Date: Mon, 15 Jun 1998 18:17:28 -0500 
Subject: Crouser Report #193; June 14, 1998, Part 1
To: martin@lata.net

Crouser Report OnLine Copyright 1998 Thomas P. Crouser, Sunday, June 14, 1998
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*****
Crouser Report #193; June 14, 1998
Importance Of Due Diligence In A MERGER Or Acquisition
Transmitted from Charleston, West Virginia
*****
INDEX: In this issue, we introduce Pretty Honest Lawyer John Rothstein who
messages us on the Importance Of Due Diligence In A MERGER Or Acquisition. We
also give you an introduction to TeleConsult, our new smaller shop assistance
program. Chuck asks about the purpose of SALES Commission plans. Frank asks
about the advice I gave Craig (Crouser Report #187; May 3, 1998) in Pricing A
JOB. A reader asks about PRE Printed Newsletters. Jim asks us to comment a
BONUS Plan he heard me present years ago in Seattle (Scanlon Plan). And I
close with an observation of mine about each of us as small business people. I
call it, The LUCKIEST Person on Earth. Hope you enjoy it. All this and more
in the how cold is it in Minnesota edition of the Crouser Report Online.
***
Not making enough money but don't have time to do anything about it? And
you're too small to afford our on-site assistance programs? Then you need to
know about TeleConsult, a new program from America's largest print shop
consulting firm, Crouser & Associates.

What is it? It provides a comprehensive business analysis and improvement
program designed with you by our experts without the cost of an on-site
visitation. It's primarily suited to companies with less than 5 workers and/or
less than $400,000 in sales. Will it help you? Who knows unless you call now
for a no-cost or obligation initial consultation? Of course, our regular in-
your-shop visitations always are available. For more information call (304)
342-5100 or message tomcrouser@aol.com with your name, company and telephone.
We'll be glad to call you back. Crouser & Associates, Helping Printers Prosper
Since 1985, www.crouser.com, 235 Dutch Road, Charleston, WV 25302. Fax (304)
342-5187.
*****
Travelog: Pamela and I will be visiting the Signal Graphics convention in
Vail, Colorado on June 27th; the NAQP Print Image meeting and show, Chicago
July 23rd to 25th; and then our 1998 Print Shop Sales Conference for clients,
August 5th - 8th in Pittsburgh. We will also be visiting Minnesota this coming
week. Hope to see you soon.
*****
Well, we finally stirred up a Pretty Honest Lawyer amongst us . . . he's
pretty and he's honest. John Rothstein and I have some clients in common in
the New Jersey area. I admired his work and we had a chance to visit during
last November's New Jersey show (I do not admire all legal work). Found out
that he comes from a printing family in Massachusetts (no wonder he is so
good) and that he has to work for a living. So, I though he would fit in with
our merry on-line band of printers, consultants and accountants. He accepted
our retainer (regular or lite, John?) and he recently messaged me regarding
the legal issues involved with the purchase, sale and/or merger of a business.
So here's the latest information from our Pretty Hones Lawyer, John Rothstein.
*****
Subj:   The Importance Of Due Diligence In A MERGER Or Acquisition
From:   RothZuck@AOL.com a.k.a. Pretty Honest Lawyer
To:     TomCrouser

Thinking of buying a business or perhaps growing your existing one by merger
or acquisition? Structured properly, an acquisition or business combination
can be a terrific way to increase cash flow and maximize certain economies of
scale. The converse, though, is also true and if a purchaser is not careful,
the transaction may be a beeline to bankruptcy court. Concerned? You should
be. Take a deep breath and realize that adherence to two simple words - due
diligence - can greatly minimize risk and increase chances of success. While
due diligence should be tailored to a particular deal (without knowing the
specifics of a transaction, it is impossible to set forth a detailed
checklist), the following ten items should be given careful attention:

1. Good Standing/Authorization. Records maintained by state officials should
be reviewed to determine whether the target is validly existing and in good
standing in the jurisdiction where it was formed. Also, corporate documents
including certificates of incorporation, by-laws, shareholder agreements,
minutes, resolutions, etc. should be analyzed to make sure the transaction is
authorized and not prohibited by any restrictive covenant, etc.

2. Material Contracts/Leases. The sale of a business may constitute a default
under certain contracts (i.e. loan agreements, employment contracts, equipment
leases) which will have to be addressed. At a minimum, notice should be given
and appropriate consents obtained.

3. Litigation. Under certain successor liability laws, the purchaser of a
business may be responsible for the actions of its predecessor. Know what you
are buying! Make sure any threatened or pending litigation is appropriately
disclosed; proper disclosure can allow the risk associated with litigation to
be factored into the purchase agreement such as through indemnification or a
reduction in purchase price.

4. Insurance Policies. Investigate whether appropriate policies are in place
and premiums paid.

5. Employee Benefit Plans. Be mindful that penalties may attach as a result of
early termination of certain plans.

6. Environmental Issues. If real estate is involved, compliance with all
applicable environmental laws is of the utmost importance. The last thing a
purchaser needs is to find itself the owner of contaminated property.

7. Title to Assets. Lien searches should be undertaken to make sure that the
target's assets have no hidden encumbrances.

8. Antitrust. Depending on the size of the transaction, antitrust compliance
(i.e. Hart-Scott-Rodino approval) may be necessary.

9. Tax Matters. Make sure financial statements and tax returns are scrutinized
by an appropriate professional to ensure compliance with tax laws and GAAP.

10. Intellectual Property. Determine whether any intellectual property of the
target was properly protected, i.e., whether patent, copyright and trademark
applications were filed.

One final thought. There is one intangible that due diligence cannot properly
address - the concept of fit. In the case of a merger, both sides must be
comfortable with one another and more importantly, trustful. Also, make sure
corporate philosophies are in sync: if one side wants to take as much money
out from the business as possible while the other wants to save for long-term
growth, disaster may result. Finally, keep priorities in order, do not be
overwhelmed by the process and have fun!

(c) 1998, Rothstein & Zuckerman, P.C.

Thanks, John. If you'd like a general question answered, please message me and
we'll involve our Pretty Honest Lawyer. Remember, though, the firm is licensed
in NJ and MA only and that providing specific advise for any other states is
the unauthorized practice of law. Still, they can help with questions on basic
legal issues such as whether a stock or asset deal is best. What liabilities
attach to a purchaser of a business? Compliance and Year 2000 issues. To
contact John direct at ROTHSTEIN & ZUCKERMAN, P.C. in Millburn, NJ just call
973-258-0444 or email him at RothZuck@AOL.com.
*****
Subj:   Sales Rep Compensation Plans
From:   Chuck
To:     TomCrouser@aol.com

Dear Tom, I am controller for a $2M company that has annual contracts for the
service (maintenance) of (specific type of) computer equipment.  Having read
several of your reports on the Internet, I am wondering if you could suggest
where I might find information regarding compensation plans for independent
sales reps in a service industry.

We utilize an outside sales rep who is assisting us in securing new business.
Our problem is defining what is industry practice for paying commission (new
business, contract renewals, add-on business from existing customers, etc.)
and reimbursing expenses (if at all, in part or in full). I would appreciate
any direction that you could offer. Sincerely, Chuck
*****
Hey, Chuck. Interesting question as it shows that no matter where you go,
there you are. I mean that most of us have similar challenges regardless of
whether we are selling printing, computer services or rags. Industrial sales
is industrial sales.

Okay, for specific answers, I would start with some sort of industry
association, etc. Usually they keep track of what is typical in an industry
such as yours, but I doubt if there will be much variance in what other
industries do.

For instance, compensation for people obtaining clients for service
organizations such as yours goes from straight salary positions to straight
commission positions. (More typical is some sort of salary and commission,
however.) The key is generally WHAT YOU ARE TRYING TO ACCOMPLISH with the
sales plan. Some folks (perhaps in your case) want the sales person to acquire
new accounts ONLY and not do follow-up work to keep the account. Or, perhaps
the follow up is minimal. A salesperson for United Parcel would come to mind
in such a situation. Long ago, when they were rolling out their service
nationally, the function of the salesperson was to sign up and train new
accounts. Once done, they moved on. Under those conditions, one would build an
incentive based on the new accounts signed and trained. Contrast that with a
similar, but different, circumstances of a less-than-truckload (LTL) freight
salesperson who may not only incentive on the number of new accounts, but more
importantly, the volume of freight generated over a period of time from the
account or contract value.

Positions of capturing customers and moving on to the next account, lend
themselves to a salary plus an incentive based on the number of new accounts
(perhaps not even focused on the size of the new account or, again, maybe so).
Other plans (perhaps yours) would vary the incentive based on the size or the
account and not have any follow up incentive. Others, such as the printing
industry, have to fight for each job. The job could go to any one of several
vendors. Therefore, there is a tendency to incentive the sales person on the
sales volume of specifically assigned accounts since there is a need to
repeatedly sell the account.

And, remember you can have three different salespeople within the same
organization on three different incentive plans. One could be a person to
capture new accounts (salary plus a per account incentive), one could be a
follow up person (salary plus an incentive based on volume), and one could be
a far away manufacturer rep type of person on a straight commission.

So, in designing an effective sales compensation plan, you must first start
with the objectives. What are the objectives? Message me back and we can get
into more details. Hope this helps. Tom
= = =
Pricing A JOB

In the Crouser Report #187; May 3, 1998, Craig asked about pricing a job that
would require a new piece of equipment for a specific customer. I said:

Hey, Craig. Since this is being done for one customer, I would figure out the
cost of the equipment and calculate a budget hour rate (let me know the cost
of the equipment and I'll be glad to help you), then build the cost into this
job. In short, I'd pass along the costs to this customer. However, I'd do one
more thing: get a contract! You're going to invest a lot of money for the
convenience of this one customer, so he needs to protect you against loss. Do
you think a printer would sign up to print Time Magazine without a contract?
Nopey. You do the same.

Well, Frank asks about the advice. He messaged the following.

Subj:   Craig's Pricing Question
From:   Frank
To:     tomcrouser@aol.com

Tom: Maybe I am missing your message here, but are you trying to say that you
would pass the entire cost of the equipment on to the one customer?????  I
don't think that one would fly. If I did that with each piece of equipment I
bought for an initial project I would still be using lead type.

As for the contract situation, I agree you should try to get a contract,
however, my experiences have told me that it won't happen.  Most customers
will tell you that Joe never asked for a contract...my word is my contract.
Don't take my comment the wrong way.  I'm not saying don't bother with trying
to get a contract.  I am saying be ready to counter this mentality.  Most
customers have been burned by one printer or another along the way and don't
like the feeling of being cornered by a contract.  In their mind they feel
once they have signed a contract that gives the printer carte blanche to give
them whatever they want whenever they want.  Make sure you work your contracts
so the customer has assurances of quality and timeliness without giving them
loopholes to take deductions or not pay at all.

And as for buying equipment just do one customer's job is in my mind foolish.
Make sure that you have other work that fits that machine.  If the equipment
were less than $10,000 I might make the exception as long as I could see that
with marketing efforts geared at bringing in business for that machine we
would yield new jobs/customers.  As entrepreneurs we are by definition risk
takers, but we must do it with prudence. Of course the entire question is moot
if you don't have a strong balance sheet with good ratios. Frank.
*****
Well, Frank, I agree with you. To buy a specific piece of equipment to do one
customer's job is foolish unless you have the other work or unless you have a
contract. Craig had neither, so I would calculate the cost of the equipment
into the bid and pass it along to the one customer. Can it be done? Maybe not,
but what's the alternative? Buy the equipment and hope? So, I would opt for
passing the costs along.

Now, with respect to contracts, many small publishers have contracts with
printers of this nature. Now, your experience says it won't happen. Maybe it
won't. I haven't had such negative experiences with contracts, however. But,
if the contract approach doesn't work, Craig will not have gambled on the
equipment and potentially lost. It's always the downside risk that gets you
every time. Thanks for the comments.
*****
PRE Printed Newsletters

What pre-printed newsletter is you favorite?  We have looked at several and
would like your recommendation. Along with this what mailing list would you
use? 

Depends upon the usage. As for a newsletter going to existing customers
specifically, I like Print Tips a lot since it educates the customer on


printing and helps to make you the expert. This is especially useful where one
is softening the market in support of outside sales. If it were going to
prospects, then I would use a more hard-hitting approach, such as some of the
items from Ink, Inc.

As for mail lists, I recommend the data bases we provide through American
Business Lists. For more details see MAIL Lists in the Crouser Report #191;
May 31, 1998 or call Clark Workman n of our office at (304) 342-5100 or
message crouser@aol.com.
*****
Subj:   Bonus Plan
From:   Jim
To:     TomCrouser

I found out about your bonus plan 10 years or so ago in Seattle. I used it
with very little benefits but the problems were mine not the plan. Maybe an
update on your current thinking would be helpful as I think your plan that
rewards the group is the way to go. Keep up the good work. Jim
*****
Thanks for the kind words, Jim. The plan you discuss is the Scanlon Plan that
was part of the quality management movement (quality circles, Scanlon Plan of
gain sharing, etc.). Essentially the plan divides the budgeted sales goal by
the number of direct labor hours to get sales dollars per hour. Once that
corner number is established, increases in sales or increases in dollars per
direct labor hour trigger an increase in the worker's modest incentive.
Generally, it starts at $25 and goes up to about $200.

The Scanlon Plan is a group incentive and is based on the fact that you pay
people what they are worth. Any additional incentive is a team incentive that
should be divided equally among the team. I remain a great advocate of this
plan for two reasons. First, it rewards the team for doing good things. It
does not pit the press operators against anyone else within the shop. And,
second, it does what is most important for an incentive, it keeps everyone
focused on the goal (best expressed by total sales and sales per direct labor
hour). For this reason, I highly recommend it for someone who wishes to add an
incentive to his or her shop.

Now, please do not confuse this team incentive plan with some sort of press
operator pay plan that piecework compensation. Anything that represents a
significant amount of worker's pay is piecework or more of a commission rather
than an incentive. While that's not bad, it is different and the purposes of
the two are different and shouldn't be confused. The entire plan is available
in our People Management audio program available from our office at $165.
Contact Clark Workman at crouser@aol.com or (304) 342-5100 for more
information.
*****
I write a lot of stuff for a lot of things. There's this report to you, of
course, and in Quick Printing magazine and NAQP News. Seems like most of the
life is at this old keyboard (actually wore out four keyboards on my last
laptop). Well, here's just something I had penned (keyboarded?) earlier this
year and have never had a chance to really do anything with it. So, I thought
I would pass it along to you this week.

I Am the LUCKIEST Person on Earth

March 7, 1998

I am the luckiest person on earth. I am doing exactly what I want to do with
my life. I am in charge of my own destiny. I, along with my family, own our
own business. I am lucky because I get to work with my family. Not because I
have to work with my family, but because I want to work with my family. I am
luckier still that I got to spend real adult time with my parents, as I worked
with them for nearly twenty years. And every one of us, working together, has
skills, talents and specific jobs that are or were unique to us.

Even though it is harder now as our children are grown and have families of
their own, we still can make more time for our family than we could if we had
chosen not to be together in business.

I am an established and important person in my community because I am a
business owner. I have organized my business so I can travel as much as I
want, and I can travel as little as I want. I can make time to take my
granddaughter to the hospital to have her tonsils removed because she asked me
to do so. I didn't even punch out for that one.

We travel a lot. Pamela and I love to travel. We do it about forty weeks every
year. There isn't hardly a major city or a state that we can't relate to or
tell a story about. We have friends, close friends, who are scattered all over
this country. We see our friends and their families grow, marry, graduate,
move into larger houses, learn and prosper. We also hurt when our friends
hurt, especially when it is Divorce, Disease and Death. I'm sure you do the
same with your friends. Most of our friends, by the way, are printers. We get
to work with them and we now get to work with the second generation owners of
three printing companies, as we did with their parents years ago. And more are
on the way.

But, most of all, I get to work with my family. Not because I have to, but
because I want to. And each of them, Pamela and Edward, have specific skills
in their own right which makes us all stronger because we work together. We
also live in our home in West Virginia, which has been our family's home place
for the last fifty-two years. I work in the yard my fathers and brothers
worked in. We have seven of our pets buried on the grounds.

Oh, yes. I earn more money doing what I am doing than I could if I held a real
job. And, lucky for me, not everyone in this country wants to do what I do.
And not everyone wants to do what you do. That's what lifts us out of a basic
existence. I am the luckiest person in the world. I am a small business owner.
I hope you are, too. I just wanted you to know that. Tom Crouser

Tom and Pamela Crouser