Posts made in July 2014

Key Man Insurance Could Be the "Key" to Save Your Business






by Todd Gurley, Senior Management Consultant

Owners of closely-held businesses push their people (and themselves) hard every day to achieve important goals.  Owners are singularly focused on making their businesses a success.  As they grow their businesses, they often do not think of the “unthinkable” — “What happens to the business (and me) if I lost one or more of my key employees due to an unexpected death”?

This story is not about the positive exit strategy, such as selling your business and retiring comfortably.  This is about the unthinkable: the loss of a key person or persons in your business that creates “exit implications” not contemplated in your long term plan.  So, if that key person unexpectedly dies the company’s future may hinge on that unthinkable moment.

The harsh reality is “key people” are lost every day due to death or a fatal diseases; and after the loss of a key person, more than 80% of small to medium size businesses are out of business in less than three years.  Every closely-held small or medium size business has at least one key person it can’t afford to lose.  Maybe it’s the founder, CEO or CFO.

Or, maybe it’s the top sales person who has bonded with your largest customers representing over 60% of your revenues.  Ponder that scenario for a moment.

Most owners can’t even stand it when key people go on vacation, much less the thought of them never coming back.

Of the 20% of companies who survive the loss of a key person, most have of those companies have some type of insurance on the lives of their key people.

Remember, key people are replaceable, but the company needs time and money to make it happen.  There are four things a company must consider in this process:

1. Who to insure;

2. What type of insurance;

3. How much insurance;  and

4. What company to purchase from.

The “who” is straightforward?  If the loss of a person would have a significantly negative impact on operations, customers or financials then they should be insured.

The “what” gets a little more involved.  There are two broad types of insurance—term and permanent—that will cover the vast majority of situations.  Below is a brief explanation of each and some options to consider:

Term insurance for a fixed period of time.  It’s the cheapest and easiest to get.  Consider it as renting insurance.  It’s pure insurance for a fixed period of time with no build-up of cash value.  A policy for $500,000 will pay the company $500,000 at the insured’s death with generally no tax implications (always consult your tax advisor first).

Permanent insurance for “death” purposes.  Your options (and the complexity) increase significantly with permanent insurance.  Consider permanent insurance as just that: you own the policy for life regardless of what health conditions may arise in later years.  These policies offer both insurance and an investment component, generally called “cash value.”  Unlike term, part of the premium pays for the insurance component of the policy and part pays for the investment component of the policy.  The cost of permanent insurance is significantly higher than term insurance, but its purpose is to ensure you for life rather than a fixed period.  Depending on the kind of permanent policy, the cash value can be invested in different ways.

Permanent insurance for “employee retention” purposes. Insurance for employee retention purposes are important for four reasons.

  1. The policy protects the business if the employee dies.
  2.  The build-up of cash value can be used, for example, as a long-term employee retention incentive for the employee to stay with the company.  If the employee meets certain requirements the company can transfer the policy to the employee along with its cash value. While there are tax implications for the employee with this transfer, there are strategies to minimize its impact.
  3.  When you sell your business, buyers want to retain a stable management team.  Using permanent insurance for a part of your employee retention program adds value creation to the business giving you an opportunity to sell your business at a higher price than you normally could if you did not have an employee retention program.
  4. The company can protect itself with this type of policy in case the employee leaves early by recouping some if not all of the premiums it paid from the cash value.

The “how much” is a balancing act among what you believe to be the true cost to replace the person (s), the number of key people to be insured, keeping the business stable during a transition and how much the company can afford.  Some owners want insurance coverage from 10 to 15 times salary for each employee covered. This “peace of mind” relieves one more pressure point on the owner.

Not to be ignored in this process is the person who is helping you make this decision.  The majority of agents who sell life insurance are not adequately trained or qualified to help businesses make these complex decisions.  You need an advisor who understands your business — it strengths and weaknesses of not only your people but of the business itself.

When you purchase, buy from the highest rated carriers.  Before you buy from any carrier, press your advisor to provide background on each carrier from rating services like A.M. Best, Standard and Poor’s and Moody’s.

Let’s end with a question:  When is the cheapest time to buy life insurance?

Answer: Today.

Do it for the health of the business that you have worked so hard to build.

Mr. Gurley is a senior management consultant for GEM Strategy Management, Inc. with a broad range of leadership skills and experience from start-ups to Fortune 10 companies.  Mr. Gurley’s subject matter expertise includes helping clients develop and execute growth and expansion strategies; strategy implementation; operations management; strategic planning and execution. He is co-founder of Redbird Advisors, a national marketing and consulting firm providing value-added insurance services to independent insurance firms. Redbird Advisors, provides marketing program support, training/education, sales and management mentoring and develops business expansion strategies. 970.390.4441


Grow Faster with A Well Planned Acquisition Program Part I

Gary Miller


By Gary Miller, CEO, GEM Strategy Management, Inc.


Many companies are facing slow growth due to a tepid economic recovery, more federal and state regulations, the Affordable Care Act (ACA), and a lack of confidence in the economy.  Faced with these conditions, small and middle market companies are developing acquisition programs as a part of their strategic business plans to accelerate corporate growth.

With banks wanting to lend, low interest rates, plenty of “dry powder” (money to invest), a tsunami of companies for sale — making it a buyer’s market, companies are charting a path to the next era of opportunity and wealth. However, growing significantly in a flat-growth or a tepid environment requires a bold combination of careful planning, savvy thinking and well executed tactics.

This article provides an in-depth look at step one only, of a six step acquisition process, entitled “Plan an Acquisition Program” (see The Denver Post, “Grow Faster with a Well-Planned Acquisition Program” for all six steps published 6/22/2014).

Careful planning includes, determining the acquisition program goals, selecting the acquisition strategy and rationale, determining acquisition criteria and matching them against available financial resources.  After careful examination of alternative methods of corporate growth —  new product development, licensing arrangements, and joint ventures’ —  it must be determined, whether acquiring another company is the most effective path to meet corporate growth objectives.

An acquisition program should ameliorate strengths and/or eliminate weaknesses.  Before embarking upon a program the company must spend time in serious self-examination to determine its own strengths and weaknesses and their capacity for supporting, financing and integrating a newly acquired company. Often, companies developing an acquisition program hire a consulting firm with M & A experience to assist them in this self-examination effort.

Establish Acquisition Goals

Goals can include addressing these issues.

    • To fill a product/service line gap
    • To expand geographically while taking out a competitor
    • To upgrade infrastructure
    • To increase distribution channels
    • To improve the acquirers balance sheet
    • To acquire management talent and their customer base

Establish Acquisition Strategy and CriteriaAmong others, an important strategic issue is the form of payment. The ramifications of using cash or stock must be examined against the possible benefits of using other forms of payment, such as notes, earn-outs, stock options, bonus clauses, and non-compete contracts. Flexibility in structuring the transaction will enhance the buyer’s negotiating position.

Criteria supporting the strategy should include the following:

  • Companies of interest
  • Minimum size
  • Profitability trends
  • Competition
  • Labor/capital intensiveness
  • Management team depth and quality
  • Debt capacity
  • Product/Service offerings and quality
  • Cultural fit
  •  Brand and reputation
  •  Synergy of combined operations
  •  Payback time period
  •  Stability/Risk
  •  Regulatory environment
  •  Margins
  •  Market position (i.e. # 1, 2, 3, other)
  •  growth rate potential
  •  Financial requirements (balance sheet, cash flow, earnings history, ROI)

Summary Careful planning can significantly lower risk of failure. The path to rapid growth is littered with acquisition “road kill”.  Most acquisition failures can be traced back to poor planning. However, that same research indicates that those companies that complete more deals than companies who do not, generate higher returns on investment, greater enterprise value, deliver stronger financial performance and create significantly more shareholder wealth.

However, the most important goal is any acquisition program is to add enterprise value and increase shareholder wealth.


5 Smart Ways to Boost Your Bottom Line

Bob Vanourek

Bob Vanourek

For many small and middle market companies, times are tough.  The “new normal”  way of doing business requires smart thinking to protect, and enhance your profitability. Here are five smart ways to boost your bottom line:

1. Stop Doing Some Things. In tough times, a more radical focus is essential. So many activities creep into what you and your people do every day that you don’t even realize they are now unessential. Cut that waste-of-time meeting. Cease doing business with that never-satisfied customer. Flow chart some of your business processes such as your billing steps. (Just Google “flow chart a process.”) You are likely to find redundant, non-value-added work that you can eliminate.

2. Vent Your Key Staff  You can’t get financial stability in your business until you have psychological stability. Right now some of your staff, probably your best employees, are thinking about where they might go to work next, or what to do if the axe falls on them. Therefore, they are frozen in their work, their innovation, engagement, and their commitment. Stephen Covey famously said, “People can’t listen until they’ve been listened to.”

Gather your staff for a long meeting. Announce that “we have to get every issue out on the table.” Announce you’lll go around the room for each person to briefly name an issue for you to write down on flip chart pages. No long speeches. No defensive counters. There will be no retribution for anything that is said. It is a safe environment. People can pass if they wish, but you’ll go around the table until the whole group has passed three times in a row.

Be prepared to hear some tough issues, some likely about you. Then have the group proioritize the issues into A’s, B’s, and C’s, or into issues easy to resolve versus longer term challenges. If you’ve done this exercise well, you’ll now know some critical things you must do to enhance your financial performance.

3. Form some Tiger Teams and Unleash Them. You can’t do everything yourself, and you can’t afford to send people off for “training” in these tough times, so you need to spread the challenges around and unleash the leadership latent in some of your staff.

Ask for volunteers to lead some temporary Tiger Teams of other volunteers to attack and solve the A priorities (or easy-to-resolve issues) that were identified. Give them a one-page charter outlining the problem (or opportunity), the specific goal(s), the time frame involved, their authority and budget (if any), who they report to, and how they’ll communicate progress. The volunteers can be people outside the firm too. I was CEO of an organization that reduced 15% (!) of our purchased products costs by forming these teams with trusted vendors.

The best way to develop the leadership capabilities of others in your organization is to give them project assignments and to coach them along the way.

4. Find Some Sanctuary. You can’t think smartly and strategically when you are buried at the office and under great stress. Consistent with “stop doing some things,” you must get away on weekends, find the time to get away into a place to really relax (without your email and smart phone), or to just get 30 minutes a day to not be on high octane adrenaline.

5. Make a Strategic Move.  Your competition may be back on its heels. Coming out of your sanctuary, you may realize that now is the perfect time to acquire a weak competitor,  form a strategic alliance with a strong competitor, or enter a complimentary market with a new value proposition.

Boosting the bottom line by cutting customer services or laying off employees across the board won’t help you these days. So be smart in how you boost your bottom line.


Bob Vanourek is as senior consultant for GEM Strategy Management, Inc. Bob was the former CEO of five companies from a start-up to a $1 billion NYSE turnaround. He is co-author of, Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations, a 2013 USA Best Book Awards Winner. Email or