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IncQuery: A Mother of a Problem

Help! My key manager is going out on maternity leave. Plus: What to do when you have only one customer, and how to figure out how to price your business.
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IncQuery

In the Family Way


How do small companies deal with the Family and Medical Leave Act? I have 75 employees, and my HR manager is about to go out on maternity leave. I have to keep her position open, but she doesn't have a lot of backup, so how do I do that? --Darlene


"Planning should start as soon as you know that a key person is taking a leave, not when the person is about to leave," says Francene Rodgers, CEO of WFD, a consulting firm in Watertown, Mass., that specializes in workforce strategy and women's advancement.

"Have the employee analyze how she's spending her time and see which things somebody else on staff can do or can be trained to do.

"You can also bring in a consultant to fill in on a temporary basis. In HR, finding a consultant should be pretty easy. You can look for somebody who has the skills you need but is not currently in the labor force and who wants to work flexibly -- someone who might have gone back to school or might be starting a business. Nowadays there are temp agencies popping up that can help you.

"When my chief financial officer went out on maternity leave, I really couldn't just redistribute her work, because we were too small. So I found a temporary CFO, a man who was between jobs and wasn't sure what he wanted to do next. And he overlapped with my regular CFO both before her departure and after her return.

"Remember, you don't only want to make a plan for the leave -- you want to make a plan for the return. When your employee comes back, you don't want her to walk into a pileup of three months of work. She will be experiencing sleep deprivation and reentry shock, and some initial flexibility will make for a smoother transition.

"The most important thing -- especially in small companies -- is to create an atmosphere where everybody works together to cover these times. If you have an atmosphere where people are not afraid to tell you when they're pregnant, you'll get more notice and more planning time -- let's say, six months. With an adoption, you might get even more notice, since adoptive parents are usually on a waiting list for even longer."

Our One and Only


Thirteen years ago my father sold our family's manufacturing business. Two years later the new owners went bankrupt, and my dad bought the company back, at the request of one customer. The customer, a distributor, agreed to give us all its business -- worth about 60% of our industry -- in exchange for selling only to it. But with no written agreement, we're feeling vulnerable, especially lately. Some manufacturers in our industry have been selling direct to the end user, bypassing the distributor and beating our customer on price. I'm concerned that our customer's market share is beginning to erode. But if we start to sell direct, the customer will take its business elsewhere. What would you do? --Vice-President and Principal


"The first thing I'd try to do is get some kind of a long-term purchase-order agreement," says Jack Stack, president and CEO of SRC Holdings Corp., in Springfield, Mo. "If you can't get that, you're vulnerable. So either you'll have to develop a completely different new business, or you'll have to find some way to diversify what you manufacture.

"I'd keep the brand you already make and stay with your current distributor but start another, new brand and find another channel to sell it through. That's the strategy that a company I know of followed when it was in a situation very similar to yours. It had a product that was way out in front of its competitors', and then it started to sell through mass merchandisers, who drove the price of the company's products down so low that it almost killed them. So the company developed a whole new premium brand under a different name and sold it through direct channels while keeping the retail product with the mass merchandisers. The company didn't alienate anyone, but it was able to build up its revenue.

"Always remember, the business rule is to diversify your assets; don't have all your eggs in one basket. That's a higher law."

Between a Rock and a Hard Place?


A large chunk of my income comes from Rockcrawler.com, an on-line magazine for off-road and 4x4 enthusiasts. I started the business in 1997. I have 10 contributors who work on a volunteer basis and do primarily product reviews and evaluations as well as reports on trips and events. Our information is updated daily. All my revenue, about $50,000 to $60,000 a year, comes from advertising. I'm considering selling Rockcrawler, but I don't have the slightest idea what it's worth and how to handle the sale. Help! --Michael


"This is a very small business. If you went out to hire somebody to run it, it wouldn't make any money, because the amount of revenue is so low," says Sam Kaplan, president of Central Chase Associates, in New York City, who buys and sells companies on his own and with partners. "So I don't think the business can be sold to somebody who's looking at it as an investment opportunity or even to make it a division of something else. And because Internet advertising is currently very soft, it's not like it's all of a sudden going to go from $50,000 to $500,000 a year.

"On the other hand, I looked this business up on Alexa.com, which ranks Web sites' popularity by the number of visitors, and it was ranked about 77,000 -- not bad at all. Which led me to the conclusion that this is really ideal for somebody to run as a home-based business or as a second business.

"This company is also probably one of those things that's a labor of love, with volunteer contributors and so on. Therefore, I would think the ideal buyer would be best found among the people who read the magazine. I'd figure out creatively how to tell the readers -- without scaring them -- that it's time for you to pass the torch on to the next party, and if somebody is interested, they should contact you and you can work something out.

"As for the purchase price, the lack of large potential growth, combined with the low revenue, makes it unlikely that someone will come in and pay a multiple of revenue. Asking the buyer to pay some percentage of the $50,000 or $60,000 a year for a number of years, perhaps three years, would make sense. But it should be defined as a dollar amount, not as a percentage, because if the new owner decided to get rid of the business or walk away from it or didn't do a good job on it, the percentage of zero would be zero. I might want 40% of $50,000 a year, meaning I'd ask for a flat amount of $20,000 a year, leaving the buyer with an upside of $30,000.

"You're probably talking about an eventual payout equal to the annual revenue. Possibly, you could get twice that, but I doubt it. I think the business is basically worth what its revenue is."


Edited by Evelyn Roth


Having Trouble Sleeping Lately?


Could you use some advice from an experienced entrepreneur who's been where you are and figured out what works and what doesn't? Send your questions to IncQuery@inc.com. We'll find the best people around to answer them. And if you don't like their answers -- well, you can tell us that, too.


Please E-mail your comments to editors@inc.com.

Last updated: Jan 1, 2003




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