Go back to San Diego in 1954, a group of local businessmen approach an attorney, Sol Price, looking for investors in a new retail concept: a large warehouse-style store featuring department-store-quality products at lower prices. The idea they proposed was that selling a lot of goods in a no-frills setting could be a new and profitable niche in the retail world. They called the store Fed-Mart, and over the next two decades the company grew into a successful regional chain in the southwest.

A German retailer purchased Fed-Mart with plans to make it into a leading national retailer, but failed. Sol Price, a top manager with Fed-Mart, and his son Robert were now unemployed. Mulling around new ideas, they came up with a membership-based warehouse retail operation and called Price Club. They opened their first store in San Diego in 1976 in an old manufacturing building built by Howard Hughes. Several Fed-Mart managers came to work at Price Club including Jim Sinegal, who started at Fed-Mart unloading mattresses when he was 18 years old.

This bit of history is important to this story because at Fed-Mart, key relationships were formed and a set of operating principles for running the company
were clearly defined and spelled out by their president at Sol Price. They included pricing, displays, policies for handling customer complaints, rules for advertising and more. The very first item on the list: “Customers come first, integrity is the cornerstone upon which we much build consumer confidence that creates customer loyalty.”

A retailer in Seattle was interested in the Price Club model, flew their son Jeff Brotman down to check it out and he came back with glowing reports and there was nothing like it in the northwest. The Seattle group looked for a CEO and chose Jim Sinegal who agreed to manage the new start-up. In 1983, the group scraped together $7.5 million from investors to open their first store in an industrial area of south Seattle.

Fast forward to 28 years as Jim Sinegal announces his retirement as the CEO of the third-largest retailer in the U.S. – Costco. It has $89 billion in revenue, 64 million members with 600 locations including 81 in Canada, 32 in Mexico, 22 in England, 9 in Japan, 7 in South Korea, 8 in Taiwan, 4 in Puerto Rico and 3 in
Australia.

Jim Sinegal ingrained five simple and down-to-earth business principals into the Costo’s corporate culture that made the company what it is today. The following are excerpts of these principals:

1. Obey the law – The law is irrefutable! Absent a moral imperative to challenge a
low, we must conduct our business in total compliance with the laws of every
community where we do business.
2. Take care of our members – as well as individuals – Our members are our reason
for being – the key to our success. If we don’t keep our members happy, little else
that we do will make a difference. There are plenty of shopping alternatives for our
members, and if they fail to show up, we cannot survive. Our members have extended a
trust to Costco by virtue of paying a fee to shop with us. We will succeed only if
we do not violate the trust they have extended to us, and that trust extends to
every area of our business.
3. Take care of our employees – Our employees are our most important asset. We
believe we have the very best employees in the warehouse club industry, and we are
committed to providing them with rewarding challenges and ample opportunities for
personal and career growth.
4. Respect our suppliers – Our suppliers are our partners in business and for us to
prosper as a company, they must prosper with us.
5. Reward our shareholders – As a company with stock that is traded publicly on the
NASDAQ stock exchange, our shareholders are our business partners. We can only be
successful so long as we are providing them with a good return on the money they
invest in our company.

Dan Lacy
Growth & Profit Coach, Financial Strategist, Cash Flow Doctor, CEO Mentor
dan@dynastybuilder.com
phone: 765-644-8887

In keeping with the theme of the New Year and getting your ship sailing in the right
direction, making necessary and often tough changes and decisions, this week I’m
going to take you behind the scenes of how I get so much done and manage so many
different projects, businesses, income streams, and relationships.

The short answer is, I work. Hard, long, often, relentlessly. But, that’s not the
sexy answer you are looking for and to leave it at that wouldn’t be telling you all
the truth.

My business is pretty much divided right down the middle in terms of getting money
and fulfilling for the money we get. My primary responsibility is being me, going
out and getting clients and expanding relationship into bigger opportunities,
creating enough demand to raise fees and become more valuable.

That’s all another way of saying creating chaos, running around causing trouble, and
doing a whole of stuff then having to figure it out after the fact. That’s the way
it goes if you want to get a lot done, we are valuable to a lot of people, and
create above average income.

But, there is after all another side to the business. You can never fully do the
“work on the business” versus “in the business” thing entirely. It’s impossible.
At least someone has to pay attention to the details, deliver on the goods, fulfill
for the money.

Without some backend support, someone taking care of the ying while you’re out
yanging…you’ll go nowhere fast and hit a ceiling in your business quickly leading
to frustration and unhealthy stress. I say unhealthy because too many people think
stress is avoidable and crumble under pressure. Not so. Everything happens under
pressure and stress is inevitable but it doesn’t ever have to be unhealthy.

Back to my point, and my brother, who is my business partner and really life partner
as friend and confidant. I mean, he keeps me alive, out of jail, and relatively
sane.

Yet, I seldom see him, less than once a month now, this year. We talk one
structured time each week and have more random conversations about football and
politics than business, because we have a system for working together, for building
businesses.

We divide things right down the middle both using our own specialized and developed
skills, maximizing our talents, things we prefer to be doing, we do.

Ryan acts as COO and master implementer and I as CEO and Spokesperson, Celebrity
Talent, and hired gun locked in a cage to produce what’s needed for everyone else to
be able to work their magic.

One without the other can’t survive.

Now, you can serve both roles yourself as long as you clearly identify BOTH roles
and divide and conquer with your own time and effort.

Okay, let’s keep this short and sweet, here are my rules of engagement for getting
things done and working through others.

1. Reprioritize Weekly – what can NOT go undone another day
2. As tasks and opportunities expand and you create more you must delegate
responsibility…you can only handle so much, bring on people to help you
3. No Two People work on the same thing – a critical reason why Ryan and I are
rarely in the same place, that would mean only one thing is getting attention
4. Have a diversified business model – some intense labor with high dollars, and
other limited effort for less. For example: my monthly workshop versus private
client business development. Neither could exist without the other – and I couldn’t
exist by doing just one of them all of the time
5. I must dictate my agenda, my to-do list (and my TEAM’s agenda) without exception
6. You must understand opportunity cost and know what your time is worth – and
therefor what an project/opportunity must be worth to say “yes”
7. Be obsessed with results – good or bad – often it’s a fear of an outcome that
prevents us from taking action, eliminate that fear

My team, all of them, are key people in every way. Without each person I could not
perform at my best without a doubt.

And, here’s the big and main point for you this week – YOU MUST BE OPERATING AT YOUR
PEAK and DOING THE HIGHEST LEVEL WORK YOU ARE CAPABLE OF all the time, that’s the
key and secret to achieving maximum results and profits and creating more
opportunities for yourself.

There are two facts which are nearly always true about information security resources. Almost all experts price their services for big corporate clients (with big corporate budgets), but almost all tools are way too complicated for small businesses to implement – and reliably maintain – on a “do-it-yourself” basis.

This leaves us in a little bit of a sticky situation. Our small businesses don’t have the budgets to engage a $300.00 per hour information security expert. But, our small businesses rely more and more every year on digital records and electronic transactions.

The Wall Street Journal published a front-page article earlier this year (July 21, 2011) reporting on the increasing risks and rising costs of information security breaches at small businesses. The article focused on several small businesses that had been bankrupted by the actual liabilities that occur when customer information is breached.

The Wall Street Journal article emphasized that the bad guys are getting tired of wasting their time on the big companies who can afford premium information security programs. They want the easy pickings. And, as our small businesses grow increasingly dependent on digital records – the easy pickings are us.

It is simply no longer viable for a small business owner to cross their fingers and hope that business information is secure.

What are our options?

Here are three tips that any small business owner can implement – with zero cost – to improve their information security in the new year.

1) Get serious about your passwords

When I started my business services and security practice this summer, I decided it was time to get some real information on what the bad guys are doing. So I went to a weeklong hacker’s convention and tried to blend in.

There were about 300 hackers in attendance. During one of the sessions, the hacker who was speaking said that he was getting bored with breaking into businesses. “I never get to do anything fun”, he lamented, “because 90% of the time, all I have to do is guess the password.”

The room erupted with laughter and shouts of agreement.

The days are long past when we can safely use passwords like “123456” or “admin” or the ever-popular “password”.

There are software tools – available for free download on the Internet – than can crack just about any password in seconds.

Stop thinking password, and start thinking passphrase. Put together several words, with a few numbers and special characters (such as @, $, &, %, etc) included. A strong passphrase takes significantly longer to crack, and makes your business systems a much less attractive target.

2) Evaluate the access which your employees have to systems & resources

The Computer Emergency Response Team (CERT) at Carnegie Mellon University conducted a study several years ago in cooperation with the US Secret Service. The research paper which they published provided significant insights into the characteristics of actual information security breaches.

Their research emphasized the risks that are posed by “insiders”, meaning employees and others who have been granted authorization to use business systems for otherwise legitimate purposes. The study found that:

In 87% of the cases, the information security breach was performed by an insider using simple, legitimate system commands.
In 77% of the cases, the insider who performed the breach was not a technical expert.
In 83% of the cases, the breach took place within the business’s premises.
In 70% of the cases, the breach took place during normal business hours.

What’s the upshot of this?

In addition to protecting your business information from hackers attacking from outside – your business information also needs to be secured from the inside. There is a strong possibility that your business information systems can be breached from inside your office, during normal business hours, by a non-technical employee using routine system access.

We can’t let our lives be ruled by paranoia, and every business relationship – especially that between employer and employee – requires some degree of trust.

But, we also need to be realistic. Evaluate which employees have access to which systems, and update this evaluation every so often. If someone changes roles, review their system access. Don’t allow anyone to create “dummy” user accounts, and don’t share user accounts – this makes it impossible to trace if something does go wrong.

3) Understand your liability for credit card (and debit) transactions

I believe that this is the hidden landmine right inside the front room of every small business that accepts credit card (and debit) transactions.

When your small business was provided with an electronic card reader, you were required to sign a contract with the vendor which states your responsibility for compliance with the rules of the Payment Card Industry (PCI).

The PCI rules are lengthy and complex; and full compliance is difficult even for large companies with big security budgets and full-time security staff.

The standard PCI contract stipulates that – if there is any incident involving customer data, and the incident is traced back to the card reader at your business – the bank will conduct an investigation to determine liability & damages.

Industry standard PCI agreements also state that, as part of this investigation, the bank can hire a forensic investigator to review the breach at your business. However – even though you did not select the investigator or agree to their compensation rate – standard PCI agreements allow the entire cost of this forensic investigation will be charged back to your business.

Do you have a copy of your PCI agreement? Have you read it?

Do you have a copy of the PCI rules & regulations which your PCI agreement requires you to follow?

What is the possibility that you have not implemented every single requirement in these rules?

The potential damages to your business that can result from a PCI breach are what we professionals in the audit & security industry refer to as a “low likelihood, high consequence” risk.

This means that the chances of such an incident are not great – but, if the incident does occur, the results could be catastrophic for your business.

Make sure that you have a full copy of your PCI agreement, and the PCI rules & regulations to which your business is bound by this agreement. Read the documents, and understand both your rights and liabilities.

The times require you to be vigilant about your business systems security.

James Wiley, CPA
Bookworm Business Services & Sly Fox Security

http://www.bookwormcompanies.com/

317-397-4712
james@jameswileycpa.com

Presented by T. Ray Phillips

Many, probably most, business owners would like to sell their businesses to their employees, but for one nagging problem: Their employees have no money.
The desire to sell to employees collides with the owner’s overarching need for financial security. Owners simply cannot risk selling a business to employees who have no cash.

Take James Johnson, the fictional owner of fictional company Johnson Consultants, Inc. James’s management team was capable and interested in buying the company. The business had little debt and good cash flow.
When James met with his advisors to discuss the topic, one of their first questions was, “When do you want to leave the business?”
If James answers, “Now!” a sale to employees who lack cash is fraught with risk. If James’s answer is, “I’d like to be out—and cashed out—of the business in five to eight years,” a well-designed exit plan can make that happen—if James starts today.

Plan Goals Any buy-out plan must accomplish three goals:

1. Minimize the owner’s, the company’s and the employees’ risk, by keeping
the owner in control of the business and the sale process until the owner receives the entire purchase price.
2. Ensure that the owner receives full value for his or her ownership
interest.
3. Minimize the income taxes of both the owner and the employees.
Unless a buy-out plan meets these goals, owners would be wise to reconsider selling their companies to their employees. If, on the other hand, owners plan and begin to execute a transfer plan well in advance of their departures, they can achieve these three goals. Of course, special planning is required to meet the income tax minimization goal.

Two-Stage Plan Design

A plan to execute an employee buy out has two stages.

Stage 1: Each year employees buy small amounts of stock until they have purchased and paid for approximately 35% to 40% of the ownership (usually non-voting). Ordinarily, this stage takes five to eight years. At the end of this stage, key employees are in a position to approach a bank.

Stage 2: Assuming the business continues to be profitable, paid-up owners of 40 percent of a company are usually able to secure bank financing to purchase the remaining balance of the owner’s stock.

James’s buy-out plan kept him in full control of his business until he received all of his money. Because he maintained control, he significantly reduced the risk of not receiving full value. He successfully cashed out of his business because he did not wait to begin his exit planning until he was ready to leave. By starting before he was ready to leave he was able to choose his successor, exit on his timetable, and leave with the cash he wanted.

The two-stage plan outlined above is a very brief summary of a relatively involved buy-out plan. There are many additional design issues that owners should discuss with their advisors.

Caveats:
1. This plan does not work for all businesses, but can work well for
companies valued between $500,000 and $5 million.

2. Executing the plan takes time, usually at least five years to allow the
employees to purchase a significant chunk of the company.

3. This plan requires a cooperative bank aware of the owner’s intentions
well in advance of the transfer.

4. This plan requires a strong management team interested in owning a
company financially fit enough to allow most of the available cash flow to be used to pay off the purchase debt.

DISCLAIMER: The information contained in this article is general in
nature and is not legal advice. For information regarding your particular situation, contact an attorney or tax advisor. This newsletter is believed to provide accurate and authoritative information related to the subject matter. The accuracy of the information is not guaranteed and is provided with the understanding that none of the providers of this newsletter, including Business Enterprise Institute, Inc., is rendering legal, accounting or tax advice. In specific cases, clients should consult their legal, accounting or tax advisors.
The example provided is hypothetical and for illustrative purposes only.
It includes fictitious names and does not represent any particular person or entity.

To contact T. Ray Phillips Re: subject matter in this article, call
(317) 208-6312 OR e-mail trphillips@finsvcs.com

Please do not leave trade instructions over e-mail, as they cannot be processed.
Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS under circular 230, we inform you that any U.S. Federal tax advice contained in this communication, unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another party any matters addressed herein.