October 2011
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Small Business Blog

Brought to you by Steve Strauss

October 2011

Globalization (Part 1 of 2)

It might be strange to think about expanding your business in this economy, but let me say two things to that: 1) Most small businesses look to grow no matter the circumstances, and 2) today, one way to do that is to look at growing internationally. After all, as Thomas Friedman famously declared, The World is Flat.

The fact is, there is a lot of global opportunity out there, and it is an affordable way to grow your business, so in this blog and the next, I would like to talk about how to tap into this trend and opportunity.

American products and know how are as in demand as ever, so looking to see what countries may want what you sell is the first step. What do you do that could go global?

There are two ways to tap the global market.

First, as discussed in my next blog, you can do it through e-commerce. Second, discussed here, you can do business with companies in other countries, (though even that necessitates a great website.) So first you have to decide whether yours will be a strictly e-business or whether your website is merely an entree into doing business in and with another country.

Either way, here are the steps to take for doing international business in a flat world:

  1. Do Your Market Research. As always, I recommend that you think before you leap. A little research – figuring how your business translates internationally – will save you a lot of time and money down the road. Here are some good places to start:
  2. Prepare. Will your marketing materials translate? How are sales done in the countries you have targeted and what special etiquette rules should you know? Check out www.polishedprofessionals.com. (I learned the hard way when I was in Mongolia that drinking Genghis Khan Vodka, lots of Genghis Khan Vodka, is expected of new business associates!)
  3. Decide How to Distribute Your Product. You can sell online of course, but could also hire a fulfillment service, hire foreign agents or representatives, hire a foreign distributor, or even set up a joint venture.

    If you decide to find a foreign business associate with whom to work, keep in mind that you will want a partner with a track record of selling to the companies or consumers you are targeting, and who can speak both languages.
  4. Deal With Legalities. You may need an export license depending upon what you are selling. Check out all legalities online at the Trade Compliance Center.
  5. Remember the Business You are In: What business are you in? Whether you said the carpet business, accounting, or exporting, I suggest your answer should be that you are in the service business. Your job is to serve your new customers. No doubt that the guy in India can charge less than you, but how often do you make a business purchasing decision based solely on price? Not often probably. People also love great service and will pay a bit more to get it, so give it to them.

Globalization (Part 2 of 2)

In my last blog, I looked at how any small business can become a global player, and discussed why it is smart to begin to consider this option. While new, it should also be an exciting thought. But how do you get started?

The most important thing when considering international expansion of your business is figuring out which country / market will best serve your needs. Of course English-speaking countries like Great Britain, Ireland, Australia, and New Zealand will be the easiest with whom to work, but that is only one consideration. If exporting for example, you really want a market that will be open and hospitable to what you plan to sell. Or, if looking for a factory to develop a product, consider laws, language, fees, and cost of shipping.

Next, you have to get your site ready.

In an online world, people cannot look you in the eye to see what kind of person you are, they cannot come to your store to see how great it is, all they can do is judge you by your site, so you simply must have a great one. Your website can look as elegant, impressive, and professional as that of any large corporation without it costing a fortune. And not only can you offer as many products as they do, but because you are smaller, you can offer more personal customer service. So online you can win, and win big, no matter how small your business, but only so long as you do it right and look like a pro.

Additionally, what about translating your site into a different language if English is not the predominant language of where you want to do business? If you are going to be exporting to Thailand for instance, you better have a website in Thai. If you are going to be conducting e-commerce, again you will need it to be in the language of your target market. People usually avoid shopping on sites that are not in their native tongue.

And by the same token, be sure too that your translations are accurate. GM once was selling a car in Belgium and had a promotion that touted "Body by Fisher," except that in Flemish, the ad read "Corpse by Fisher."

So the real secret to winning in this global economy is to play to your strengths, not compete against theirs. That means looking big but playing small. It requires offering up something unique and superior and promoting that on your website. In short, winning the global game involves embracing the global economy, not fearing it. The days of running a mom and pop brick and mortar small business selling carpet to folks in the neighborhood are over. Or at least they should be.

Transferring a Business to a Child

When my sweet father was still alive, he was quite generous with his children. Maybe his favorite saying was "I would rather you spend my money while I am alive than when I am gone."

There are all sorts of ways to help an adult child get ahead. For some people like my dad, it is all about having fun together. For the small businessperson, helping the kids often means passing on the family business.

When it comes to transferring a family business, you have several options. But first, a general warning: Before giving a child your business, you better be sure the child wants it. When my dad died, he passed on his successful carpet store to me and my three siblings. The problem was, two of us were not old enough to run the business and the other two didn't want to. Within two years we had sold the business to one of my father's employees.

So, what is the best way to transfer the business to a child? If you just gift it over, you face potential tax problems. The IRS allows you to give away up to $13,000 to each of your children, tax-free, every year. But if your business is worth more than that, you will be faced with as large tax bite if you just give your business away. So that is probably not the best answer.

Another option would be to form a partnership with your child, but again, this creates as many problems as it solves. The potential problem with a partnership is that it may end on the death of any partner (depending upon your state). Therefore, if you were to pass away unexpectedly, the business might get stuck in probate court. Probate often lasts for years and takes a big bite out of your estate.

By the same token, if you simply decide to give the business to your child in your will, the business would again be tied up in probate for quite some time.

This leaves you with a final option, which is far preferable and would work well: Form a living trust, transfer the business to the trust, and name your child as the successor trustee.

A living trust is an estate-planning device that bypasses probate. It is a separate legal entity, like a corporation. While you are alive, you would be the trustee and beneficiary of the trust. You would run your business just as you do now, the only difference being that the business would be owned by a trust that you control.

When you die, since it is your trust and not you who owns your business, there would be nothing to probate. And since your child is the successor of the trust (called a "beneficiary"), he or she would end up owning the business without going through probate.

Aside from being a tidy way to transfer your business to your children, for most small business owners, setting up a living trust can offer many other benefits, including tax-saving benefits, the elimination of probate fees, and the ability to keep your financial affairs private. A living trust is the smart way to go then.

Employee Ownership

There are a lot of great things to be said for my pals at Greatland – excellent products and superior customer service to name just two – but another cool thing they also do that may not be well known is that it is a company owned by the employees.

Not surprising.

One thing I have noticed over the years is that a trait shared by the great, most successful businesses is that they often give employees a stake in the business; an ownership share. As such, rather than a company being just another place to work and draw a salary, a small business that an employee partially owns makes that employee a committed entrepreneur. As a result, they usually are more motivated, more dedicated, and more conscientious.

It’s a smart plan for any small business owner to consider. Of course, you could simply create a 401(k) plan that supports your employees in buying company stock, and many businesses do that, but beyond that, there are three other types of stock ownership plans that you could implement:

  1. Stock Options: Here, your business awards the option to buy company stock at a specified price, and the employee then has a certain amount of time to exercise the option and become a part owner of the company. Approximately 10 million employees in business both public and private hold stock options at any one time.
  2. Employee Stock Ownership Plans (ESOP): These are a sort of retirement plan akin to a 401(k), although in this case, instead of creating a diversified portfolio, with an ESOP, the retirement funds are invested in the stock of the employer.

    Under this scenario, the company contributes cash to buy its own stock (usually from the owner) which is then shared among the employees. There are significant tax benefits available under this plan. It is estimated that about 8 million employees invest in ESOPs.
  3. Employee Stock Purchase Plans (ESPP): These allow employees to buy stock at a discount (usually around 15%.) The employee can then either sell the stock for a profit, or simply hold onto it.

While it is true that an owner would be giving up part of their equity to create some sort of an employee stock ownership plan, the benefit is that in the process you will be creating a more motivated workforce.

For more information on creating some sort of employee stock ownership plan, contact the National Center for Employee Ownership at 510-208-1300 - NCEO.org.