Passion. Jim Collins, author of the venerable Good to Great once said “…the best performers across virtually every field have a single-minded passion for what they do.” During his famous Stanford commencement speech, Steve Jobs said passion was the reason he returned to Apple, the company he created, after they fired him: “I’m convinced that the only thing that kept me going was that I loved what I did. You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.” There are countless quotes on this, and it’s nearly cliché to say, but it’s no coincidence that “passion” runs throughout every great organization. Hire someone that seems genuinely passionate about what the job entails.

Loyalty. Long stays at prior employers is a sign that candidates are valued.

Conversely, if a resume shows 6 different jobs in the last 5 years it’s obviously a giant red flag; the candidate left either because the companies asked him to do so, or because he’s an opportunist. Either way, pass on these resumes. Hire someone with a track record of loyalty.

Utility. Particularly for small businesses it’s important to hire someone with experience, who can hit the ground running. Think of this as the Swiss-army-knife of employees; you can plug them into nearly any role and they will have the tools required to get the job done. Hire someone with experience that can be used interchangeably in many different roles.

Reliability. Many managers take for granted those employees that always show up every day to work, and always find a way to say “yes” to special projects/requests. Hold onto those people because there are fewer of them than you think. The best way to confirm this is by calling each of their past two managers and asking candid questions. Hire someone with a track record of reliability and flexibility.

Achievement. “Past performance predicts future behavior.” In sports, the best players find a way to win games. In business, the best employees find a way to succeed in tough situations; they are usually smarter, luckier, and more driven than their competitors…none of which can be taught. Average candidates will say “I helped the company grow revenue 12%”. Strong achievers say “I managed a team of 12 that received an Impact Award after generating a 12% increase in revenue and a 15% increase in contribution margin due to SKU rationalization.” People that have a track record of achievement always seem to find a way to win and repeat their success. After all, did anybody else see Tim Tebow beat the almighty New York Jets last Thursday? Hire someone with a track record of winning.

For further information, contact Brandon Hinkle at bhinkle@plurafinancial.com.  Brandon is the Co-Founder and CEO of pluraFinancial.com, a free online matchmaker between banks and small businesses seeking debt financing.

SBAC lobbyist Dan Johnson, who requested the hearing, noted that convening a hearing on legislation after it becomes law is rather unusual, but was necessary to ensure that obstacles and challenges are identified and addressed.

“Not only has Representative Ford been instrumental in getting this initiative passed, but he is also committed to working with state agencies to ensure it is implemented successfully,” Johnson said. “As a small business owner, Representative Ford has proven over and over again he is a true advocate of our cause.”

Representative Ford requested all state procurement officers attend the hearing to share current data on small business contracts and chart a plan to meet or exceed the 10% requirement. It was noted at the hearing that small businesses only attain 2% of state procurement contracts. And while small businesses number over one million statewide, about 6,000 small businesses are registered with the state, and only 2,100 small businesses are active vendors. Major challenges for small businesses in obtaining state contracts include lack of capital and resources to complete work, as well as lack of education in navigating a complicated and cumbersome registration and bid process.

Many positive suggestions arose out of the hearing to streamline the process and encourage more small businesses to participate, including:

• Simplify registration by automatically certifying a company as a state vendor once certified as a federal government vendor
• Apply recently updated federal government definition of small business to state, and eliminate conflicting classifications
• Require submission of certification documents only once when registering instead of requiring previously submitted documents with every bid.
• Assign only one state agency to oversee certification process instead of multiple agencies

At Representative Ford’s request, Dan Johnson will draft many of these suggestions into legislation to be introduced in the next session. Tune in to the SBAC blog to learn more once the legislation is introduced!

For more resources or to register with the state to become a certified vendor, check out Central Management Services (CMS) web site.

But note I said “world” which I meant both figuratively and literally. The figurative part we experience every day. The literal part is that we’ll all part of the growing globalization of entrepreneurship.

Here’s what Intuit says about this global trend in their publication, The New Entrepreneurial Economy:

Small businesses will no longer be confined to Main Street, or the mainland, as online storefronts and social networks help small businesses drive a new wave of globalization.

This new global wave is spotlighted this week starting today, November 14, 2011 through November 20, 2011 under the umbrella Global Entrepreneurship Week (GEW). It’s the world’s largest celebration of entrepreneurs who innovate and create jobs.

This initiative, launched in 2008 by former UK Prime Minister Gordon Brown and Carl Schramm, the president and CEO of the Ewing Marion Kauffman Foundation whose blog, Growthology, is included on our own blog roll. There are now 115 countries involved with nearly 24,000 partner organizations planning more than 37,000 activities that directly engage more than 7 million people.

And that’s the context in which I want to place Guy Rigby’s just published book pictured above, FROM VISION TO EXIT: The Entrepreneur’s Guide to Building and Selling a Business.

Mr. Rigby, with whom I talked this past week via Skype, is a chartered accountant (the U.K equivalent of our CPA). He knows of what he speaks. He’s had an unusually varied career as a business owner, advisor to entrepreneurs, and has built and sold his own accountancy firm. He now heads up the entrepreneurial services group at Smith & Williamson, a diversified financial services group based in the U.K.

Guy takes us through the life cycle of a business, from vision to exit and all the stops in between. His book is a practical guide to the journey we all are on, and it “translates” well into our American business owners’ experience. In this tough economy we’re in, Guy’s book can be a big help.

And being the entrepreneur that he is, Guy offers us a “two-fer”. If you buy the print copy of the book, you can download a digital version at no extra cost.

HB 3236 implements health care cooperatives (co-ops) in an effort to control excessive health insurance costs that are so often shouldered by small business. The legislation was passed with large bi-partisan support across the state by the Illinois House earlier this year, but remained stalled in the Illinois Senate. The bill must first be reviewed and passed by committee before the Senate as a whole can vote.  Fortunately, the status of the bill will remain in effect during next year’s session and the legislation will not need to be re-introduced.

Over the last several months the SBAC Health Care Committee, led by Steve Banke of 3Points, served as a catalyst for driving effective advocacy strategies to build coalitions and gain legislative support. With the help of countless SBAC members, a coalition was built of over ten business groups and consumer organizations including the GOA, numerous Chambers of Commerce, the Big Ooga, Illinois PIRG, and Jewish B2B Networking.  Due to direct contacts by SBAC and coalition members, an additional 15 senators signed on to co-sponsor the bill. The SBAC is grateful to those co-sponsors, including Senators Jeffrey Schoenberg, Annazette Collins, Jacqueline Collins, Susan Garrett, Linda Holmes, Dan Kotowski, Emil Jones, III, David Koehler, Steven Landek, Terry Link, John Mulroe, Antonio Munoz, Michael Noland, Martin Sandoval, Ira Silverstein and Heather Steans.

Though disappointed in the Senate’s inaction during veto session, Steve Banke was very optimistic about the future outcome of HB 3236: “This bill is far from dead and we will continue our fight in January.”

Steve Banke also identified additional advocacy strategies the coalition will implement to push HB 3236 forward, including:

• identification of legislators by member and company locations
• designation of member liaisons to legislative offices
• expansion of SBAC across the state, and
• identification and continuation of previous successful educational and promotional efforts.

Stay tuned to the SBAC blog for additional updates about progress with this legislation and how you can support efforts to pass this legislation into law.

Q: How are businesses similar to homes and baseball cards?

A: They are all worth what the highest bidder is willing to pay for them, no more – no less, regardless of what any book says. As a result, businesses are typically valued based on sale prices of comparable companies (“comps”). Just as homes in your neighborhood of similar size represent a “comp” for your home, a business comp is roughly defined as another company in your industry, of similar size and similar cash flows.

Valuation Step 1: Calculate EBITDA: The most basic reason companies have value is because they generate cash; they are an investment that returns cash. The starting block of every company valuation is calculating its cash flow, or “EBITDA”. EBITDA is a quick & dirty estimate of the company’s free cash flow; the pool of cash generated by the company’s normal operations, available to make investments and service debt after all other operating expenses have been paid.

Valuation Step 2: Calculate the EBITDA Multiple: Once you calculate the EBITDA, it should be multiplied by a factor, generally between 4x-6x (the EBITDA Multiple) for small businesses. For example if you have a high growth company that spews $100k of cash like clockwork each year, you might be able to sell your business for $600k ($100k EBITDA * 6.0 EBITDA Multiple). Conversely, if your EBITDA bounced unpredictably between $10k and $150k over the last 10 years, your company is probably worth much less than $600k because a buyer cannot accurately predict how much cash your business will generate going forward. Here are some key factors that influence your EBITDA Multiple:

Comps: The starting point for your EBITDA Multiple is likely to be whatever Multiple was used in the last few competitors that were sold in your industry. This can be difficult to find for smaller businesses, which have much less data available to the public.

EBITDA Predictability: The more predictable your EBITDA, the better “valuation” you will receive. For example, if your customers are obligated to pay you $X every month (a “subscription model”), than you will receive a valuation boost; there is comfort that the company will continue to generate cash in a predictable way. If you have “lumpy” sales that rely on winning new, large one-time contracts each year than your valuation will be discounted significantly relative to those that generate more predictable cash flows.

Growth & Market Share: If your EBITDA has been growing each year at significant (e.g. 10%+) rates and are expected to continue to do so, you will receive a higher multiple (e.g. 6x-7x). If you also have a huge piece of a growing market (e.g. Apple) you may receive an even higher multiple.

As a practical matter, the ability to find debt to finance a portion of the buyout can also impact valuation. Analogy: if one home is ineligible for mortgage financing, it won’t be as in demand as one that’s debt eligible.

The takeaway here is that each $1 of expense costs you $4-$6 of valuation, so spend wisely. Focus on EBITDA. And the more predictable and sustainable your cash flow, the better!

For those looking for a more detailed valuation crash course, I recommend reading “Valuation” by Copeland, Loller, and Murrin at McKinsey & Co. Disclaimer: nobody knows how to value a startup.

For further information, contact Brandon Hinkle at bhinkle@plurafinancial.com.  Brandon is the Co-Founder and CEO of pluraFinancial.com, a free online matchmaker between banks and small businesses seeking debt financing.

External Sources:

• Equity: The initial period most business involves a certain amount of cash burn. Estimate how long you believe you will generate more expenses then revenue, double that number, and try to start your business with that amount of equity; things always take twice as much time and money as you think.

• Line of Credit. It’s always best to get a line of credit when you don’t need one. A line of credit will help you fund the time-gap between paying for inventory and receiving the cash from the sale of your product.

Internal Sources

• Collecting A/R faster: hire a dedicated collection person. Revenue means nothing in the absence of collections, and you’ll likely be too busy finding new business.

• Turn inventory faster: if you have any stale inventory, sell it for a discount. So long as you sell it above cost it won’t hurt you, and the liquidity boot may come in handy.

• Pay A/P slower. Generally not a good idea, but in a pinch call your vendors and let them know you need to hold a payment for a couple weeks. A courtesy call will go a long way; you wouldn’t want to be surprised by a late customer payment.

To preserve liquidity you should do the following:

• Create a 13-week cash flow forecast to ensure you don’t run into any unforeseen cash flow problems. Keep a weekly spreadsheet of your projected cash flow side by side with actual cash flow. This is basically doing a cash-based weekly financial projection. 13 weeks ensures that you always have monthly/quarterly debt payments forecasted. Look at your A/R aging report to determine when cash is coming in, and look at your A/P and checking account to determine when cash is going out the door. If there is any shortfall, be sure you have room on the line of credit.

• Finance equipment purchases. Even if you think you have enough cash to pay for new vehicles, equipment, etc. with cash, you may need that extra liquidity down the line; a little extra interest expense is worth the peace of mind that you have excess liquidity to survive and advance.

For further information, contact Brandon Hinkle at bhinkle@plurafinancial.com.  Brandon is the Co-Founder and CEO of pluraFinancial.com, a free online matchmaker between banks and small businesses seeking debt financing.

Here is the score card:

Chambers and Associations

The GOA

The Industrial Council of Nearwest Chicago (Chicago’s second largest Chamber

The Skokie Chamber of Commerce

The Aurora Chamber of Commerce

The Highland Park Chamber of Commerce

Illinois PIRG

The Big Ooga

Jewish B2B Networking

Local First Chicago

Sponsoring Senators

1. Jeffrey M. Schoenberg

2. Susan Garrett

3. Jacqueline Y. Collins

4. R. Collins

5. Michael Noland

6. Heather A. Steans

7. Martin A. Sandoval

8. Ira I. Silverstein

9. Dan Kotowski

10. John G. Mulroe

11. Linda Holmes

12. Terry Link

The most amazing thing about this list is the size of the coalition of business leaders, and associates of the SBAC, that were simultaneously engaged to make this happen.

We need 18 more sponsors to ensure passage of HB 3236, and everyone reading this can play a part. Here is how:

1. Find out who your Illinois State Senator is

2. Call their office

3. Ask them to sponsor HB 3236

You would be amazed at how many of these sponsors were signed up this way.

The SBAC wants to thank all the members of the SBAC Healthcare Committee for their drive and energy. If you are looking to join an engaged group, this is surly one of them.

Next week we move into the final 3 days of the 2011 Illinois State Legislative season, and we are pushing hard to turn HB 3236, the Healthcare Co-Op bill, into law, and you can make a difference by making that call. Many hands make light work.

— About the Author —

Steven Banke is the CEO and founder of 3-Points, LLC, a 25 employee business serving the Information Technology needs of small and mid-sized businesses in the greater Chicago market since 2002. Steve lives in the Western Suburbs of Chicago with his wife and two boys, and has been a resident of Illinois since 1972. You can learn more about Steve’s business, 3-Points, LLC, at www.3points.com; and you can watch a 2 minute animation video about their mission by clicking here.

HB 3236 passed the Illinois House earlier this year with strong bi-partisan support from across the state. At present, the bill is stalled in the Senate and must first be called for a vote and passed by the Senate Insurance Committee, chaired by Senator William Haine (D-Alton), before proceeding to the Senate floor. Senator Jeffrey Schoenberg is sponsoring the bill, and SBAC members have been successful at contacting and encouraging other senators to co-sponsor the bill, including Senators Annazette Collins, Jacqueline Collins, Susan Garrett, Linda Holmes, Dan Kotowski, Terry Link, John Mulroe, Michael Noland, Martin Sandoval, Ira Silverstein, and Heather Steans.  More sponsors are still needed in order to get this bill called and passed through the Senate.

Here’s what you can do to help get HB 3236 passed in the Illinois Senate:

1. Call or Visit your state senator’s office (go to Illinois State Board of Elections to find your senator at http://ow.ly/78R38) by phone or email/mail correspondence and urge him/her to co-sponsor and/or support the bill. Consider making a trip to Springfield to personally lobby your senator for the bill during Veto Session. Post as a comment to this blog article or forward responses to Steve Banke at sbanke@3points.com.

2. Contact your local Chamber of Commerce If you are a member or have a connection with a local Chamber of Commerce, small business advocacy group, or consumer association, reach out to them and ask if they will join the coalition and support the bill. Post as a comment to this blog article or forward responses to Steve Banke at sbanke@3points.com.

3. Share your story about health care challenges Small business owners have especially been impacted by the challenges of obtaining affordable and quality health care, and real stories with details can be very influential with legislators in understanding the problem. If you have a personal story about health insurance you or your employees have experienced, please share it as a comment below or email Steve Banke at SBanke@3points.com.

• Click here for a 1-page fact sheet about the bill
• Click here to download a sample letter to legislator
• Click here to read the full text and current status of bill at the General Assembly web site.

The coalition group in favor of passing HB 3236 includes the following groups:

• The GOA Regional Business Association
• The Industrial Council of Nearwest Chicago
• The  Skokie Chamber of Commerce
• The  Aurora Chamber of Commerce
• The Highland Park Chamber of Commerce
• Illinois PIRG
• The Big Ooga
• Jewish B2B Networking
• Local First Chicago
• The Quad Cities Chamber of Commerce

By working together through the SBAC and as a larger coalition of business and consumer groups, we can truly impact state legislation and improve this state’s climate for small business. Thank you for your continued support and efforts as a member of SBAC!

Excessive health care costs are decimating small business and negatively impacting the economy. According to a study supported by the Commonwealth Fund, the vast majority of small businesses paid adjusted premiums 18% higher than firms with 1,000 or more workers, in addition to increased administrative costs up to 27%. The Small Business Majority reports that health insurance premiums have risen nearly 9% annually for small business. As a result, employers are struggling to obtain health insurance for themselves and their employees and are forced to choose between dropping employees or health insurance just to stay afloat, or eliminating benefits altogether. To make matters worse, seven out of ten small business employers report they cannot afford to offer health care for their employees, which inevitably shifts the responsibility of private medical expenses to the taxpayers via entitlement programs.

HB 3236, passed with bi-partisan support in the House earlier this year, enables small employers to join together as larger groups by establishing non-profit health care purchasing cooperatives (co-ops). The co-ops allow small businesses to increase their buying power while stabilizing and eventually lowering premium rates. Small employers in states such as Wisconsin, Minnesota, and Washington have already successfully organized co-ops to purchase health insurance. Because federal funding is currently available under the Affordable Care Act, the legislation does not have a fiscal impact on the state.

The legislation will also encourage competition in Illinois’ private health insurance marketplace, which may explain why the insurance industry is working so hard to oppose this bill. However, due to its positive impact on small business employers and employees and economy as a whole, the Small Business Advocacy Council (SBAC) has formed a coalition with numerous chambers of commerce, consumer organizations, and small business advocates to actively support this bill.

Small business is the backbone of our economy, contributing new and innovative and ideas to continually enrich our lives. HB 3236 offers an opportunity to support small business while providing employers and employees with greater access to affordable and quality health care. The SBAC urges the Illinois Senate to pass HB 3236 and encourages members to reach out to their state senators and voice their support of this legislation.

There’s a lot of misinformation and misconceptions about retirement plans. Here are some of the objectives I’ve heard from business owners followed by my response:

• “Retirement plans are too expensive to set-up and administer.” – There are retirement plan service providers that are structured to provide cost-effective services to small businesses.
• “The tax benefits aren’t all that great.” Not true. Personal and corporate tax benefits have never been better. Check with your accountant and see if your business qualifies for a tax credit for establishing a retirement plan.
• “I have to make a contribution every year.” – Retirement plans can be set up so that contributions are discretionary”.
• “I have to provide the same contribution to the employees as for me.”.– Not necessarily since there are allocation methods that can be used to provide larger contributions to the owners and still pass IRS compliance tests.

And, oh yes, then there’s procrastination. Here’s what Psychology Today says about it.

As for me, I’ll put it in layman’s terms. Procrastination perils proper pension planning.

Jerry Kalish is founder and President of National Benefit Services, Inc., a Chicago-based retirement plan consulting and administrative firm. He blogs at The Retirement Plan Blog, and can be reached at jerry@nationalbenefit.com.