Get Motivated
August 31, 2007
Richard Boyatzis (reb2@cwru.edu) is a professor and the chair of the department of organizational behavior at Case Western Reserve University’s Weatherhead School of Management in Cleveland.
People can develop their emotional intelligence if they really want to. But many managers jump to the conclusion that their complement of emotional intelligence is predetermined. They think, “I could never be good at this, so why bother?” The central issue isn’t a lack of ability to change; it’s the lack of motivation to change.
Seller’s Operations: Plant And Equipment
August 29, 2007
Your seller may have the best of relations with suppliers and customers and the world’s most dedicated workforce, but it’s not going to matter if your plant can’t turn out the products your customers want to buy.
The first and most obvious inquiry relates to the age of the equipment. It may be going along fine now, but if the bulk of the equipment will have to be replaced in a year or two, a cash flow problem may arise. Most sellers who anticipate they’re going to sell the business tend to neglect maintenance and ignore needed capital expenditures; it makes the books look better. As for major pieces of equipment, such as the milling machines at Houston Sash & Door, find out how old the equipment is. Then write down the names of the manufacturers and the model and serial numbers of each piece of equipment and call the manufacturers. They will have a record of when each model was built and sold. (After all, your seller didn’t necessarily buy new equipment.) Ask about the normal life span of each piece of equipment. If you’re calling about machinery engaged in production, ask about the capacity of each item.
Seller’s Operations: Personnel
August 28, 2007
If the business you’re planning on buying doesn’t have any employees or if you plan on firing everyone who now works in the business, you don’t have any immediate personnel considerations. But if you’ll be retaining some or all of your seller’s employees, there are a number of things you should do. If you’re planning on buying a successful business, it’s a good assumption that one of the factors contributing to its success is a stable and motivated workforce. Your goal should be a smooth transition, with the valuable employees staying with you and staying motivated.
Build Pathways
August 28, 2007
Steven Gutstein (gutstein@connections center.com) is a psychologist, autism expert, and codirector of Connections Center for Family and Personal Development in Houston.
Watch the Language
August 25, 2007
Colleen Barrett is the president and COO of Dallas-based Southwest Airlines.
Seller’s Operations: Patents And Trademarks
August 23, 2007
I once had a client who bought a business without using an attorney. The business’s trademark was very important to him, since that trademark gave the business’s products a high level of exposure and acceptance in the public mind. This is the purpose of trademarks. Only after buying the business did he learn it had never owned the trademark! The individuals who had owned the business still owned the trademark in their own right and licensed its use to the business. He was stuck, and that’s why he was in my office.
Seller’s Operations: Supplier And Customer Relations
August 20, 2007
Reviewing documents is easy compared with ferreting out all the information you need to know about a business’s suppliers and customers. But when you think of it, there’s nothing more pivotal to a business’s success or failure than its dealings with its suppliers and customers.
Try to get a complete list of the seller’s principal suppliers. You may find some startling things that will never show up in the business’s financial statements. Is a single supplier (or a small group of suppliers) responsible for most of the business’s supplies? Have these providers been suppliers for a long time? How dependable are they? If one supplier drops off, can it be replaced? In our example, Houston Sash & Door may buy its lumber from only one source. It’s very important to establish what Houston’s relations are with that supplier. At some point it may be important to visit the supplier in order to find out if it will be willing to do business with you on the same terms it did with Houston.
Be Realistic
August 19, 2007
John D. Mayer (jack.mayer@unh.edu) is a professor of psychology at the University of New Hampshire. He and Yale psychology professor Peter Salovey are credited with first defining the concept of emotional intelligence in the early 1990s.
Analyzing the Seller’s Operations: Loan Agreements
August 16, 2007
Let’s assume Houston Sash & Door borrowed $200,000 from a bank to purchase the machinery that mills the lumber into doors and windows. Most of the $200,000 hasn’t been paid back. You can be sure that not only did Houston have to personally guarantee the payment of any debt his corporation incurred, but that the assets he bought from the proceeds of the loan were put up as security for the payment of the debt. It’s much the same as when you buy a home: A mortgage is placed on the house, and if you don’t make the payments the bank forecloses. It’s likely, however, that more than the machinery bought with the loan proceeds secures the debt. Banks like to get all sorts of security, to ensure they’ll be paid. They may also have gotten the business’s accounts receivable and any other hard assets that weren’t placed as security for some other debt. Even such items as patents and contract rights can act as security.
How do you find out the extent to which the assets are tied up as security for debts? The first thing to do is have the seller provide you with a list of all the debts and the files of all the loan agreements. You and your attorney should then sift through them, finding out the status of all the loans and the assets that secure the debts. What if the seller “forgets” to tell you about all the assets that are tied up? No problem. Before you buy, you should check with the secretary of state or county clerk in the county in which the seller’s business is located. These resources will have a record of all the UCC-1 filings against the business. Here’s how this works: Whenever anyone loans money to another and takes back a security interest in any assets, the lender files a UCC-1 form with the appropriate agency, either the secretary of state or county clerk. The UCC-1 form describes all the assets the lender has an interest in. The purpose of the UCC-1 is to give notice to anyone who is interested in either buying the assets or lending more money to the borrower. A UCC-1 form says, in effect: “Hey, you! If you’re thinking of lending to or buying from this person, just remember we have a priority interest in the assets! We get paid first!” The UCC-1 filing serves the same function as recording the title to real estate when real estate is sold or mortgaged. It gives notice to everyone else of a prior interest in the property.
You and your attorney must use the same care in examining the loan documents that you would in examining the premises lease-and for the same reasons. The terms of a loan may effectively prevent a transfer of the assets. If this is so and the bank refuses to waive its rights, a sale may be impossible. Why would a lender try to prevent anyone from buying the asset and assuming the debt? Because the lender parted with its money only after
it checked and was satisfied with the seller’s credit rating. It may not want to deal with you. Checking with the lenders that have a security interest in the assets is one of the first things you should do. Even if the seller tells you getting the banker or the finance company to consent to the purchase is “no problem,” don’t take the seller’s word for it; check it out.
Here’s one thing you should never do: If the seller knows the lender won’t consent to the transfer of the assets, the seller may suggest that the two of you simply don’t let on that a transfer will take place. The seller will suggest that you pay the monthly, quarterly, or annual payments to him or her, with the seller then rerouting the payments to the lender. You’re playing with fire with a setup like this. If the lender ever learns you’ve attempted to circumvent the rights granted to the seller in the loan agreement, you may find the lender has the right to accelerate the loan, that is, call in the whole loan. In this case you’re stuck with an enormous debt due right now. It could kill your business.
We’ll see in Chapter 6 that there are two ways to structure the purchase of a business conducted in corporate form: Either buy the stock or buy the assets. If you buy the assets, you’ve no choice but to check to see that the assets are transferable. Even if you plan to buy the stock, the loan agreements still may prevent the sale. The lender may have obtained the stock of the corporation that owns the business as collateral for the debt. The seller may be prevented from selling the stock because the seller doesn’t have it; the stock certificates may be lying in some banker’s vault. Even if the seller still has physical possession of the stock, the seller may have agreed not to sell the stock until the debt is paid. Once again, make sure you read the loan documents to see whether the business can be sold.
Leading by Feel
August 16, 2007
Like it or not, leaders need to manage the mood of their organizations. The most gifted leaders accomplish that by using a mysterious blend of psychological abilities known as emotional intelligence. They’re self-aware and empathetic. They can read and regulate their own emotions while intuitively grasping how others feel and gauging their organization’s emotional state.
But where does emotional intelligence come from? And how do leaders learn to use it? The management literature (and even common sense) suggests that both nature and nurture feed emotional intelligence. Part genetic predisposition, part life experience, and part old-fashioned training, emotional intelligence emerges in varying
degrees from one leader to the next, and managers apply it with varying skill.Wisely and compassionately deployed, emotional intelligence spurs leaders, their people, and their organizations to superior performance; naively or maliciously applied, it can paralyze leaders or allow them to manipulate followers for personal gain.
