International Door & Operator Industry

JUL-AUG 2013

Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.

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MaNageMEnt (continued from page 44) Ownership Does Not Guarantee Employment – Another owner managerial faw is keeping a non-productive or disruptive employee simply because the employee has a minority equity position in the frm. The idea that a majority owner is obliged to maintain employment for a minority shareholder is simply false. Ownership and employment are two completely different issues. This is not ignoring that the issue may be complicated. Will the terminated employee go to another frm or start a new frm? Will the majority owner be forced to buy out the equity position of the terminated employee and where will the cash come from? The answer is maybe, and those issues must be addressed, but the overriding point is that a minority ownership and employment are essentially unrelated. An unproductive or disruptive employee must be terminated for the overall good of the frm regardless of ownership, family relationship or friendship. Inability to Grow with the Firm – Many employees contribute initially when the frm is small. At that stage they are often key employees. However, these good employees sometimes cannot "grow" along with the frm. As a frm grows, management becomes more complex. More employees means more issues. Turnover, training, and following various regulations changes the culture of the frm, and some good employees cannot adapt, or are not comfortable with bigger frms. The employee complains, "This is not the place it used to be". One manager said, "My problem is that I have built a $3,000,000 company, but I still have $1,000,000 managers. When faced with clear evidence that the complexity of the dealership has outgrown the ability of the employee, an owner has no choice but to make a change. This change is necessary in spite of the employees past work ethic and loyalty. It is not fun for the owner, but for the sake of the fnancial health of the frm and the morale of the remaining employees, the employee lacking skills or desire to participate in a larger frm must be terminated. Dislike for the IRS Forces Bad Decisions – For many fnancially successful garage door dealers, it appears a primary goal is to explore ways to avoid income taxes. While there are ways to mitigate taxes, it must be remembered that income taxes are just another cost of doing business. Furthermore, focusing on reducing the impact of income taxes is a very short-range way of thinking. If an owner is thinking about an exit plan that involves selling the dealership, the last thing he or she wants to do in preparing to sell a business is to artifcially reduce the apparent proftability of the company. Garage door dealerships are primarily sold on multiples of EBITDA (Earnings Before Interest, Taxes and Amortization. To secure a high selling price for the business, the goal is to maximize EBITDA, and not to dissipate earnings by avoiding taxes. After listening to a client once explain how he reduced taxes by literally giving away the bottom line, we asked, "What is wrong with making a proft?" Trying to minimize taxes is understandable to a degree, but not at the expense of greatly reducing a higher/fair selling price when the owner feels it is time to quit. 46 International Door & Operator Industry™ Life Style Changes (Abandoning the Business) – Some successful owners succumb to the desire to get away from the business, leaving it in the hands of a trusted manager. No matter how badly the owner wants the business to operate as it did while he or she was there, the old saying, "When the cat (the owner) is away, the mice (the remaining employees) will play!" is very true. Unless the frm has exceptional managers remaining when the owner takes his hiatus from the frm, and the owner has put great systems in place, along with signifcant incentive plans for the employees, the results are frequently disastrous. Many owners have tried to take long leaves from the frm, only to have to return and spend months or even years to repair the damage. Owners can take signifcant time off, but only if detailed systems are judiciously administered by competent and motivated managers. Successful managers sometimes get lulled into thinking the business will continue as is forever. These managers sometimes make bad decisions or more importantly, fail to make obvious decisions. Problem employees are allowed to stay on the job, in spite of the fact they are underperforming, simply because terminating them is viewed as too troublesome for many reasons. Likewise, employees overwhelmed by the complexities of a growing frm are allowed to stay on at the determent of corporate morale. Some times owners, through shortsightedness, jeopardize the fnancial viability of the frm by a myopic dislike for taxes. Other owners, with a dream for time off, fail to establish systems and train employees, resulting in in the dealership suffering large losses during this absence. Ownership is a full time job. Just remembering that the frm is a business, and not a toy, and not a daycare center, will help the owner might logical decisions. John E. Zoller and David H. Bowen comprise Zoller Consulting, Inc. of Wooster, Ohio. Zoller Consulting provides consultation of managerial effectiveness and fnancial performance of construction related businesses. They also offer customized seminars and training sessions. In addition, Zoller Consulting provides acquisition management, including fnding buyers or sellers, locating funding sources, transaction structuring, and negotiating and organizing the transition to new ownership. Contact Zoller Consulting, Inc. at 330.262.8500 or John@zollerconsultinginc.com.

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