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Reader-to-reader advice.

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Cashing in when Selling Out
My husband and I are majority stockholders, and we plan to sell our business within three years. We have only two active minority stockholders, and we feel that the four of us deserve some additional bonus or benefit at the time of the sale since we will most likely be the prime movers in the sale. How do we handle this situation?

Name Withheld

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Quickly is best, since your management skills (not to mention the economy) could sour and your key managers could vanish in three short years. If right now you begin to build up the company's value, its price tag in 1997 could be much higher than it is today. "It would seem that the additional value is the 'bonus' for the additional efforts," observes Mike Cohn, author of Passing the Torch (McGraw-Hill; call 800-422-3883, operator 6, $15).

But your wish is to reward four key people with part of the purchase price in a way that's disproportional to ownership. In this case your best bet, experts agree, is to establish a nonqualified deferred-compensation plan for yourselves. You'd need at least a 51% approval rating from your shareholders, depending on your state's law, your articles of incorporation, or your bylaws.

Broadly, here's how such a plan works: In each of the next three years, a portion of the excess future proceeds from the sale would be set aside in an account and marked as a liability on the balance sheet. When the business is eventually sold, you would immediately pay down any major obligations, then take for yourselves the accrued value of the liabilities of the deferred-compensation plan, and finally pay yourselves and the rest of the shareholders according to their individual ownership stakes.

A nonqualified plan has its pluses: "No annual report has to be filed; no ERISA [Employee Retirement Income Security Act] requirements need to be met. And the fact that the plan is discriminatory -- that it benefits only four people -- is perfectly OK," says Cohn. You don't need to file with the IRS, but you should let the Department of Labor know that the plan exists. It's an effective golden handcuff: anyone who leaves before the business is sold forfeits his or her deferred bonus.

A potential buyer would probably have no qualms about the deferred plan since the bonus could be written off come tax time, says John Brown, the founding partner of Minor & Brown, a Denver firm specializing in estate and tax planning. His book, How to Run Your Business So You Can Leave It in Style (AMACOM, 800-262-9699, 1990, $15.95), is full of practical tips on creating and preserving value in your business and on harmonizing your personal, financial, and estate-planning goals and your corporate objectives.

Of course, a deferred-compensation plan has its flaws, too. The annual payouts you'd receive would be treated as ordinary income, which is taxed at 36% (or even 39%), whereas profits from a stock sale are treated as capital gains and taxed at 28%. "The extra 8% to 11% has to be weighed against doing nothing and sharing sale proceeds that are proportional to ownership," says Cohn.

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Home-Office Chutzpah
I've just started a financial-management company that serves general contractors, architects, and engineers. Should I tell potential clients that I'm new to this business and that I work from my home? If so, how do I get them to take me seriously?

Name Withheld

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It's what you offer that counts, not where you offer it from. Your homegrown business is just as legitimate as one that's based in a downtown skyscraper. Besides, working from home is hardly a rarity these days. You're one of more than 24 million Americans (that's 20% of the entire adult work force) who are self-employed at home, a head count that's on the rise.

As you aim to attract customers for the long term, you want to be as up-front and upbeat as possible. Tell prospects confidently and matter-of-factly that you work from your house. "I've never lost a sale because someone 'found out' I was working out of my basement," says Bill Farquharson, founder of Advanced Form Systems, a $1-million forms brokerage he runs from his suburban Boston home. Of course, if you can't provide your prospective customers with the services they need, tell them that, too.

Don't kill your chances by opening a conversation with a blunt "I'm new to this business." "It sounds as if you're excusing yourself for your incompetence," says Georganne Fiumara, founder of the Mothers' Home-Business Network, in East Meadow, N.Y. Instead, present prospects with a professional personal-history sheet (no résumés, please), which details your prior relevant work experience. Follow up by pitching your value-added expertise and the virtues of your business's smallness. "You can be more flexible. Your low overhead will reduce their costs, and you'll be the authority, always there to serve them personally," says self-employment guru Sarah Edwards, coauthor of Getting Business to Come to You (Jeremy P. Tarcher, 800-788-6262, 1991, $10.95), a gold mine of smart marketing strategies.

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