15% over the duration of the policy.

Family policyholders would benefit from a tier rating. A single parent with one child, for example, would no longer pay the same for family coverage as a married couple with five kids. "The idea is to put costs more where they are incurred," says Herb Morgan, executive vice president of the Florida Association of Insurance and Financial Advisors. He predicts that the new policy will help attract additional carriers to the market and keep the current carriers from pulling out. "It makes us consistent with the rest of the country," says Morgan.

Lance Lozano, assistant director of governmental and legislative affairs for the Florida United Business Association, says his organization, which represents approximately 5,000 Florida businesses, of which about 80% have five employees or less, will take the temperature of its members before taking a position, but he expresses some doubt. "We're more concerned about the immediate impact," he says.

Other groups that represent small businesses, including the Florida Chamber of Commerce, the National Federation of Independent Businesses (NFIB) and Associated Industries of Florida, don't plan to oppose the legislation this year. "Our message to legislators is this is probably a needed policy correction," says Bill Herrle, state director for NFIB. "Let's just make sure we build in assurances that it's going to do what the market theory says it's going to do -- get more insured in and cause the general rate to go down."


Trial and Error
Choosing a dot-com name for an Internet business can get very complicated.

When William Lickle set up his West Palm Beach-based Internet gift service, he registered what seemed like the perfect domain name, "coffeetablebook.com." The venture, which sells high-quality coffee table books as corporate and individual gifts, is designed to compete with the likes of 1-800-Flowers.com and FTD.com. Lickle, 68, imprinted stationery, folders and luxurious velvet packaging with the moniker.

Shortly after launching the site in October, however, the name coffeetablebook.com turned into a marketing fiasco. More often than not, customers made a slip of the finger and landed not at coffeetablebook.com, but at coffeetablebooks.com, a California gift book publisher. After an unsuccessful attempt to buy the California company's name, Lickle was forced to change his company's name to coffeetablegifts.com -- at least for now. "We will be testing other names," he says.

Lickle's quandary provides lesson No. 1 in the Internet world: Find out the availability of variations of your company name -- the plural, dot com, dot net, dot org and even negative versions -- before setting up shop. "We just went in and registered a name," concedes Lickle, adding that it never occurred to him to check on alternative versions.

The early problems haven't discouraged Lickle, a member of the duPont dynasty and former chairman of JP Morgan International Holdings. He is particularly encouraged by the response from corporate clients, some of whom buy 50 or more books at one time. Still, pressed for an estimate of 2000 revenues, Lickle comes up with $5 million, but concedes that it is just a guess.

Spurred primarily by his love of coffee table books and his interest in building companies, Lickle is funding the venture out of his own pocket. "I'm trying to change a concept," he says. "A coffee table book is a gift, not a book."


The (Small) Business of Law
Technology is helping small law firms compete.

by Lynn Koller

Jason Brown knows the value of technology. The 36-year-old attorney at Kolodinsky, Berg, Seitz & Tresher, a Volusia County personal injury firm with just four lawyers, convinced one of the firm's partners, Rick Kolodinsky, to shell out $3,000 per year for Westlaw online legal research. In return, the firm's New Smyrna Beach office saved $6,000 a year by eliminating traditional library update volumes.

Technology still cannot comfort a distressed client or guarantee a win at trial. It can, however, give attorneys a little more time to accomplish those tasks by improving information management and work output. A few ideas:

- Telephone technologies. In addition to now-common voice mail, Caller ID can be useful to small firms where attorneys themselves sometime answer calls. By looking at a display, the attorney can decide whether to take a call or send it directly to voice mail

- Voice recognition. Voice recognition software enables users to navigate applications and dictate directly into the computer. Older software produced sketchy results at best. New programs are improving, but often require ample computer resources.

- Online research. In addition to the Westlaw online research (www.westlaw.com) selected by Kolodinsky, Berg, Seitz & Tresher, there is the well-known Lexis-Nexis information service (www.lexisnexis.com). Also, the Florida Bar (www.flabar.org) offers online continuing legal education courses on topics such as Chapter 7 bankruptcy and residential landlord/tenant issues.

- Practice management. There are several popular programs, including Amicus Attorney (www.amicus.ca), AbacusLaw (www.abacuslaw.com) and Time Matters (www.timematters.com). Cost is usually assessed on a per user basis, with a price range of approximately $175 to $500, not including installation or training.

- Financial management. Accounting software can quickly provide valuable information, including cost/revenue ratios and marketing data.


When Opportunity Knocks
For home-based businesses, adapting quickly is the key to success.

By Jeffery D. Zbar

For Ira Carlin, success has come from being quick to adapt. When baseball and football trading cards became the rage in 1991, Carlin created Pro-Index, a black plastic storage and carrying case that protects valuable cards. Then, when he saw the Pokemon craze blitzing the airwaves, he knew it was time to adapt his product to fill a new niche. He gave Pro-Index some color and revamped his marketing materials.

Retailers quickly lined up to carry the product. Carlin, who runs his business from his Coral Springs home, can't keep the binders on the shelf. Toys "R" Us was first to carry the product, followed by KayBee Toys. Carlin says, "I'm just an entrepreneurial opportunist."

Sensing and filling a need is key for entrepreneurs hoping to stay atop their market, says Paul Solomon, a professor of marketing management and strategy with the University of South Florida.

How can you spot opportunities? Solomon recommends reading general-interest news and trade publications, checking websites, watching for trends, and networking and chatting with peers in your industry in order to be first to identify -- and seize -- market openings. Query current and former customers to find out what they need from your business. Most of all, keep your focus, Solomon says.

Carlin, an inventor and marketer who hit it big with women's fashion accessories and costume jewelry, discovered business opportunities by being an observant and quick study. With sports trading cards, his young son was caught up in the collecting mania. He saw that collectors and investors were joining kids in the fray -- and all were putting their cards in shoeboxes or other makeshift holders.

Carlin conducted some quick market research, reading trade publications and visiting shows. After six months of research, he created the injection-molded, UV-protected case as a tool to help buyers preserve their investment.

Fast forward seven years, and it's the same scenario. This time, a call from a friend looking to distribute Pokemon videos peaked Carlin's interest in the craze. While investors aren't flocking to Pokemon cards the way they do for collectible sports cards, kids with disposable cash are quick to pay $15 or less (down from the previous price of $50) to protect their collections, he says.

With a few adaptations made over 90 days, Carlin's carrying case hit the streets in December. It's colored to match Pokemon, though the name doesn't appear on the product, eliminating any licensing agreements or fees to Nintendo of America. Also, retailers are placing the products beside their Pokemon displays -- helping boost sales, Carlin says.

For Carlin, the key was his ability to pounce on the Pokemon trend. There was no corporate red tape and no decision-makers to please. Says Carlin, "Smaller companies with fewer layers can very quickly turn around ideas and get them into production."

Economic Impact: Making At-Home Businesses Count

Can a bevy of home-based businesses boost a city's bond rating? Coral Springs officials are betting on it.

In December, City Manager Michael S. Levinson sent a letter to more than 4,500 occupational license holders -- some 712 of which are home-based. He asked that each company note on an enclosed return postcard how many people it employs.

For a suburban city like Coral Springs, which faces residential build-out within the next two years, the more people its businesses employ, the more attractive it is to bond holders, says David Russek, the city's director of financial services. He hopes to boost the city's rating from Aa1 to AAA -- thereby lowering the interest rate the city pays on money it borrows.

Historically, bond rating agencies look favorably on cities with strong and growing industry, says Chad Farrington, a public finance analyst with Fitch IBCA Inc., an international bond rating agency that is consulting with the city on improving its rating. Coral Springs is among a growing number of "boardroom communities," where at-home entrepreneurs, teleworkers and corporate executives increasingly spend their workdays, he says. This often reflects higher education and income levels -- along with less congestion and use of other services, Farrington says.

"The more wealthy a community is, the better able they are to handle a debt burden," says Farrington, noting this is the first time a community has brought its at-home workforce to his attention in a bond discussion. "It has just come about in the last 10 years. Before, nobody thought to work at home. I expect we're going to see more of this."