Inside: Technology and the Family Firm

Recruiting Beyond the Family

New Health Insurance Rules

A Supplement to Banker & Tradesman

Off ic ia l magaz ine of the

FBA Awards for Massachusetts 2012Family Businesses Honored for Endurance, Community Ties

Winter 2013Massachusetts

FAMILYBUSINESS

for additional inforMation Call 617-896-5344

May 16 & 17, 2013

Massachusetts Family Business magazine, the Family Business Association, and

The Warren Group are dedicated to honoring and educating family businesses

throughout the region.

This is your opportunity to meet face-to-face with more than 100 family business

owners and managers who will gather to learn from their peers, hear from experts,

study a variety of best practices, and network.

The program will feature a high-impact keynote speaker and a selection of

educational breakout sessions with panels of family business owners sharing their

knowledge and experience. Plus, all attendees will receive breakfast and lunch, a

chance to win great raffle prizes and more!

MGM Grand at Foxwoods Resort & Casino

SaVE thE

datE

FAMILYBUSINESS Conference

New England

Presented by

3

Massachusetts Family Business

Official magazine of the CONTENTS

12

20

8

6

4 from the advisory council Behind the Scenes: A Successful 140 Years

6 health care reform Employers, Now is the Time to Prepare

8 when all you have is a hammer Technological Literacy is the Key to Survival

10 smooth cyber criminals Tips to Avoid Becoming a Victim of Cyber Crime

18 looking ahead Can Life Insurance Plans Help Your Family Business?

20 outside hiring When – and How – to Look Outside the Family

22 the key three Tips for Acquiring Another Company or Merging Yours

12FBA AWARDS FOR MASSACHUSETTS 2012From first generation businesses just getting started to a company celebrating 125 years, here are their stories.

for additional inforMation Call 617-896-5344

May 16 & 17, 2013

Massachusetts Family Business magazine, the Family Business Association, and

The Warren Group are dedicated to honoring and educating family businesses

throughout the region.

This is your opportunity to meet face-to-face with more than 100 family business

owners and managers who will gather to learn from their peers, hear from experts,

study a variety of best practices, and network.

The program will feature a high-impact keynote speaker and a selection of

educational breakout sessions with panels of family business owners sharing their

knowledge and experience. Plus, all attendees will receive breakfast and lunch, a

chance to win great raffle prizes and more!

MGM Grand at Foxwoods Resort & Casino

SaVE thE

datE

FAMILYBUSINESS Conference

New England

Presented by

4

PRESIDENTEdward D. Tarlow, Tarlow, Breed, Hart & Rodgers, P.C.

101 Huntington Ave., Suite 500Boston, MA 02199fbaedu.com

FAMILYBUSINESSMassachusetts

Official magazine of the Family Business Association. Inc.

Our company, The Warren Group, celebrates its 140th birthday this year. Throughout our history, we

have adhered to my great-grandfather’s en-trepreneurial spirit and his essential idea for the business. We have worked hard to carry it forward.

A visitor to our confer-ence room sees shelves upon shelves of bound volumes of our news-papers, which contain property records dating back to 1872. Every page in the volumes yields a

picture within the sweep of time of regional commercial transactions.

A reader today might not be able to tell from the constancy of nearly a century and a half of these volumes of the behind-the-scenes business activity that has kept our company alive. In the 1930s, my grandfa-ther reduced operations and issued com-pany scrip. That brought us through the Great Depression, ensuring the survival of our two flagship newspapers. After World War II, the publishing business rebounded, but was somewhat stanched by the high overhead costs of maintaining the printing plant, which was sold in the mid-1950s at my father’s behest.

The transition to a computerized data-base in the 1980s brought a multitude of business opportunities for our company.

Property ownership records online debuted in 1989, sparing real estate professionals the need to scour back issues of our newspapers to find the records of relevance. Computer data-driven products such as Real Estate Record Search and data licensing have cre-ated new possibilities, as well as the custom publishing division established in 1995.

As a member of the Family Business Ad-visory Council, I have been impressed by the commonality of problems and solutions, across all lines of business, which our mem-bers share. It always reverts back to how to keep the core values in force by making de-cisions – some painful, some bold and cre-ative – on how to best serve the long-term needs of a family-owned business.

As the fourth-generation leader of The Warren Group, I am proud and honored to uphold our company’s core values. They are: To treat customers and team mem-bers as members of our own family; to earn customer and team member trust by holding ourselves strictly accountable for our actions and commitments; and to use technology and creativity to innovate new products and ensure continuous improve-ments in our operations.

I wish the same for every member of the FBA. ■

TIMOTHY M. WARREN JR., CEO OF THE WARREN GROUP

AND FOURTH-GENERATION FAMILY MEMBER, SERVES ON

THE FAMILY BUSINESS ASSOCIATION ADVISORY COUNCIL.

The Story Behind the Story

From the Advisory Council

By Timothy M. Warren Jr.

Editorial | Advertising | Design

A Family-Owned Business Since 1872

280 Summer Street, Boston, MA 02210Phone 617-428-5100 Fax 617-428-5119

www.thewarrengroup.com

DIRECTORSJeffrey S. Davis, Mage, LLCAl DeNapoli, Tarlow, Breed, Hart & Rodgers, P.C.

Brian Nagle, BNY Mellon Wealth Management

VICE PRESIDENTCatherine Watson, Tarlow, Breed, Hart & Rodgers, P.C.

TREASURERRichard A. Hirschen, Gray, Gray & Gray, LLP

©2013 The Warren Group Inc. All rights reserved. The

Warren Group is a trademark of The Warren Group Inc. No

part of this publication may be reproduced in any form or by

any means, electronic or mechanical, including photocopying,

recording, or by any information storage and retrieval system,

without written permission from the publisher.

TIMOTHY WARREN

5

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6

Learning from Others’ Mistakes

Avoid These Common Employee Benefit Plan Issues

By Anthony T. Carideo

As a family business owner, you as an employee benefit plan trustee or administrator have responsi-

bilities to comply with Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) regulations to prudently monitor the investments of the plan, ensure that the plan is operating in ac-cordance with the plan document, and to exercise oversight over third-party

record-keepers.N o n - c o m p l i a n c e

can result in serious consequences impact-ing your business and, in some cases, your employees. However, most plan administra-tive and operational

issues can be averted or corrected by en-hancing internal monitoring procedures or, if necessary, by entering into volun-tary correction programs offered by the IRS and DOL.

This is not a comprehensive compli-ance checklist, but it is a great place to start in making a preliminary assessment of your compliance with IRS and DOL regulations. Problems such as these de-scribed below can result in fines or a change to the exempt tax status of your plan, so learn from others’ mistakes and avoid these common pitfalls.

Timely remittance: A common problem with potentially serious conse-quences relates to the timeliness of the remittance to the plan of your employ-ees’ plan contributions, that is, employee compensation deferrals or withholdings, each pay period. Delaying the deposit of employee withholdings is a serious issue in the eyes of the DOL. Delays are inter-preted by the DOL as the employer’s use

of employee funds, and, if uncovered by the DOL, are likely to trigger significant scrutiny by the DOL. Employers spon-soring plans with fewer than 100 partici-pants have a safe harbor in this regard. Participant contributions must be made within seven days of the payroll date. For larger plan sponsors there is no safe har-bor, and the DOL generally holds these employers to a more stringent standard. Without a safe harbor or rule of thumb for large plan employers, the require-

ment to remit as soon as is reasonably practical, is often determined by the DOL in reference to time frame within which sponsors are able to remit payroll tax withholding which often is within one to three business days of the pay date.

Eligible compensation refers to what compensation is subject to employee de-ferral and company matching funds. We see quite often that employee deferrals and company matches are not being ap-plied to compensation consistent with

ANTHONY T. CARIDEO

7

the plan document. Most commonly, we see these inconsistencies as it relates to bonuses, overtime and shift differen-tials. It is not safe to presume that your outsourced payroll service provider is applying employee deferral percentages and company matching contributions to compensation as defined in the plan. This is your responsibility as the plan sponsor.

Auto enrollment features have be-come increasingly popular. A family business owner’s best intentions can be negatively impacted by improper imple-mentation of auto enrollment. The two most common implementation errors that we have observed involve failure to notify employees of opt-out provisions and failure to commence employee de-ferrals on time.

Vendor controls: Many family busi-ness owners engage third-party vendors to administer their plans. At least an-nually, the family business employee charged with oversight of that vendor relationship should read your vendor’s Report on Internal Controls or SSAE 16 (formerly known as SAS 70) for any findings or testing exceptions that may be of concern to you as plan trustee. It is also very important that “user controls,” most of which are explicitly defined in your vendors SSAE 16, are in place. User controls refer to controls that the ven-dor has determined should be in place at your organization to work in concert with vendor controls.

Investment strategy: Are you aware that plan trustees have a fiduciary duty to understand the plan’s investment strategy and why investments have been selected? This fiduciary duty requires that trustees carefully monitor fund performance and raise questions with administrators over funds that are underperforming or per-ceived as involving exceptionally high levels of risk. These actions are required of trustees to adequately discharge their duty to prudently select investments, and to minimize any liability for fund failures or underperformance. Meet quarterly or no less than annually with your admin-istrator to review fund performance and assess, with their input, the plan invest-ment offerings. Be sure to maintain min-utes of these meetings.

Fee structure: The fee structure as-

sociated with the plan’s investment of-ferings is another area that is often not understood nor carefully scrutinized by plan administrators and trustees. This too can undermine the family business owner’s best intentions. It is not neces-sary to go with the low-cost provider, but plan trustees need to ascertain that the plan receives appropriate value com-mensurate with the fees charged. In 2012, 401k plans were required for the first time to disclose all of the investment fees assessed to a plan participant. Plan administrators and trustees should moni-tor these fees and consider fees in their assessment and selection of different in-vestment offerings.

Plan documents: We frequently find that critical plan documents have not been legally executed. Plan administra-tors should confirm with the plan’s legal counsel that all plan documents have been properly executed.

Low-balance accounts: Generally speaking, when a plan participant leaves his employer, he may either keep his em-ployee contributions in the employer’s plan as an inactive participant or he may

rollover those assets to another quali-fied plan. Many plans permit the pay-out of low-balance inactive participant ac-counts. In order to minimize plan admin-istrative expenses, it is generally advisable to take advantage of such plan provisions. Check your plan document for such a provision, and in the event that such pay-outs are permitted, consider adding to your employee departure administra-tive checklist the review of plan account balances so that low-balance participant accounts can be removed timely to mini-mize administrative costs of the plan.

This list of common pitfalls arose in the context of first-time plan audits and transaction due diligence. Even if neither such event is in your near future, the DOL may come in at any time to audit your plan’s compliance.

As with most family business owners, you make a conscious effort to treat your employees like family. Don’t let unin-tended consequences undermine your commitment to them. ■

ANTHONY T. CARIDEO JR., CPA, IS A MEMBER OF

WOLF & CO.

WARNINGWARNING Attention Business Owners, CEOs, CFOs & HR Mgrs:

Don’t even think about

renewing your group benefits, changing your health plan design, or changing your current broker

until you’ve reviewed this free, no obligation, informative web site.

www.HRandBenefitAdvice.com

Find out how you can identify your compliance risk (from State and Federal Agencies),

discover holes in your benefits design and find ways to stretch your company dollar.

8

Here’s a proverb many of us remember:

For Want of a NailFor want of a nail the shoe was lost.For want of a shoe the horse was lost.For want of a horse the rider was lost.For want of a rider the message was lost.For want of a message the battle was lostFor want of a battle the kingdom was lost.And all for the want of a horseshoe nail.

Today’s technology is far higher up in the intelligence food chain than a horseshoe nail. But that doesn’t prevent

some of its designated users from trying to implement it with a hammer.

How well your kingdom – your fam-ily business – utilizes it, has a critical impact on the business’ health and well-being.

Corporate giants have been stymied by poor and/or outdated use of tech-nology that was supposed to make them more efficient. There have been several examples of this over the last five years. The risks of failure happen much faster for a smaller family business.

Technological literacy is the key to

survival, but it must be combined with an institutional knowledge of how the business works. Buying the latest man-agement or operational system won’t help your business if people within the organization don’t input the critical data to make it work.

We spoke with two regionally-based technology experts to give their input on the subject. Konrad Martin is presi-dent and CEO of techKnowledge Ad-visors Inc. Frank Cincotta is CEO of MTP Software LLC. Here is what they said:

Taking Control By Jeffrey Davis

How to Stop Worrying and Learn to Love IT

9

In a multi-generational and/or multi-disciplinary family-owned busi-ness, who gets to decide what to buy and how to use it?

Konrad Martin: Our business is unique when it comes to who makes the decision on what and when to buy new technologies. We are an outsourced IT com-pany, and my brother’s primary role is to deal

with all the technologies we support. As our company needs new servers, worksta-tions etc. my brother presents what tech-nologies he feels we should purchase, and then we look at the budget and make a

financial decision.Frank Cincotta: Re-

gardless of the type of business, it is im-portant to engage all the functional areas of your business in order to develop a require-ments document that

serves your business need. The “who” in the purchasing decision is far less impor-tant than the “what” and the “why” for the purchasing decision. Have you consid-ered Greco-Roman wrestling or pistols at 50 paces?

How to address the problem of all the IT knowledge in a company being concentrated in the minds and hands of one or two people?

KM: Being an outsourced IT company, we come across this type of situation all the time. We require that user names, passwords and login information be kept in a central location so other authorized members of the company can have access as needed.

FC: This is a very common problem with small businesses, where the busi-ness owners feel like they are held hos-tage by the IT resource. There is always a risk when 1 person is given the full IT authority for your company. My approach to mitigate this risk is to have a family member maintain overall administrative access, while creating a sub account that enables the IT person to perform his du-

ties, but eliminates the possibility of them locking you out of your own systems. An-other option to consider is outsourcing the IT function altogether. This approach may cost a bit more in the long run, but it will provide you with a team of techni-cal resources instead of an individual IT resource.

What are the biggest challenges of updating legacy systems – particularly, convincing the legacy people that go with them that it’s time to update?

KM: Change is tough, especially when it comes to technology. We assure our cli-ents that we will be there before, during and especially after the conversion to help the end user understand how things may look differently but the same functions that they are used to are still available.

FC: As Konrad has pointed out, change is always a difficult undertaking. It is ex-tremely important that you include the legacy people in the technological selec-tion process from the very beginning and make them feel like they are a part of the decision process.

What about companies whose elder IT folks are about to retire – how to translate their knowledge of legacy systems into today’s tech environ-ment?

KM: Documentation is the key to a clean transition. The process that may only lie in their own heads, needs to be documented in order to make the transi-tion to a new technology environment as seamless as possible.

FC: You may want to take full advan-tage of the generation of IT folks consid-ering retirement. The transition from a potentially outdated legacy environment to a more modern environment would likely be met by less resistance when it is impacting fewer technical resources.

How does a family business recover if a major tech purchase doesn’t deliv-er the hoped-for result?

KM: Before making that purchase planning is key to the success of imple-menting any new technology. Of course sometimes the results of implementing a new technology may not live up to the ex-

pectations of the company. It is important that the decision makers get together and identify where the shortcomings are and why they did not meet their expectations. Then they will need to create a plan that addresses those shortcomings.

FC: Given that businesses make major technology purchases about once every seven to 10 years, and that major advance-ments in technology occur about every three to five years, business owners can-not expect to be well versed in the tech-nology selection process or the technol-ogy options available. Making the wrong decision can be devastating to a business. For all these reasons, it is best for a fam-ily business to outsource the technology selection process to a company that has expertise in uncovering the key business processes, identifying the best candidate systems, engaging key company person-nel, and working with the selected vendor right through implementation, user train-ing and post-go-live support.

Information technology puts com-petitive information into everyone’s hands. How does that change the fam-ily business game?

KM: This is a great question. With technology being so much cheaper and more widespread these days it sometimes seems like there is more competition out there. Family businesses need to address this but not to panic about it. The reason is simple: they also benefit from the new technologies that are out there. Planning, execution and implementation are keys to moving forward with your IT. One rule of thumb we like to use is, “never buy technology until you need it.” This way the technology is not out of date by the time you are able to take advantage of all aspects of the newest technology.

FC: Advances in the field have enabled businesses of all sizes to take advantage of emerging technology. One consideration is the cost of not having a technology plat-form that will ensure that key processes and key decision-makers have visibility into the information needed in a timely fashion. This would put your company at a significant competitive disadvantage. ■

JEFFREY DAVIS IS CHAIRMAN AND CEO OF MAGE, LLC.

FRANK CINCOTTA

KONRAD MARTIN

10

Combating Today’sRelentless

Cyber Attacks

Ten years ago, the Code Red, SQL Slammer and “I Love You” viruses overloaded servers, de-

faced websites and created headaches for the IT community at large. While these attacks were clever and had a significant impact, they generated more noise than outright theft.

Today’s cyber-criminals aren’t so in-nocent. Their probes for vulnerabilities in operating systems, web browsers, and other third-party applications have one goal: to make money. Cyber-criminals can leverage these vulnerabilities to de-ploy advanced malware packages, such as Zeus or TDSS. With annual cybercrime losses estimated as high as $20.7 billion in the U.S. and $110 billion globally, it’s little wonder why cyber-criminals are so persistent.

Criminals have also complicated the situation by developing methods to evade detection from security countermeasures. A prime example is the Black Hole ex-ploit kit – one of the most prevalent and successful tools available to cyber-crimi-nals today.

Black Hole’s approach is relatively simple – convince users to click on a malicious link embedded in an email or a compromised webpage from a known and trusted website. The initial URL will often redirect the user’s browser to sev-eral compromised servers until it reaches

a malicious Black Hole server. There the exploit kit detects the browser and plugin versions and exploits known vulnerabili-ties. Next thing you know, the victim’s PC is sniffing sensitive information or joining a botnet.

How can a business protect itself in a cost-effective manner? Here are few sug-gestions:

Filtering Your TrafficIf anyone doubts whether they need

a firewall, let me emphasize – you do! A router with network address translation may offer some protection from inbound threats, but this is minimal protection at best. Consider using a business-grade firewall to block both inbound and out-

bound access from your network. Cisco, Fortinet, Juniper and Palo Alto have solid solutions that fit in a variety of environ-ments.

A robust web filtering solution is also helpful for blocking malware infections and phone-home traffic. With criminals using tactics such as rapidly changing their attacking domains, it has become more challenging to block malicious sites. Bluecoat, McAfee and Websense have excellent solutions.

Patch, Patch, Patch!In order to successfully compromise a

system, it must first be vulnerable. An ef-fective way to identify, track, and remove vulnerabilities in a timely manner is a for-

By Matt Lidestri

11

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mal patch management strategy.Patches for Windows, Apple and Linux

operating systems may receive the most attention, but we can’t forget about popular applications like Adobe Reader, Flash, Oracle Java, Word, Excel and more. Patching these applications is just as important as patching the operating systems, since they are often the initial attack vector in packages like the Black Hole Exploit Kit.

A vulnerability management solution can help with this process. Companies like Lumension, Secunia and GFI pro-vide professional software that can scan devices on your network, identify vul-nerable applications, and automate the patching process. For smaller environ-ments on a more limited budget, Mi-crosoft WSUS is an excellent option for managing Windows patches. However, WSUS is limited to Microsoft products, so you may need to have a more manual process for updating non-Microsoft ap-plications and platforms.

Drop Unnecessary PermissionsEach additional layer of authority helps

reduce risk. The most important layer is the “administrator” – the all-powerful computer user that has the authority to add, delete and change programs. To in-crease your security, require your users to run their computers as “regular” users instead. This will make it much more dif-ficult for malware to alter the computer. If malware takes control of a regular user without administrative rights, it is much more difficult to install more malicious software. That’s good news for the good guys.

Another benefit to preventing regular staff from running as administrators – your staff can no longer install random applications on their PC. These self-installed applications are often harder to track for vulnerabilities. They are not be-ing vetted by an experienced IT analyst or administrator for safety. Disable the user’s admin rights and you will dramati-cally improve your control of third party apps in your company’s computing envi-ronment.

TrainingWith so many malware infections

starting with a social engineering pitch,

it makes sense for everyone to view any email with an unusual link or attachment as a potential phish, and any physical visi-tor capable of leaving an infected USB drive for an unsuspecting user to find. These attacks may be simple, but also they’re also effective.

Security awareness training is an im-portant first line of defense against these attacks. While some argue that the human factor is the hardest to control, I would counter that this increases the training’s value. Security systems can’t protect us

against everything, unfortunately.Of course, training is just one of many

layers that help us protect our organiza-tions. In light of today’s persistent attacks, it makes sense to periodically review and question the effectiveness of our defenses. Viewing security as a process rather than a checklist helps everyone focus on optimi-zation wherever and whenever we can. ■

MATT LIDESTRI, CISSP, IS INTERNET AND SECURITY

PRODUCT MANAGER FOR AVON, CONN.-BASED COCC, INC.,

WHICH SPECIALIZES IN NEXT-GENERATION INFORMATION

TECHNOLOGY AND SUPPORT.

12

A Toast to Extraordinary,

Everyday People

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WE CONGRATULATE EACH ONE OF THIS YEAR’SDESERVING WINNERS OF THE FBA AWARD AND

WISH THEM CONTINUED SUCCESS.

THE KOLLIGIAN FAMILY

MALDEN, MA 02148 • (800) 347-8804 • WWW.DCNE.COM BRANCH LOCATIONS IN: PLYMOUTH, MA; WESTWOOD, MA; SALEM, NH; WESTBROOK, ME AND CRANSTON, RI

FBA Awards 2012

One remarkable aspect of the FBA Awards for Massachusetts is the group of incredibly capable family business owners who come to our attention each year. For every honoree, there are many other family businesses with rich histories of

success, fortitude and philanthropy – to be sure, future FBA Award honorees.This year’s crop continues to represent the resiliency of family-owned businesses. Their

independence brings as many rewards as it does risks. From seemingly spontaneous starts as first-generation businesses, whose founders had the acuity to see a new opportunity when it arose, to succeeding generations, who have had to make adjustments in their marketing plans as markets change, the lessons learned from their experience are invaluable.

So we are proud to honor the 2012 award winners. Their stories follow. And we encourage all family business owners who read this to consider applying for the awards for 2013.

This business-to-business com-pany, founded as Blount Seafood Company, got its first business

boost by selling clams to Heinz and to Campbell Soup Co. after World War II. Today, it sells high-quality, handmade gourmet soups, salads, dips and spreads to business customers whose names are well known, Panera Bread and Legal Sea Foods among them. It generates over 60 million servings of hand-crafted gourmet soups each year, is the largest manufacturer of lobster bisque in America and produces more than 350 proprietary soup recipes, including 75 varieties of clam chowder.

The Blount family’s contributions to the New England sea food industry actu-ally predates the company’s founding by about 60 years, going back to the 1880s. Blount Seafood Company was itself the result of a merger of three seafood-related businesses in which Blount family mem-bers had a hand. From its inception, it has been a constant state of reinvention while staying true to its roots.

In fact, the Blounts comment in the video made for the 2012 FBA Awards that the company’s outlook is couched in the long-term. Its leadership has retained the freedom to make good investments that may not show results in the first or second year, but which deliver results in the fifth or 10th year.

An example: Blount created a mar-ket for quahogs in New England in the post World War II years by selling to the military, and grew that market through the booming postwar 1950s and 1960s. But by the 1970s, clams were becom-ing a high-volume, low-margin business. The company responded by adjusting its market focus. A round of innovation in the 1990s saw it switch to high-value, high-margin products – including qual-ity gourmet soups. In 2009, Blount Sea-food Company was renamed Blount Fine Foods, and through mergers and acquisi-tions, branched out into dips, spreads and wet salads.

In an industry in which sustainabil-ity of stock is critical to business survival,

Blount Fine Foods remains an active ad-vocate for conservation and protection of the oceans. President Todd Blount sits on the board of the Greater Fall River Devel-opment Corp. and serves as president of the Fall River Industrial Park Association. The company gives back to the commu-nity in the form of product donations for a diverse group of local community, youth and civic organizations and all denomina-tions of religious organizations.

An expansion begun in 2010 is expected to continue Blount Fine Foods’ strong tradition of quality products and commu-nity involvement.

The company’s current leadership sees the opportunity to take the legacy it was given and to carry it forward into the next generation. ■

Blount Fine Foods, Fall RiverThird Generation

Todd Blount, presidentTed Blount, chairman

Founded 1946 Food manufacturing and processing

Large Business Award

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14

As is the case with many multigener-ational business-to-customer com-panies, Snow’s Home & Garden

started out in a shed, selling needful things to its local customer base.

In the 1870s, merchant ship Captain Aar-on Snow began an informal drygoods busi-ness out of a shed and wharf that he owned. In 1887, his son and daughter-in-law made room in their next-door home to sell coal, wood, nails, gardening tools and other sup-plies.

The company’s website includes an anec-dote about the second generation: custom-ers coming to the store when a shopkeeper was not present would find a note on the door, reading: “If you need anything, call out the back – I’ll be in the garden.” What retailer could better relate to its customer base than a proprietor who would write a note like that?

The store underwent several enlarge-ments in the 20th century and was consid-ered the go-to place to find anything related

to the care and maintenance of property. When the old building could expand no more, a new store was built next door. When it opened in 1971, the old store closed and the new one opened on the same day.

The fourth generation marked the year 1983 with another new addition, and the business celebrated its centennial in 1987. In November 2000 came the largest expan-sion yet, with a 12,000-square-foot addition

and a 3,000-square-foot greenhouse.The family business consists of Snow’s

Fuel Company and Snow’s Home & Gar-den, a retail store and garden center, both in Orleans, and a satellite home and garden retail store in Harwich, opened last year.

In the video prepared for the FBA Awards, Sidney Snow says, “We really have the passion for the business. My grandfather did a great job passing that on to us.” ■

Snow’s Home & Garden, OrleansFifth Generation

Sidney Snow, president; James Snow, vice president; Susan Snow, garden center manager

Founded 1887 Home and garden supplies, home heating oil, and LP Gas

Midsize Business Award

This company transitioned from a blacksmith shop to an aero-space supplier under its second-

generation leader Ralph Carlson, then teetered on the brink of extinction three years after his unexpected death in the early 1990s. The third generation, led by Ralph’s daughter, brought it back. This year B-C-D Metal Products takes the honor for the adversity award, granted to a family-owned business which has overcome hard times and emerged the stronger for it.

To save the company, third-genera-tion leadership had to take some drastic

B-C-D Metal Products Inc., MaldenThird Generation

Karin Carlson, presidentFounded 1935

Aerospace/manufacturing

Adversity Award

Continued on page 16

15

Williamson Corp. didn’t start out as a family-owned business, but became so in 1994 when

the then-principle owner retired and Wil-liam Barron Sr., who had joined the com-pany in 1969, replaced him. William Sr.’s son, William Jr., joined the company in 1994 as vice president. He was followed by his wife Lib, who joined a year later.

In the video clip shown at the 2012 FBA Awards ceremony, William Jr. remembers his father as spending many work hours at Williamson, but also being able to make time for his family during the day. He said he wanted that kind of experience for him-self and his family, so when the opportunity beckoned in 1994, he answered the call.

When William Barron Sr. joined the company in 1969, it was called Williamson Development Company. That year it be-came Williamson Corporation, coinciding with a move from engineering and consult-

ing to the development and manufacture of industrial infrared thermometers. Founder Don Williamson sold his interest in the company that year, making Ian “Nick” Nichols the principle owner. In 1977, Nichols retired, and Charles Langenhagen became president and majority owner. For the next 17 years, Langenhagen oversaw the company through the coming-of-age of the infrared thermometer industry.

Bill Barron Sr. instituted a hands-on ap-proach with customers, to assure that the company’s products were properly installed and used. His “solution selling” philosophy helped the company grow its expertise not only in product development, but in the processes in which they are used.

In 1982, as usage of infrared thermom-eters expanded, the first of Williamson’s major competitors was acquired by a large multi-national corporation, beginning a trend in the infrared thermometer mar-

ket. Williamson Corp. bucked the trend, remaining a privately-held, independent company. According to its website, its in-dependence has contributed to its ability to focus on technology and capability de-velopment. Today, it’s the largest privately-owned manufacturer of industrial infrared thermometers.

Despite the economic downturn, Will-liamson has been able to increase sales to Europe, China, Asia Pacific and Latin America. In 2011, Williamson established six remote service centers worldwide to better support its growing international customer base. More service stations are planned for the near future.

William Jr. and William Sr. have both served on the board of trustees for the Fenn School; Bill Jr. has been president of the Fenn School Alumni Association and serves on the board of trustees for the Nashoba Brook School. ■

Williamson Corp., ConcordSecond Generation

William Barron Jr., president Founded 1956

Manufacturing, engineering and consulting

Small Business Award

Next Generation Children’s Centers, SudburyFirst Generation

Donna Kelleher, principleFounded 1993

Child care and education

First Generation Business Award

Find a need and fill it. Or, let the need find you and then fill it. Donna Kelle-her embarked on the latter road in

her quest for high-quality day care for her granddaughter in the early 1990s.

The company is now the 31st largest for-profit day care operation in the U.S., with 10 locations in Massachusetts, more than 500 employees, and serving about 2,000 children at any given time.

Its curriculum targets age-specific devel-opment milestones to help children from in-fancy up to age 6 become better prepared for entry into school. It integrates early child-hood philosophies and teaching methodolo-gy of Piaget, Montessori and Reggio Emilia. Over the long view, approximately 15,000 children going through the system have ex-perienced a positive impact on their future.

Donna’s husband Walter joined the com-pany as CFO early on. Their two sons, daughter and Donna’s sister are among the family members that have joined the compa-ny’s workforce. Daughter Kathleen DelPrete joined the company in 2004 after the birth of her second child, seeking a better work/life balance, and now serves as chief operating officer. Walter says the opportunity to work with his wife and family makes a crucial dif-ference to him.

Seven of Donna’s grandchildren have gone through the Next Generation Chil-dren’s Centers program. Three generations play key roles in the business. They have built a company that is not only big enough for all of them, but for many, many more.

Every member of top management has had children enrolled in or who have gradu-

ated from Next Generation. For those who work for them, the company gives back gen-erously. Its teachers get a 50 percent discount toward their own children’s attendance. A teacher training program establishes a career path for teachers who want to expand their skills and knowledge in the field of child care.

In the community, Next Generation Chil-dren’s Center supports the Cradles to Cray-ons initiative, providing school supplies and gently used clothing to families in need. It also supports the Mass Department of Chil-dren and Families with an annual holiday gift drive. The company also reserves a per-centage of slots for children on state-issued vouchers.

Donna Kelleher serves on the FBA’s Advi-sory Council, in addition to many other key roles in the community. ■

16

As Howard Goldman likes to say, moving is the third most stressful life event for most people, right

behind death and taxes. His company’s goal is to reduce the stress.

Humboldt is greater Boston’s largest moving company and is an agent for Unit-ed Van Lines, handling 60 percent of all of United’s volume in the Boston region. The company moves residential and cor-porate accounts locally, domestically and internationally.

As did many of his peers in the FBA Awards, Howard Goldman grew up in the business. He remembers six- and seven-day weeks. “When you’re a kid, you don’t know any different,” he remarked in the video clip shown at the 2012 FBA Awards ceremony. But his warm, friendly attitude comes through loud and clear. A lifetime of understanding other people’s agita about moving – whether it’s a big corpo-rate move, a family move or an individual move – percolates through the company’s mission statement and its operating ethos.

The company is named for Humboldt Street in Boston, where it was formerly located. Founded in 1905 by Harris Gold-man, the company started as an ice-deliv-ery service to Boston’s North End. But as time went on, Harris’ friends and custom-ers would call on him to use his ice wag-on to help move their furniture to a new apartment. By the time ice boxes became a thing of the past, the business had transi-tioned into a service that moved items that wouldn’t melt.

By the 1950s, Harris’ three sons, Abe, Morris and Samuel, were working for the company, and they assumed control at the

time of his premature death. In the 1990s, Howard and D’Arcy Goldman succeeded them and saw opportunities for growth. They moved the company to Canton, and expanded the business to include storage facilities. Its warehousing services include a 100,000-square-foot, climate-controlled facility near Routes 128 and 93, with 24-hour surveillance.

Over the last five years, the business has gone paperless, and has enhanced its commercial capabilities by implementing a warehousing system using barcodes to manage customers’ inventories. Its servic-es include in-house crating services, bio-tech/lab moving services, and internation-al moving. It offers a suite of information on not only logistics but also the paper-work involved in an international move.

On the smaller, consumer oriented side, Humboldt also addresses family issues, such as helping children adjust to a new environment and making a move less trau-matic for them. On the other end of the demographic scale is downsizing, a grow-ing trend as more people age out of the need for a full-sized home and move into smaller spaces. Humboldt’s website in-cludes a compassionate guide to the emo-tional aspects of letting go of a lifetime of memories when making such a transition.

The company’s charity involvement is extensive, ranging from donating toys to a battered women’s shelter to participation in the Pan Mass Challenge. It has adopted an organization called More Than Words, which helps troubled youth learn how to manage a business. ■

Humboldt Storage and Moving, CantonThird Generation

Howard and D’Arcy Goldman, principle ownersFounded 1905

Transportation/Storage

Marketing Award

steps – downsizing its facility size and its workforce, and selling 75 percent of its equipment. Within a year, a smaller, trimmed-down B-C-D regained profit-ability, and now services aerospace giants such as General Electric Aircraft En-gines, Raytheon Corp., and various other U.S. government supply centers and Air Force bases. It has also achieved direct supplier status to Boeing Aircraft Co.

Employee training is a critical part of staying competitive, as is continued investment in new equipment and op-erations systems. Best-practice programs include quality management systems based on international standards, lean manufacturing and Six Sigma Green Belt training.

Three generations of family members now work in the business and keep close ties to their community as well. Organi-

zations served include the Boy and Girl Scouts, homeless initiatives launched by the United Methodist Church, and a Pop Warner football team and community square-dancing events. The company has also contributed to building the Mal-den YMCA and provides support to local churches and neighboring businesses.

Family members in leadership say the ability to rely on each other gives the company its strength. ■

Continued from page 14

17

The leadership at Anton’s cleaners sees clean clothes as more than just a livelihood. The company

has embarked on two self-started initia-tives to redistribute used clothing to help needy families free up their precious re-sources for other things. This year, An-ton’s received the community excellence award for its self-started initiatives in clothing rejuvenation and redistribution, and also its environmentally responsible best practices.

The Coats for Kids program, initiated in 1995, is a practical program addressing a basic need. “Anyone who needs a coat will have one,” is the program’s mission. While the concept of donating coats is not a unique idea, Anton’s goes a step further and makes a substantial investment in

cleaning each donated coat before redis-tributing it. Each fall, the drive collects more than 60,000 winter coats for in-fants, children and adults. More than 250 schools and more than 300 companies, clubs and organizations – as well as thou-sands of individuals – donate coats, and 90 social service agencies distribute the coats. Over the life of the program, more than 744,000 coats have gone to those who need them, free of charge.

The company’s Belle of the Ball pro-gram recycles prom gowns. The program has collected, cleaned and donated more than 33,400 prom dresses to young wom-en whose economic circumstances would have otherwise prevented them from choosing a gown they could call theirs. For those young women whose families

cannot afford the steep retail markups on anything prom-related, Anton’s Belle of the Ball program has broken the barrier. ■

WILLIAMSON CORP. Small Business Award (50 or fewer)

SNOW’S HOME & GARDEN Midsized Business Award (51-150)

BLOUNT FINE FOODS Large Business Award (More than 150)

NEXT GENERATION CHILDREN’S CENTERSFirst Generation Award

B-C-D METAL PRODUCTSAdversity Award

ANTON’S CLEANERSCommunity Excellence Award

HUMBOLDT STORAGE & MOVINGMarketing Excellence Award

STEPHANIE SONNABENDComcast Spotlight Hall of Fame Award

MELINDA AILESDR. LOUIS PETROVICFamily Business Advocacy Award

Tarlow Breed Hart & Rodgers, P.C.Prudential Center, Boston MA

617.218.2000www.tbhr-law.com

THANKS FOR KEEPING IT

IN THE FAMILY. The partners and staff of Tarlow

Breed Hart & Rodgers are pleased

to congratulate the winners of the

2012 Family Business Association

Awards for Massachusetts.

Anton’s Cleaners, TewksburyThird Generation

Charles Anton, president and CEOFounded 1913

Dry cleaning and laundry service

Community Ecellence Award

Two awards bestowed by the executive

directors of the FBA:

Comcast Spotlight Hall of Fame Award

Stephanie Sonnabend, president of Sonesta Hotels

Family Business Advocacy Award

Dr. Louis J. Petrovic, University of Massachusetts –

Dartmouth, Advanced Technology and Manufacturing Center

Melinda Ailes, Massachusetts Small Business Development

Center Network

18

Using Life Insurance to Meet Business and Personal Objectives

An Affordable, Tax-Efficient, and Often Overlooked Financial Strategy

As the owner of a business, you know better than anyone that run-ning your business seldom leaves

you enough time to address important fi-nancial planning questions, such as: Is my business moving in a direction with which I’m happy? Am I doing all I can for my key people? Have I structured things such that my family won’t be saddled with business debts if I die prematurely? What about taxes and retirement? Am I doing what’s necessary to assure the success of my busi-ness and my personal financial security?

Finding time to reflect on how you’re doing, where you’re go-ing, how you’re going to get there, (and keeping your key people happy along the way) is more than just important – it may also be critical to your business’ long-term success and your

family’s financial security. Unfortunately, if you’re like most business owners, in ad-dition to feeling squeezed for time, you probably feel squeezed for money. What’s more, you’re probably convinced that there’s not a lot you can do to address the above questions until you have the funds with which to address them.

The reality is, that’s not true. You can get started. And the solution to whichever of those questions is highest on your prior-ity list may be a financial product you have not only overlooked, but possibly even avoided – life insurance. How can life in-surance help? There are all sorts of ways.

For starters, life insurance provides both

lifetime and death benefits you can use to protect yourself, your key people and your family, while simultaneously accomplish-ing important business objectives such as rewarding and retaining key employ-ees, reducing income taxes, accumulating funds for retirement, and assuring an or-derly succession of your business at death, disability, or retirement. In many cases, you can use business dollars, often on a tax-deductible basis, to pay for the policies. You can also generally choose from a wide range of plans that allow you accommo-date such variables as uneven (or seasonal) cash flow. And that’s just for starters.

Following are just a few of the strate-gies that are available to you – right now, using life insurance – to meet your finan-cial goals in a tax efficient and affordable manner.

Qualified retirement plans – If your business offers a qualified retirement plan (for example a 401(k), profit sharing, or pension plan), your contributions/accu-mulations can be used to buy life insur-ance on the participants. Premiums would be income tax-deductible to your business, and participants would be taxed each year on a relatively small “economic benefit” provided by the death benefit. The imme-diate benefits to you include a tax deduc-tion for your business, the ability to pro-vide an extra benefit to yourself and your employees, and protection for loved ones in the event of premature death.

Executive bonus plans – Under these plans, you and/or your key employees can purchase life insurance and your business can pay all or a portion of the premiums.

The immediate benefits to you include a tax deduction for your business; the ability to provide an extra benefit to key employ-ees; and the potential for supplemental retirement income (via cash values) down the road. You could also restrict your em-ployee’s access to cash values for a stated period of time, thus creating “golden handcuffs” that make it more attractive for them to remain with your company. While participants will owe income taxes on the amount of premiums paid by the business, you could elect to pay those taxes yourself via a bonus in the amount of taxes due.

Split dollar plans – Split dollar plans al-low you to share the cost and benefits of a life insurance policy with key employees to whom you want to extend an extra benefit. Depending upon how the plan is struc-tured, your employees may have access to the policy’s cash value, either immediately or at a designated future time; they may be able to name the policy beneficiary; the death benefit could be used to purchase the business interest of a deceased partner or co-owner; and the business may be able to recover all of the plan costs at the death of a covered employee.

If your business owns the policy and pays the premiums, the IRS taxes the plan under an “economic benefit regime.” Pre-miums are not tax deductible; the “eco-nomic benefit” of the death proceeds is taxable to the employee; but the employee names the beneficiary for the death pro-ceeds in excess of the cash value. If your business pays the premiums, but your em-ployees own their policies, the IRS taxes your plan in the “loan regime” category,

By Richard Bowers

Insurance

RICHARD BOWERS

19

and premium payments are essentially treated as a series of loans to your employ-ees. Again, premiums are not tax deduct-ible, but neither are they taxable as income to the employee. Employees, however, are responsible for loan repayment and inter-est on the loans. Under these plans, em-ployees generally have full access to policy cash values for premium loan repayment. (Note: Withdrawals and policy loans will reduce the amount of the death benefit.)

PASS Plus – A PASS Plus arrangement involves the creation of a partnership be-tween you, your co-owners (if any), and your business for the purpose of owning life insurance on you and the other part-ners. Basically, you (and any co-owners) purchase life insurance policies and trans-fer them to the partnership; your business transfers cash to the partnership, which is used to pay the policy premiums. At the death of an owner, the partnership is dis-solved; the business recovers its costs; and the balance of the proceeds is paid to the deceased owner’s estate, income tax free. If an owner is disabled or retires, the partner-ship is dissolved; the business is repaid its cash contributions; and the policy is trans-

ferred to the disabled/retired owner who can, in turn, access its cash values via in-come tax free loans. (Note: policy loans will reduce the amount of the death benefit.)

Section 79 plans – If your business is set up as a C corporation, the IRS al-lows you to provide your employees with “group term life insurance” using indi-vidual cash value policies. Premiums paid by your company are tax deductible and participating employees will be taxed on the value of any insurance protection in excess of $50,000 as well as all “permanent benefits” provided by the plan. A large portion of the premiums will be consid-ered income taxable to the participants, but because they own their own policies, they retain access to cash values via income tax free loans, and they can name their own beneficiary for the policy proceeds. (Note: Policy loans will reduce the amount of the death benefit.)

Section 419 plans – The potential ben-efits of a 419 plan are many, and include life insurance, disability protection, sever-ance pay, medical benefits, long term care, or illness and accident benefits. Premiums paid by your company are income tax de-

ductible and are not considered taxable as income to the employees. Death benefits are paid income tax free and, in certain cas-es (such as multi employer plans), there are no stated limits on contributions. (Note: Because of the significant tax advantages and benefits of these plans, they are receiv-ing increased IRS scrutiny.)

As a financial strategy, life insurance is often overlooked and sometimes even avoided. But in the right circumstances, it can be a tax efficient and affordable way to address the challenges you face in build-ing and maintaining a successful business or practice. Whether it’s protecting your family, attracting and rewarding key em-ployees, assuring business succession, or maintaining your business’ good credit rating, today’s life insurance contracts are worth a second look.

This information should not be construed as tax advice. Please consult a qualified tax advi-sor regarding your individual circumstances. ■

RICHARD M. BOWERS IS THE INVESTMENT SPECIAL-

IST AT LIFE SOLUTIONS GROUP IN BOSTON. HE CAN BE

REACHED AT RICHARD.BOWERS@LSGNEWENGLAND.COM

OR 617-722-4314.

David C Mc Avoy Managing PartnerThe Boston Group(617) 742-6200 nmfn-thebostongroup.com

We are honored to be named FORTUNE ® magazine’s “World’s Most Admired” life insurance company. From our financial representatives who help clients achieve financial security to the Northwestern Mutual Foundation whose charitable donations help society at large, we are thankful to all who make everything we accomplish possible.

26 years of being FORTUNE ® magazine’s “Most Admired…” It’s been an honor.

05-2779 © 2012 Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries. Northwestern Mutual Investment Services, LLC (NMIS) (securities), a subsidiary of NM, broker-dealer, registered investment adviser, and member of FINRA and SIPC. David Charles Mc Avoy, General Agent(s) of NM. Managing Partners are not in legal partnership with each other, NM or its affiliates. David Charles Mc Avoy, Registered Representative(s) and Investment Adviser Representative(s) of NMIS. FORTUNE® magazine, March 21, 2011.

20

In a closely-held family business, it is sometimes difficult to admit that you cannot do it all. It may also be hard

to imagine relinquishing control to in-dividuals who are not within the family. Yet hiring employees from outside the family – perhaps those with very differ-ent backgrounds and experiences – can add vitality, new talents and a fresh per-spective to the business.

When a company decides to expand its workforce, whether by adding fam-ily or non-family members, it is criti-cal to establish equitable and consistent procedures. Otherwise, those unrelated may feel that nepotism is hindering their progress and professional success. Similarly, family members may feel that the only reason they are successful is because they are related, rather than be-cause they are making valuable contribu-tions to the company.

There are several steps companies can take to help ensure a smooth recruitment and hiring process:

Conduct a Needs AnalysisAt the outset, management should have

a clear understanding of why there is a need for additional employees.

The U.S. Small Business Administra-tion’s website poses the following ques-tions:• Are you properly utilizing the skills

and talents of your current employees?• Can your business growth support a

new employee?• What are the job’s essential functions

and key performance criteria?

Assuming there are valid reasons for hiring, management should consider all associated costs such as recruitment ex-

penses, wages, benefits and training. If the company’s financial position is uncertain, a circumstance quite common in the cur-rent economic climate, it may be more practical to hire part-time employees or to outsource work to freelancers.

Develop a Clear Job Description

Job descriptions are a critical compo-nent of the recruiting process and can also serve as an important legal document and compensation tool. Companies often dis-regard them or fail to update the descrip-tions they already have in place.

A good job description clearly outlines the details of the position, including the job title, tasks, expectations, goals, skills and education requirements, and work-ing conditions. Since it may serve as a first impression of the organization for poten-

tial candidates, the job description also should be well written with information that is straightforward and simply com-municated.

Maximize Recruiting ToolsFamily-owned businesses often turn to

the people they know, including relatives, when they need assistance. Although it is true that word of mouth can be help-ful and chances are a family member can suggest a quality job candidate, it can also put employers in a potentially troubling situation that could lead to hiring out of obligation. To avoid this, businesses should consider all recruiting options, in-cluding recruiting firms and Internet tools such as blogs, LinkedIn and other social media resources. Industry organizations may also be helpful, as they often provide networking opportunities. Many maintain

Recruiting Employees Beyond the Family

By Maryann O’Connell

21

FBA Webinar Wednesdays is a complimentary program series presented live over the web from noon – 1:00. This programming allows you to conveniently participate in the privacy of your own office. The 2013 schedule will feature dynamic family business owners and professional experts.

In 2012, George Mock, third-generation president of Nye Lubricants, shared his story of how an ESOP was used to achieve liquidity while retaining family control of a business. David Zoppo, president and co-owner of R. Zoppo Corp., a third-generation contracting firm, told of re-organizing the family business to keep pace with the market without changing its culture. Family business owner Ralph Crowley of Polar Beverages discussed the topic of growth equity – how to grow your business without giving up control.

On January 23, 2013, Dr. Stephen Franson will be back by popular demand. As a family business owner himself, Dr. Franson will share his enthusiasm for wellness initiatives that pay dividends. Mark your calendars for all the 2013 FBA Webinar Wednesdays and watch for featured family business peers and topics that are of interest to you.

January 23 March 20 May 15 July 17 September 18 November 20February 20 April 17 June 19 August 21 October 16 December 18

The FBA would like to thank Wolf & Company, P.C. for underwriting FBA Webinar Wednesdays.

websites with online job banks that offer members access to resumes from candi-dates within the field.

Administer Background Checks

It is human nature to assume that a prospective employee is providing honest information on a resume and during an interview. Unfortunately, that assumption may prove to be costly.

According to research conducted by the Society for Human Resource Manage-ment, more than 53 percent of individu-als provide false information on their re-sumes – everything from embellishing job responsibilities and length of time worked for a specific employer to fabricating edu-cational degrees and accomplishments.

Background checks are vital and cost-effective measures that can help protect the company and its employees. This includes obtaining information on a job candidate’s work history, possible criminal record, credit history and personal refer-ences.

Dismissing background checks as an unnecessary step in the recruiting process is risky, and can lead to multiple prob-lems for a business, even financial ruin. Although employers cannot control the

integrity of a prospective employee, they have the right and the obligation to make sure the person they are hiring has legiti-mate qualifications.

Job Offer and OnboardingOnce it is determined that an employee

is the right fit, he or she must be given a written job offer outlining the start date, parameters of the position, including hours, salary, and benefits, and stating to whom the individual will report. This document will help to avoid any ambigu-ity in the future.

An employee orientation program is also a key component of the recruiting process, yet many businesses do not have a clear process in place. It is important to make sure new employees feel valued and welcomed from the moment they accept the position. This demonstrates to the employee that the company is committed to their success.

Providing a company handbook, which outlines the company’s policies and pro-cedures, and secures any necessary paper-work, such as tax, insurance and health forms, is also essential to the hiring process.

Many companies lose good employees in the first six months because they fail

to offer guidance and support, essentially leaving newcomers on their own. Busi-nesses should go the extra mile to reaffirm the employee’s decision to join the orga-nization. This support should continue throughout the employee’s tenure. Often in a family-run business, non-family em-ployees may feel, rightfully or not, that they are not in the inner circle when it comes to making decisions, that they are held to a different standard or that they are not valued equally. Management should consistently demonstrate that all employees are valued and rewarded for their individual and team contributions.

Employees, whether in a family-owned business or not, are the lifeblood of the company. Although there are never any guarantees when it comes to hiring, de-veloping solid recruiting and onboarding procedures can help ensure that the right people are on the team. Creating a posi-tive work environment that motivates em-ployees and rewards them for their contri-butions will help ensure that they remain loyal the company. ■

MARYANN O’CONNELL IS A MANAGER OF HR SERVICES

AT INSPERITY, WHICH PROVIDES AN ARRAY OF HUMAN RE-

SOURCE AND BUSINESS SOLUTIONS DESIGNED TO HELP

IMPROVE BUSINESS PERFORMANCE.

21

22

The Three Key Due Diligence Areas

for M&As

By George D. Shaw

The field of mergers and acquisi-tions has seen a recent uptick in activity. Flush with cash, corporate

buyers are using acquisitions as an attrac-tive alternative to organic growth, while financial buyers with record amounts of capital are looking for new investments.

This increase in buyer interest has many business owners exploring liquidity op-tions. Often these owners have worked for years building a business, and most of their wealth is tied up in non-liquid private company stock. To prepare for a liquidity event, owners frequently ask what they can do to improve the value of their company.

As an experienced M&A advisor, we have found that sellers can improve their deal value by focusing on three key areas of financial due diligence – the quality of financial information, the sustainability of cash flow and management of tax issues – well before any letter of intent (LOI) is signed.

Quality of Financial InformationBuyers gain confidence in the target

company when presented with quality fi-nancial information. To minimize cost, however, many business owners opt for reviewed or compiled financial statements rather than audited financial statements. Yet we have found that non-audited state-ments result in significantly more negative adjustments as a deal progresses. Since any surprise in the historical financial results puts downward pressure on price, business owners can avoid late renegotiation of the deal terms by getting audited financial statements two years or more before the liquidity event.

Buyers also want to know the source and sustainability of revenue growth, including which customers, services and products generate the highest margins and cash

flow. That helps a buyer understand how the acquired business will integrate into their strategic plans. Often the highest multiples are paid when buyers get excited about the cus-tomer base and the ability to accelerate the growth post closing.

Internal controls are becoming a bigger diligence issue as more public company buyers subject to Sarbanes Oxley (SOX) reporting are active in the M&A market. There is also increased interest in controls by financial buyers who want to know that the operating cash will be protected. An assessment of controls will identify areas of improvement that can be changed prior to a liquidity event.

Sustainable Cash FlowMost businesses are sold based upon

a multiple of cash flow or “EBITDA” (earnings before interest, taxes, depre-ciation and amortization). The higher the EBITDA, the higher the price. A key fo-cus of financial diligence is confirming whether the EBITDA is real and sustain-able. Most failed deals are due to the fact that the EBITDA reported to the buyer did not hold up in a financial due diligence review post-LOI.

Common trouble spots include inven-tory, the quality of accounts receivable, and unrecorded liabilities such as litiga-tion. Moreover, the recent recession may have shifted the customer base as compa-nies went out of business, changed sup-pliers and or consolidated. These changes can impact not only the quality of the rev-enue/EBITDA but also the quality of in-ventory and accounts receivable reported on the balance sheet.

Tax IssuesThe tax structure

of the deal will have a significant impact on the

after-tax proceeds. Taxes can erode between 20 per-

cent to 55 percent of deal value. As advisors, we often assist busi-

ness owners in structuring options that will net them the highest after tax amounts.

Managing tax risk is increasingly im-portant. With budget deficits and fis-cal pressure many states are using audit compliance efforts to collect additional tax revenues from businesses. Advance tax diligence can identify risk areas and allow the business time to make volun-tary disclosures or implement compli-ance mitigation plans. Buyers are not only concerned with historical liability risk, but also what tax liability will be incurred post closing due to bad tax management policies.

Involving experienced M&A advisors early in the liquidity planning process can help improve deal value significant-ly. Pre-LOI financial due diligence is an important contributor to improved deal value. If a business owner can improve EBITDA by $300,000, it should result in a sale price increase of $1.5 million or more. Analysis of other areas such as infrastructure considerations, customer concentration, budget planning, key per-formance indicators and succession plan-ning also lead to a smoother and more lucrative transaction. ■

GEORGE D. SHAW, CPA, IS THE PARTNER IN CHARGE OF

TRANSACTION ADVISORY SERVICES AT DICICCO, GULMAN

& COMPANY, A WOBURN-BASED CPA AND BUSINESS ADVI-

SORY FIRM.

B O S T O N • S a N F r a N c i S c O • L O S a N G E L E S • S E a T T L E

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THIS ISYOURTIME.THIS ISYOUR PRIVATE BANK.

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investments are not FDic insured, are not a deposit, have no bank guarantee, and may lose value.

We want to congratulate our client, the

Williamson corporation, winner of the 2012

Family Business association award

for Massachusetts, Small Business category.

Every day, Boston Private Bank works with

people who are innovating, building and

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if you’re a business owner, individual, or

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At Wolf & Company, we pride ourselves

on insightful guidance and responsive

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MeMBeR of THe fiRM

AudiT & AssuRAnCe