Business Ethics – Overrated or Underrated?

Ethical behavior, quality character, honesty, moral integrity – how does one in business view these human attributes?  I tend to view them as a given with the people I interact in both the business world and in my personal life as well.  I expect the best from people yet keep my eyes open for behavior that contradicts my expectations.

I am a business broker based in Florida.  In the profession of helping those buy and sell businesses.  In my profession, as with most all professions you have what some consider good business brokers, bad business brokers, and OK business brokers.  Most all industries have the good, the bad, and the average.  Is it ethical practices which help define the good, bad or OK?

Business Ethics Among Your Clients

I recently experienced a business activity that made me take special note of a business clients actions. Basically, we had a verbal understanding and agreement regarding a business relationship we would enter into contractually.  While driving to meet with client to sign the documents that outlined our agreement my client was approached by others.

The client and I had no written agreement between us. The  client could potentially go in another direction which could cost me a fair amount of money. I had left at 5:00 am to drive 6 hours to meet client and about 1/2 hour before I got to our meeting he called me to tell me of this other situation.

After listening to what he had on his mind, I was somewhat pleased when he  then asked me how long before I could get there and we could sign our papers and I could represent him with this prospective buyer of his business.  He told me he felt he needed the assistance of my representation, yet he could of handled the situation so much differently.  Before this exchange I viewed this potential client as a good, honest, straight forward individual. His actions reinforced to me the value of dealing with a person of good character.

I have shared this story with several of my friends that are business owners and their response was fairly common.  They too also greatly value dealing with a person of good character.   But that fact that those around me hold business relationships with those of good character in such high regard, makes me realize good character from others is a valuable yet somewhat  limited commodity.

Business Ethics

Photo (c) reputationalcompliance.com

A few weeks back my teenage son and I were talking of the Tiger Woods situation regarding his many documented affairs. We both are active golfers and had admired Tiger Woods golf skills over the last 10+ years.

Golf is an interesting game and it has been said that one can learn more about a person in one round of golf than you can in multiple office based meetings. I asked my son that if Tiger Woods had “cheated” on his wife and family, do you think he may have cheated on golf.  My son said, “No,”  I said, “Why?”  He said that he thinks Tiger Woods views golf so importantly that he wouldn’t cheat on golf. So I asked him the obvious, “So you think he views cheating on golf to be worst than cheating on your wife and family and that is where he draws the line?” My teenage son said, “Yes.”

Ethics Of Financial Gain?

I have been associated with several different organizations, associations, and trade groups.  I still get a little surprised  that many of these such groups feel compelled to teach ethics.  I am in the profession of being a business broker and I work with individuals and businesses in the process of buying and selling businesses.  I consider the fact that I will treat my clients and customers in an honest, ethical, and moral manner as a given, yet when I witness others that “consistently take the high road” I take special notice. I have been a member of the business community for several decades and recognize that most all of us are on a quest to increase financial gain.  Where does ethical behaviour fit in that mix?

  • Do you feel business ethics can be taught and learned by all in the business world?
  • Is business ethics much different than normal ethics one utilizes in the everyday game of life?
  • Can ethics be taught to a 20, 30, 40, 50, 60 year old? Or is it ingrained in you before you enter the workforce?
  • Is it ok to treat someone unethically and then pass it off as “Its just business” ?  To this I say No and have always felt that.  I have never really understood “Its just business.”
  • I have never understood “I had to cheat you out of $X,  but it was just business”, ” I know I treated you wrong, but it was just business” – what does that really mean?
  • Does proper ethical behavior really require actual thought or is it more of an involuntary response that just occurs like breathing and blinking?

Is dealing with a person and expecting honest ethical behavior a given and glossed over to allow “more important business issues to be discussed”,  or is it the important issue that all else revolves around?

Why Buy A Towing Company

When Buying a business –  It has been said by others Pay for the Past, Consider the Present, Buy for the future.  So what is most important when looking to buy an existing business.  How much weight do you put on last years numbers?   How important are the current numbers?  How much are you buying the business for the future numbers?  Past, present,  and future all matter.

But buying a business is buying the future. I am currently working with a Florida based Towing company that is interested in selling his business.  We are selling his Towing company for $1,400,000.              Towing Business For Sale It is easy to imagine a towing company to be no more than the guy that hooks up your car at the side of the road and tows it in for repairs and that is the extent of the business.  This Towing business for sale is much more  that.  I attempt to view businesses for sale from the perspective- “would I buy this business, and why or why not?”.

Why Should Your Buy Towing Company Business:

This Towing business for sale will be a solid business investment for someone and I’d like to highlight reasons why someone will buy this business:

1.   Multiple Income Streams- Yes they do tow cars, but the business model is so much more than that.  They derive revenue from towing, also, vehicles towed in very often pay a daily storage fee, sometimes for vehicles in accidents vehicle require “sealing the car with stretch wrap” to eliminate additional damage from weather, some vehicle owners elect to get vehicle serviced at the towing companies service shop, so there are service fees, some vehicles get towed in and never get claimed.(more than you would think).  These vehicles get fixed and resold, sold for parts, or sold for scrap.   So Income comes from:  a.  Towing,  b. Storage,  c. Securing  d. Storage              e. Service work  f.resale  g. Disposal

2.   Significant Assets are included in purchase Price- Land, multiple buildings, multiple trucks, equipment collectively total over $1,000,000.   I have never been a fan of buying a business because of the assets- Usually cash flow is main area of interest.  But owning the property that your business operates on and paying “yourself the rent”, allows you both control and the ability to enjoy appreciation of this asset as you grow your business.  Also, securing money for your business is easier with assets on your balance sheet.

3.   Good Cash Flow–  This Towing  business generate about $160,000 a year in cash flow.  With Revenues of about $600,000 this is a respectable cash flow. Cash flow has been fairly steady and consistent over a several year period.

4.   A Towing Business is a Recession Resistant Business- There may be a business that is “Recession Proof”, but I am not so sure what that business may be. The economic downturn that began in 2008 has been both extended and far reaching.  Outside of insurance companies, most businessesIi know of have felt the effects of this downturn by significant reduction in revenues.  The towing business is a service that is neither a “luxury item” nor discretionary expense.   A towing company provides a service that is needed regardless of the economy.  This business did realize a 12% reduction in revenues, but compared to the 20%, 30%, and 40%+ reductions in revenues by many of the businesses that i have been working with, this dip in revenue is minimal.

5.   Future Prospects– Business has opportunity to add an onsite used car auto division.(both the land and building exist and the towing nature of the business results in vehicles potential for resale).  Service department has considerable room for growth, and unlike many auto service companies that may wonder where their next customer may come from, the towing operations bring customers in!  As with the auto resale operation, most of the infra structure is in place,  incremental revenue  could result in substantial incremental cash flow.

Towing Company

Photo (c) grandrapidsmilocksmith.com

Yes , I have a vested interest in the sale of this towing company.  I stand to gain financially as this business sells.  I also  attain personal satisfaction helping a long term business owner work thru this process of transition.  Finding the right buyer and getting the right price and terms for this business are the goals we set.

I believe this Towing business for sale will be of benefit to the right buyer.

Business Succession

Last week I was asked to speak at a small business seminar on business succession as it relates to selling a business here in Florida.  Succession planning in general  is the process of preparing to hand over control of the business to others. Very often family may be part of succession planning and while most businesses do not have any plans for business succession, those that do, fall short in the planning and communication of those plans. So you are working hard on your business now, what is your plan?

  • Build up  your business to a nice size and sell your business for great financial gain?
  • Pass your business on to your kids
  • Arrange an LBO for key employees
  • Work your butt off, make enough money to pay your bills and do this til you are no longer on this earth.
  • other

Business SuccessWe are all busy running and or growing our businesses, but last week  a few business owner did consider this issue important enough to take a few hours out of their day to attend this workshop and  begin understanding the process.

Presenting at this workshop were an Attorney, a CPA, an insurance provider, and myself.  This seminar was attended by local small business owners seeking knowledge on this topic.  What I found most interesting was that the Attorney, CPA, and I spoke on many of the same issue regarding selling your business  We all spoke for about 1/2 an hour and didn’t coordinate on what we would speak on.  While we touched on the the different aspects surrounding business succession,  I found we spoke on many of the same points, but due to our professions we spoke on those point from varying perspective.

When discussing seller financing for your business, the attorney spoke of the need for extreme caution when setting up seller financing, and additional care extended when family or fiends involved.  The CPA spoke to the proper records to be kept to document what you have and be able to show what you had in the way of your companies performance.  My discussion regarding seller financing  addressed the prevalence of seller financing in the marketplace and the need to be able to offer it to help make a deal happen in to days tight credit market.

What Your Business Success Relies On?

A few key points from this workshop:

  1. Most businesses do not have a succession plan.
  2. Planning is the most important first step.
  3. Seller financing can help facilitate a deal but one must do proper due diligence.
  4. Relying on your business as your only source of retirement funds is dangerous and mis guided.
  5. When doing your annual reviews of company numbers or tax preparation, use that as a good time to look at other matters as it relates to your biger picture

My suggestion is between handling your accounts receivables, accounts pay ables, other office paperwork, social networking, working with clients, and  returning phone calls/emails, take a moment to consider what your exit plan may be.  Even if you just give the subject a few moments of thought, you may find yourself ahead of most or your peers and fellow business owners.

Also, the Internet is a great source of information on business succession and other business matters, but also keep your eyes open for the various seminars, workshops, and expos that may be in your area.  They are not only a great source of knowledge, but also a great opportunity for the “other type” of social networking.

Using Your 401k to Buy a Business or Grow Your Business

For many in the workforce their 401k can  represents a large portion of their net worth.  Many don’t realize that  they can use these funds to buy a business even before they reach 59 1/2 without incurring the often heard of  penalties and negative tax consequences.  Many of those that buy a business or want to buy a business are currently employees for others.  Future business buyers are currently working for someone else.  And there are many employed that are earning their hourly wage or salary, have minimal savings, but have accumulated a healthy balance in their 401k.

Using 401k To Buy A Business

This is ones safety net for the retirement years.  Even considering using this “security blanket” to fund your business or to use to buy a business needs to be well thought out and involved the counsel of your accountant or financial advisor.  Using your own savings, borrowing from family or friends, borrowing against equity of your own home are all means to fund your acquisition, and some more desirable than others.

I consider myself a somewhat conservative entrepreneur( which may sound like an oxymoron).  But the more I involve myself with the dilemma or how to finance business acquisitions, and are banks really loaning money to those that want  to buy a business, and more specifically are banks making smaller loans to those that want to buy a small business  (say $200,000 and lower) other means of financing should be considered. Ive always felt that banks do provide loans to those that can prove that they dont need it, and now that point is even stronger than in the past.

An SBA loan should be explored.  They are available and the requirements for documents, security, and your financial well being can be both daunting and take considerable time.  But one should explore this option.

Furthermore, when I initially hear of someone using a 401k to either fund a business or buy a business, I think penalties, fees, and shrinking nest egg.  But like so much in the accounting and tax world the devil is in the detail.

Using Your 401k Money To Buy A Business Can Mean Many Different Things

Using your 401k can mean ….

1. Just taking money out of your 401k .  – Just a Bad idea for so many different reasons

2. Taking a loan from your 401k- Most plans offer this options, there usually is amount restrictions, but you do pay interest back to your self.

3. Setting up a Self directed qualified plan(using a third party that specializes in this process)  that allows you to purchase  a franchise, or  buy a business without distribution, taxes, penalties, or the use of loans.

Setting up a Self Directed Qualified plan involves the following steps:

  • Form a C-Corporation
  • Prepare the adoption documents for your New 401k plan for your new corporation
  • Corporation Valuation
  • Rollover- direct rollover from your 401k plan into your new account
  • You as a Trustee will transfer money into your corporation checking account

Please note the above is a simplified summary, but does represent the spirit of the steps involved with setting up a Self directed plan to buy a business. There  are cost to hiring a third party to administer setting up a self directed Plan to buy a business.   It is their job and responsibility to guide you thru the specific process.

Using 401k To Buy A Business As A Last Resort

There are also some additional annual reporting requirements to be done by your accountant.   But if one wants to avoid a bank, or avoid borrowing from family or friends, or avoid borrowing against your home, then maybe using your 401k to set up a self directed plan to buy a business warrants further investigation.

Start or Buy a Green Business- Measure Twice Cut Once

I believe  a disconnect exist between all the news media exposure regarding the “green movement”, “green jobs”  and the actual mindset of most small business owners and entrepreneurs.   It is no doubt that “green” has become one of the more reported on phenomenon over the last couple of years.  The  US election had strong ties to green promises  and  future jobs.  This mantra has created general optimism.  One of the most important part of starting a new business, or buying a business is the due diligence needed to evaluate the opportunity.  Do you want to start a business or buy a business in the “green Industry”?- perform some due diligence beyond reading the headlines.

Please consider that small business owners and entrepreneurs are wired to think in the now, and fast, and today and ASAP.  Much in the Green Industry is very policy driven, and that policy comes from federal and state levels, and that policy is wired to work within targets such as long term, next year , and eventually…  To me this creates a disconnect between the small business owner/entrepreneur and the potential opportunities.

Buying A Green Business – My Perspective

My interest in green is from somewhat a different perspective than many.  My real interest in Green began back in the early 1980’s and gas prices were once again going up.  The college I was attending had offered a major in Energy Management and I viewed this to be an industry with unlimited future, and I pursued and achieved my major in Energy Management.  We did experiments on Solar panels, reports on Global Warming, discussed world energy policy, nuclear and many other topics I did find interesting and still do.

Upon graduating with my Energy Management major, I got employed in the energy field and acquired further education and training.  My Entrepreneurial spirit got the best of me and the thought of starting and owning a business and being in direct control of my future had me in a start-up in a non-energy related business.  Sold that 20 years later and here we are in the year 2010 and wonder how far this exciting field has gone in the last 25 years.  It has gotten significant traction in the last years but where is it Jan. 2010?  And my interest in the green movement is its inter-relation with energy efficiency.

I enjoy the financial side of the green movement.  Tangible monies saved as a result of energy technologies and practices utilized.  I recognize the byproducts of many of these energy saving measures to be environmental benefits.  If you can save a kilowatt hour (kwhr), and that kwhr doesn’t need to be produced by a coal burning power plant, you have dual benefits.

I currently am representing  a Current business for Sale that utilizes a Green concept can be found here  at https://sellabusinessadvisors.com

Buy A Green Business In Florida

1000+ other businesses for sale can be found here as well including many Florida businesses for sale.

1. I am located in Florida, a state strongly hit by the depressed housing market and construction market and unemployment.  I interact with owners in the solar and energy industry and people interested in solar and renewable energy. With current policy (or lack of) in Florida, the solar industry and existing business engage in the solar industry is far from healthy in my opinion (Solar is just one aspect of the various renewable energies and green products and services that comprise the market as a whole.)

It appears to be a yo-yo type industry .  Policy injects some money into the industry, most policy is short term, policy money is exhausted and the industry slows down.  This process get repeated it seems year after year.  I also know of very qualified/licensed individual that work in the solar industry part-time, because the thought is the market is not there to support a full-time business.  I also attend Solar/energy advocacy meetings that attempt to show support of the industry that is full of individuals interested in entering this field, but where are the job opportunities?

Many jobs fall into the contractor categories, but the current market doesn’t seem able to support existing contractors.  Various consulting jobs may surface, but expertise  (that not everyone may have) is needed  and shrinking budgets from potential clients slow these opportunities down as well.

2.  Ok- so it was said that with stimulus money behind the “green movement” we would be creating lots of jobs- where are the jobs.  Numbers and statistics can be “massaged” to represent various results but certainly the empirical info in Florida is not impressive.

Buying A Green Business

Photo (c) mtnweekly.com

The economic stimulus bill’s investments in clean energy have not created many green jobs yet, according to the Council of State Governments.

Only 13,000 green jobs had been created or saved by the stimulus bill through Oct. 10, 2009 according to the council’s analysis of data collected by states. Ohio led the nation with 2,500 green jobs. Rhode Island, by contrast, reported no green jobs as a result of the stimulus bill.

The top programs for green jobs were the Department of Energy’s weatherization assistance program and energy efficiency block grants, and the Environmental Protection Agency’s clean water and drinking water state revolving funds – As reported in the Washington Business journal

3.  The Entrepreneur or business owner interest in the Green movement may be:

– “how much “green” can I make from this business opportunity ?”

-“I feel good about being in this industry that can have positive impact on the environment”

– “Am I missing out on some significant opportunities? ”

– “Can I buy an existing green business with a history of revenues and or profit?”

Conducting a search of “green or energy businesses” that are for sale that have a history of revenues and profits show very limited opportunities.  Possibly the largest opportunities are for entrepreneurs to start new ventures and build them and potentially sell those successful businesses down the road.  I am a fan of the energy saving part of the green movement and believe energy independence to be very sound policy for our country.  I support involvement and interest in this field.

But conduct proper due diligence before you proceed with your green business.  The newspapers, and news broadcast say green is great, governments are sending lots of stimulus money towards the green movement, but proper research and how you approach the “green industry”  in your part of your world will dictate your sustained success in this  potentially large industry.