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Survival Guide I
These articles by Peter J. Mladineo and Barbara Fox were published in U.S. 1 Newspaper on July 8, 1998. All rights reserved.
Owners of information technology companies owners might want to heed this piece of advice: Sell now.
The market has never been hotter, says investment banker Barry Goldsmith. "For a lot of niches it's the best that I've ever seen it," says Goldsmith. "In the services sector the multiples are the highest they've ever been. This is true in the public market and in sale values. Everybody's convinced that they're the new paragon and everybody's trying to get in on the ground floor. But I don't know how you justify 200-times earnings except that it's a ground floor opportunity in a whole new industry."
Goldsmith, who has sold three technology companies in his career and is currently managing director of Updata Capital based in Holmdel, speaks at the New Jersey Technology Council on Tuesday, July 14, at 4:30 p.m. at the U.S. Trust Company. His subject: "Valuing Your Company." Cost: $40. Call 609-452-1010 for more information.
Market conditions also make it conducive for IT firms to change hands now, Goldsmith reports. "Business is good so everybody is growing nicely," he says. "Second, you have a consolidation going on because there is value to size. Clients are looking to do as much outsourcing as they can -- to have solutions as opposed to technologies."
But don't think that getting a ridiculously huge valuation is automatic. "It's not as numerical as you might think," says Goldsmith. "The problem is you see these exorbitant values and you wonder where that comes from. A lot of it has to do with the synergies you get and how much leverage is in the business. While technology is exciting, the real Holy Grail is distribution. That's where the real leverage come from."
To determine your company's value, determine "what is your company like as a standalone," Goldsmith instructs. "You have to be realistic about where you really fit in." Consulting companies comparing themselves to Arthur Andersen better have profit margins to support their claim. The same goes for software companies that claim Microsoft-like margins, or Internet companies that cry Netscape. "We see Internet companies where underwriters are saying `We'd like to take you public but you don't make a profit.'"
Once you have a base value determined, determine what company assets can be leveraged by a buyer. "The negotiation figures out how much of that synergy you get," says Goldsmith.
There are things a business owner can do to improve the company's value. "Most of them fall into the list of things you can do to run a better business," says Goldsmith. "If you were in the services business you would want to focus on improving the gross profit margin. Gross profit margin is an indication of the value-added that you deliver to a customer and the more value-added that a buyer perceives, the more they'll pay."
Also, maintain good rates of growth. And take all the profit out of your business that you want to. "Just demonstrate that on a going-forward basis the company is going to be profitable to the new owner," he says. "So if you've got a good business you've just got to make sure that it gets positioned properly so that the buyer can recognize the value."
Goldsmith, 54, has a degree from Rutgers University (Class of 1966) and worked for RCA for two years prior to starting CGA Computers, a company that went public, and eventually, private. Goldsmith claims that he and his partners were the first accomplish a leveraged buyout of a software company.
After selling CGA in 1985, he started two other software companies. Updata Software, started in 1986, was sold to Online Software, based in Fort Lee, and is now part of Computer Associates. SableSoft, started in 1987 with a partner from Updata, was purchased by Platinum Technologies, the Illinois-based firm that now owns Logic Works. In 1987 Goldsmith started Updata Capital, a boutique investment banking firm that concentrates on mergers and acquisitions in the IT markets. Goldsmith claims the company has done 175 transactions, creating more than $6 billion in wealth.
"It's a lot better now than it was 10 years ago," he says. "This is our second incarnation and we're having a fun time helping everybody. It's a great place to be."
-- Peter J. Mladineo
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New in Networking:
Contacts mean everything to collection agent Willard J. Grondski. "Twenty-five percent of the accounts I handle just didn't get the invoice," says Grondski, who operates his own business, W.J.G. Collection Agency. He is also a collections consultant for ALK Associates, which passes its 120-day delinquents over to him and hires him to confront people who pirate the firm's transportation software.
Grondski is starting a new "Small Business Survival" leads club, which meets Wednesdays at 8 a.m. at the New New York Deli. Grondski himself will discuss collections at the next meeting on Wednesday, July 15, at 8 a.m. Call 800-326-5515 for more information.
Short of hiring a collection agent, Grondski reports, there are some things a small business can do to make the process of tracking down old debts easier:
Sometimes, in larger companies, it pays to avoid the bosses. "I'll just send the invoice right to accounts payable, says Grondski. "Forget about the boss and pretend he signed off on it. A lot of times accounts payable just pays it. It works mostly in very large companies where so many invoices get lost in the shuffle."
Has this line of work changed him? "It's made me very organized, and I remember words," he says. "I have a very tuned ear. In collections it takes a careful ear to listen for whether they're on the level with you or not."
The job has also taught him to think fast. Breaks in conversation, Grondski reports, are often accompanied by a dial tone. "In collections, knowing when to follow up and what to say is very important."
But sometimes he can still be rendered speechless. He recalls one incident in which a company mistakenly undersold ALK's $1,995 software to the government for $19.95 and then tried to stiff ALK for the balance. "We sent them invoices, they said `We're not paying,'" says Grondski. "You would have expected a better excuse from a child."
Grondski is starting the Small Business Survival group in response to more traditional leads clubs like LeTip, which he feels are overly restrictive and expensive. "Here you just pay for the breakfast, that's it," says Grondski. "This kind of group is ideal for a small businesses who can't afford public relations or advertising budgets. It gives everyone a chance to give their pitch, explain what their company is about, and provide literature."
Upcoming meetings will feature speakers Eileen Sinett, of Comprehensive Communication Services, on Wednesday, July 22, and Esmond Druker, of Druker Rahl & Fein, on Wednesday, July 29.
While it does incur annual fees and restrict the numbers of group members per industry, LeTip, started in 1978, keeps chugging along. LeTip of Princeton, a two-year-old chapter, has grown to 35 members. It meets next on Tuesday, July 14, at 7:01 a.m. at the New New York Deli. Call 732-417-2409 for more information. There is also a Lawrenceville LeTip, which meets at the New New York Deli on Mondays at 7 a.m. Call 609-406-8974 for more information.
LeTip of Princeton is free to first-timers, thereafter it costs the price of breakfast plus annual fees that range from $180 to $275, with discounts if you can bring in members. "I've never paid any dues after the first year because I keep getting new people," says Jeff Boyarski, the 50-year-old insurance salesman who is a past president of the group. "Some people don't like LeTip because it's very organized. We're all business. We're not there for socializing. The fact is that we do more business at a LeTip than almost any networking group. That's what we're there for."
One rule: the meetings can not go past 8:30 a.m. If they violate that rule, the president is fined $5. This has cost Boyarski a couple of times. In one particular instance he kept the members a full two minutes late to give them a pep talk on the importance of getting new members. "I made the most of my five bucks," he says. "I gladly paid it."
Boyarski claims that LeTip helped him get a sale last year that has brought in more than $11,000 in commissions. He adds that LeTip usually outlasts all the upstart groups that use the leads club model without the rules or fees. "I've seen a lot of people try it but without the rules and the discipline, it just doesn't work out. It works for a while then they split up."
-- Peter J. Mladineo
What do residents of New Jersey, Colorado, Massachusetts, Georgia, Maryland, and Vermont have in common? They are all entitled to one complimentary credit report per year. Because of this, credit reports by major reporting agencies can be obtained via calling their toll free numbers. While most of the systems are fairly simple to use, they won't give you a report over the phone and might require you to mail additional information.
This information was received from Stephen V. Sashihara, president of Princeton Consultants at 2 Research Way, who supplied the names and numbers of three agencies that offered this service. Sure enough, when called, all three of the systems offered to send credit reports, free as promised:
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Don't Bet on It
Here's another warning from the federal government: Watch out for so-called government jobs brokers. Last week U.S. 1 reported on Operation Mousetrap, an alert concerning firms that promise to help market inventions. Now comes word that the Federal Trade Commission, U.S. Postal Service, and Bureau of Consumer Protection have issued an alert about operations that promise help or special information on getting federal or postal jobs.
"You don't have to pay for information about job vacancies with the U.S. government or with the U.S. Postal Service," the government warns.
The scam operations try to get up-front fees for help in finding information on federal jobs, or in whisking an applicant through the application process. Some of these operations also try to "guarantee" high results on entrance applications for some federal jobs.
"Federal agencies and the U.S. Postal Service never charge application fees, or guarantee that an applicant will be hired," says the report. Also, the U.S. Postal Service has very few openings for career jobs.
Luckily, these kinds of organizations are easy to spot -- if you know what to look for. Here are some giveaways:
For real federal job information, call the U.S. Office of Personnel Management's U.S.A. Jobs information system, 215-597-7440, or check the website, http://www.usajobs.opm.gov. Information on postal jobs is available at http://www.usps.gov.
When George Harrison sang about the "Taxman" ("My advice to those who die/Declare the pennies on your eye"), he wasn't just singing. Federal estate taxes can nail the deceased with up to a full 60 percent of a person's worth. This fear has created a mini-industry in the legal and financial planning arenas, and seminars explaining the ins and outs of estate taxes are proliferating.
The next one is Tuesday, July 14, 3 p.m. (and at 7 p.m.), at the law offices of Sharp Rudman, 100 Franklin Corner Road. Call Violette Warren at 609-219-1680 for more information.
The facilitator is Cynthia Sharp, a partner in the firm who is also a member of the National Academy of Elder Law Attorneys. Sharp will instruct participants how to avoid double taxation, how to pay estate taxes with discounted dollars, how to maximize the lifetime value of assets, and how to transfer personal capital. What she won't tell: how to protect those eye pennies.
This page is published by PrincetonInfo.com -- the web site for U.S. 1 Newspaper in Princeton, New Jersey.