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Ask Lorraine

ASK LORRAINE BUG

Question: My family has had its own jewelry business for several generations. My grandfather and his two brothers began the business and almost all of their children have gotten involved in one way or another. While we’ve had our ups and downs, we’ve been extremely successful and, I’m happy to say, we are still all on speaking terms. We have stayed in the Southern California area and now one of my nieces, who is a gemologist, wants to move back East. So if we want to keep her in the business, we’ll have to open a store outside of the familiar environment. Do you have any recommendations on how we can do this successfully?

Answer: This is good news when running a family business for so many years. Not only have you been successful in your home, now you have the opportunity to branch out. The first thing you’ll need to do is investigate the proposed new expansion area. The key question you’ll want to ask is, how can your company’s kind of expertise best service that community?

Keep in mind that a talented gemologist may not be a good retailer or marketer. So if your niece doesn’t have those qualifications, you might consider hiring someone who has, or “partnering” her with someone else. You may even want to send another family member (who knows how to set up a new store) for a few months until things get established. He or she can help with the critical steps like hiring qualified salespeople, and setting up a system for the new satellite.

It might be a good idea for your niece to work in another jewelry store in the new community before opening up your branch. That way, she’ll get a feel for how things operate and what that market calls for (which may be very different from Southern California). It’s not a bad way to get introduced into a new environment.

There is nothing better for a business than expansion. And talent and trust are the two key ingredients in branching out ? you have both.

Q: Three of us who were long-time buddies left our corporate positions to start a catering business about a year ago. We’ve built a nice business and have each earned at least what we made at our last jobs. Our problem is that we seem to have too much business and have overextended ourselves to the point that we are working 24 hours a day. Even worse, some of our last affairs were not as good as we’d like ? and our customers have noticed. Any helpful hints?

A: One of the most important factors in customer service is keeping your promise. You may just have to cut back on new business in order to provide the high-quality service that your customers expect ? especially your regular customers. There is so much competition in the food-service business, and credibility is one of your most important assets. If you can’t keep up, you may have to get out.

First, you may want to slow down to get yourselves back into the mode you were before you became over-committed. Then you should learn the art of outsourcing, either to other small catering firms you trust, or by hiring part-time talent to keep up with your clients’ needs. (I would recommend the latter, because you’ll avoid the risk of losing business to the other caterers you recommend.)

To offset some of this effort, you may have to increase your prices. Many customers would rather pay more for excellent service and less for poor service.

Q: My husband and I run two businesses ? one is a car dealership and the other sells auto parts ? with separate management teams and personnel. Do you think this is a good market environment for consolidation?

A: Well, obviously others in the auto industry think so, such as Daimler Benz/Chrysler and Volkswagen/Rolls Royce.

In today’s marketplace, it seems that the whole may be worth more than the parts (no pun intended!). The question is how to consolidate the two companies in a way that makes them worth more and not less.

That would appear to be easier in your case because the two businesses are in a related industry. It can be very cost effective to have one accounting and payroll system, one inventory system, etc. handling both businesses. Plus, you’ll benefit from economies of scale for your health plan and other types of services you may provide your employees.

The only caveat I would mention is the possibility of negative tax implications ? be sure to check it out thoroughly with your accountant and attorney.

Q: I’ve been thinking for some time about selling my business, either all of it or part of it, to a strategic investor. I don’t have an investment banker, but I have a very entrepreneurial law firm that knows my business inside and out. Do you think it would be OK to enlist their help?

A: Absolutely. Sometimes the best person to help you is a professional who already knows you and your business. While a law firm may not have all of the expertise to analyze your financials, you can always subcontract with someone who does.

What you need to determine is whether or not your law firm understands securities and corporate issues well enough to be able to draft a contract or provide the due diligence necessary for a sale of the company. Next, you should feel comfortable that it is sophisticated enough to negotiate with the “big boys” in your sale.

Lorraine Spurge is a personal finance advisor, author and business news commentator. She can be reached at (818) 705-3740 or by e-mail at lspurge@spurgeink.com.

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