Planning woes at closely held firms - Small Business Report; includes other small business news

Nation's Business, June, 1985 by Mary-Margaret Wantuck

The daily pressures of running a small closely held firm can lead owners to ignore long-term business and personal planning, says management expert Raymond Mullaney.

"Too many owners don't take the trouble to gather available facts, analyze options or develop a concrete plan," says Mullaney, head of Capital Planning & Services in Topsfield, Mass.

Mullaney's list of the most frequent financial sins of small business owners:

* No personal investment strategy. Many owners put all their assets into one business--usually their own--instead of acquiring a portfolio of diverse personal capital investments.

* Inadequate provision for transfer of ownership and management. A will is not enough to reduce taxes or avoid family rifts over how the business will be passed to heirs. What is needed is a shareholder agreement that allows owners to pass their wealth to future generations with the most advantageous tax consequences. The agreement should be tightly structured so that shareholders currently running the business are not saddled with unwanted or incompetent partners.

* Automatically leasing instead of buying. One often-ignored option is for a principal to own the equipment and lease it to his company. "Personal tax savings are accrued if the owner's tax bracket is substantially higher than the corporation's," Mullaney says.

* No written agreements in family-held businesses. All understandings must be in writing, family or not. Serious disagreements can occur within the family over personal or major business decisions that, if not resolved, can eventually disrupt the business and its profitability.

* No cash management system. In addition to having the cash to meet payroll, tax and other demands, owners must determine how much of a credit line should be established to meet occasional crunches. Mullaney adds that "if you plan your credit needs in advance and make a proper presentation, you'll often obtain a more favorable interest rate than if your borrowing is last minute."

* Fear of a public offering. Owners should not be so quick to turn to venture capitalists for financing. The better choice may be a public offering. Ownership then is distributed widely, allowing the original owners to maintain greater control of the business.

* Failure to plan. Few small firms have a business plan covering growth, capital requirements, contingencies, etc. Those that do formulate such a plan usually ignore it. According to Mullaney, at least 5 percent of top management's time must be devoted to long-range planning. Otherwise the business may stagnate or miss opportunities.

Worth Noting

* As part of President Reagan's Small Business Revitalization Program, 28 Maine banks are making $318 million available for long-term expansion loans to healthy small and medium-sized Maine companies. The loan terms are 15 to 25 years for real estate and 7 to 10 years for machinery and equipment.

* Ohio's Department of Development is publishing a weekly "Small Business Register"--a summary of proposed state agency rules and regulations affecting small firms. Business owners can now respond to these proposals before they go into effect.

* Small firms will have a chance to pitch their chemical technology and products to large companies at the Chemical Innovation Conference, June 12-14 at Loews Glenpointe Hotel in Teaneck, N.J. For further information information, call Joanne Martin, executive director, American Association of Small Research Companies, Prospect Park, Pa., at (215) 522-1500.

* The marketing and social research firm of Yankelovich, Skelly & White is now in the midst of a study to get the small business viewpoint on dealings with large firms by surveying a national sample of chief executive officers running the 2.5 million independent companies with sales of up to $25 million.

"Major corporations are having trouble capitalizing on the opportunities presented by small business," says Florence Skelly, the firm's president. "They need a way to translate 2.5 million independent-minded decision makers into a definable market."

Honoring the Advocates

The Small Business Administration recently honored its small business advocates of the year at ceremonies in Washington.

This year's winners:

Joe B. Pacheco, Jr., a certified public accountant in Murray, Utah, for providing accounting systems for small firms and for volunteering his services to minority business organizations.

Jerry Adams, president and owner of American Dream Realty, Ltd., in Midlothian, Va., for helping veteran-owned small firms.

Gene Boyer, a consultant and business trainer in Beaver Dam, Wis., for her active interest in promoting free enterprise for women.

Denise A. Carabet, assistant city editor-special projects for the San Diego Tribune for her semiweekly column on small business.

Steven I. Butler, a banker in Denver, for promoting financial assistance for small firms.

Esperanza M. Guerrero, a senior consultant with Price Waterhouse in Tucson, Ariz., for helping minority firms gain access to financial and management assistance.