Business Insider Magazine - Volume 3 - Issue 3 - 1st Issue 2008

BUSINESS insider MAGAZINE The South Bay Los Angeles Business-to-Business Magazine Publisher & Editor David Whitehead Contributing Writers Ed Burzminski, Bob Gomez, Ken Roberts, Angela L.H. Sayers, Brian Simon, Tony Traven, Cayley Vos, David Whitehead, R. Boyd Zack Graphic Design & Production David Whitehead & Susan L. Wells Copy Editing & Proofing Brian Simon Advertising Sales Manager David Whitehead Assistant to the Publisher Alexandra C. Hart BUSINESS insider MAGAZINE Welcomes Input From The Community: All Letters to the Editor should be concise and include the writer’s name, address and phone number. BIM will publish select letters addressing relevant issues and topics discussed in the magazine. We will not publish street address, email address or phone number. If the editor comments about a letter, the reader may respond with at least as many words as were used by the editor. We would like to stimulate a sincere dialogue. All letters become property of BUSINESS insider Magazine and are subject to editing for length, content, grammar, punctuation, etc. Letters may be submitted by email to:

[email protected] Or mailed to: BIM Letters to the Editor P.O. Box 1032 Palos Verdes Estates, CA 90274 (310) 872-9732 www.BusinessInsider.us www.TheBizBoard.net BUSINESS insider MAGAZINE makes every attempt to provide business decision-makers with current and accurate information. However, BUSINESS insider MAGAZINE disclaims any implied warranty about the correctness or accuracy of information published in BIM and www.BusinessInsider.us or its appropriateness for a particular purpose. You assume full responsibility for using the information and understand and agree that BUSINESS insider MAGAZINE is neither responsible nor liable for any claim, loss, or damage resulting from its use. Opinions and/or claims of BIM contributing writers and advertisers do not necessarily reflect the opinions of BIM’s publisher.

© 2008 BIM Publications & BUSINESS insider MAGAZINE All Rights Reserved

In This Issue… COVER FEATURE: Building the South Bay Economy

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21st Century Development Trends

Tax Time Tax Information From South Bay Financial Pros

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The Alternative Minimum Tax Inflation Unleashes Antiquated Tax Law on Middle Class Families

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The Capital Gains Tax Rate: Is Change on the Horizon?

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New Tax Structure May Affect Your Retirement Accounts

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Technology Insider Managing Your Digital Assets

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How to Take Full Advantage of Search Engine Optimization and Pay Per Click

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Stimulus Package Spells Relief for California

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How a South Bay Corporation Moved Their “Mission-Critical” Operations Overseas

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The Great Bubble Builders Publisher’s Perspective Column on the Federal Reserve

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Transactional vs. Consultative Sales Pick the System That’s Best for Your Company

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Calendar of South Bay Business Events

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Are You Shoving Square Pegs in Round Holes? Instead, Make Sure The Job is a Fit!

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Meeting, Event And Banquet Resources

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Publisher’s Message “Build it and they will come.”

This thesis statement ended badly for Bugsy Siegel. However, in the end it was phenomenal for Las Vegas. The South Bay too has had its share of setbacks, but always seems to rebound well in the end. After years of repositioning from the early nineties aerospace turndown, the South Bay has found its stride once again and is evolving rapidly as a first-rate Los Angeles business center for a much wider range of business than ever before. We themed this issue “Building the South Bay Economy” so we could focus on recent development trends that have launched our communities into the 21st Century at full speed. Although large parcels of land are scarce, new opportunities are emerging on former defense industry properties and creative developers are doing spectacular things to renovate other existing properties for corporate centers, industrial facilities, warehousing, retail and even a destination resort. The South Bay is truly coming of age and the greater diversity of our new business base gives added economic security for the region as we edge into a slower economic period. Our cover feature showcases select major developments in progress, including the large-scale Campus El Segundo Project featuring mixed uses, with Class A corporate space, retail, restaurants and even a soccer field to integrate it into the community. Terranea, set to open in 2009, brings the only destination coastal resort in Los Angeles County to the South Bay. These and other smaller scale projects of note are covered in this special issue dedicated to the developments that will continue to build the South Bay economy for years to come. David Whitehead Publisher

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“I back up my files — I don’t need a digital asset management system”

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your company may own assets that aren’t recorded in your books. These non-physical assets reside only within the computer systems and file servers on your corporate network. There are also assets that exist in a physical format that are better used and exploited in a digital format. Non-physical electronic assets, or digital assets, are much more prevalent and prolific than many realize. Additionally, these assets can be vital to the health and well-being of a business and are often overlooked. Think about it this way: The assets you normally keep track of range from trash cans to desks. If you are a manufacturer, you inevitably have equipment, inventory and even raw materials in the suite of assets that you manage on a regular basis. In a distribution business, you will have your inventory as well as other equipment, such as trucks or shipping equipment, as assets of your business. Even professional service organizations often have some assets they keep track of even if those are less tangible. Think of digital assets as you would of any of these assets of value that are part of your business. Examples of digital assets are as diverse as the businesses that create them without even thinking about it. A manufacturing business often has specific methods that are used in their manufacturing process that give them an advantage over the competition. These methods may be recorded as instructions, diagrams and formulas within the computer systems used to run the business, or even kept as simple documents on someone’s desktop computer. The same manufacturing business may have its marketing materials stored as files on the company network. It may also have product specification sheets, product images, designs and more all housed in electronic formats. These types of digital assets are very important to the business, but are rarely managed with the same level of care as the physical machines used within the business. Now you may be saying to yourself, “We are diligent about our back-up routines and always keep back-ups and archives off-site. Our digital assets are as secure as they need be.” While the first part of this statement should be true for all business owners, the second sentence may not be as much of a given. Maintaining back-ups and archives of your business assets is critical, but is not the same as managing your digital assets. Let’s take a closer look at the realm of digital assets and digital asset management and determine if your business is at risk of losing some very valuable resources. Just as the corporate network has grown from a productivity tool to an indispensible part 6 S

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of the daily operation of nearly every business in America, digital assets have grown unchecked in many ways. If your business has ever created a PowerPoint presentation, a Word document, a spreadsheet, an e-mail message, a digital photograph used within the business or any one of hundreds of types of files we create within our computers every day, you have created a digital asset. While many of these are of little long-term value, some are extremely valuable while others carry extreme liabilities. But what are you doing to manage the digital assets generated by your business? If you run back-ups on your network drives and your desktop drives, you are taking at least the smallest step in securing your digital assets. You are not, however, managing those digital assets simply by backing them up. Digital asset management is far more than retention of assets through back-up mechanisms. Have you ever searched for a file on your computer or network and not been able to find it? Have your searches ever resulted in finding multiple copies of the file? And what about that sinking feeling you get when you locate the file you are looking for only to find that it is not the correct version you need? Digital asset management addresses these issues as well as a host of others. Additionally, it provides a wealth of benefits worth considering. As assets can become liabilities if not properly managed, effective digital asset management is certain to come into focus over the coming years. Retention of information longer than required can expose businesses to unnecessary discoveries. Lack of retention can result in fines or judgments due to an inability to prove innocence. Lack of proper management can result in exposure of information unnecessarily. Aside from the loss of assets and damage they can cause through inadequate management of digital resources, several industries have learned that physical assets that are transformed into digital assets can take on a whole new value. An example of this type of asset is the recorded music owned by record labels back in 1998 that existed on master tapes, but had never been downloaded over the Internet. Once the masters are transformed into digital formats, the ability to exploit

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them for financial gain becomes very real. One of the threats of improper management of digital assets is the loss of control of those assets, as has been seen in the recorded music industry. Yet another risk of mismanaged digital assets is the time and energy loss associated with improper versions of files being used. From obsolete versions of proposals sent to customers to a misdirected e-mail message to outdated versions of application software corrupting a corporate database, improperly managed digital assets can cripple a company very quickly.

The Spectrum of DAMS Digital Asset Management Systems (a.k.a. DAMS) are one way of starting to gain control of digital assets in an organization. DAMS provide means of cataloguing assets in a manner that enable retrieval, retention and destruction. DAMS provide security measures to ensure the proper access levels to assets, workflow automation enabling more efficient use of resources, and remote access to assets when and where those are needed. When searching for a digital asset management system, the first thing to identify is your objective. What solutions should it provide to what problems? Do you simply want to find your digital assets on demand? Collaborate between departments? Increase efficiencies through improved workflow? Manage rights and permissions complete with automated tracking and accounting? The DAMS suppliers offer a broad array of solutions, ranging from enterprisewide solutions to individual workstations. Desktop solutions represent the simplest type of DAM. They serve the needs of individuals using relatively small collections of content. This model can be applied to a handful of stations in a filesharing network. While desktop solutions allow for descriptions and keyword searches, they typically only catalog thumbnails and references to the actual files as opposed to the files themselves. A collaborative solution is the likely choice if your objective is sharing workin-progress and finished digital assets continued on page 37 1

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How to Take Full Advantage of Search Engine Optimization and Pay Per Click BY CAYLEY VOS

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SEARCH ENGINE OPTIMIZATION (SEO) experts will tell you that their way is the only way: that free, organic traffic to your website brings the highest Return on Investment (ROI). ANY

But then you’ll hear advertisers who advocate the use of AdWords, banners, and similar Pay Per Click (PPC) tactics. They’ll point out that such campaigns only cost what they’re worth. If your website is new, PPC can help you make up for lost time and generate qualified leads immediately. It’s a powerful argument against the lengthy process of SEO. But the truth requires a broader view. This isn’t an either-or situation. To get the most profitable results from the online segment of your business, it’s usually best to incorporate both PPC campaigns and natural SEO. When used wisely, these two techniques can support and enhance each other and provide a higher aggregate ROI.

The Short View of Pay Per Click Most SEO strategies take time. Simply being around longer than a competing website gives you favored status in the 8 S

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search engines. Plus, it takes time to add content, build a reputation, establish your niche and cultivate inbound links. Because of this, Internet marketers will often use PPC to goose their position on the sponsored section of search engine results pages in the hopes of getting enough traffic to turn a profit in the months it takes to build a respectable level of organic SEO. But savvy Internet marketers don’t stop with this tactic. PPC campaigns can also help build and support your SEO campaign. The secret to this is in the way you manage traffic once users arrive at your website. Most ads are simply meant to make a sale. But once a motivated buyer visits your site, you can do a lot to ensure they’ll return to it in the future. Often websites let users “opt in” to receive a newsletter or download a white paper. The site may have a forum, blog or other interactive feature. If you regularly add valuable content to your website, and you make sure your customers are aware of this, they’ll come back for more. Using a ‘set it and forget it’ attitude will relegate you to the search engine round file. Likewise, simply placing a banner ad can have an organic “branding” effect. When users go to their favorite blog every continued on page 38

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Stimulus Package Spells Relief for California

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ECAUSE ENTRY LEVEL HOME PRICES IN THE SOUTH BAY START AT CLOSE TO HALF A MILLION DOLLARS, a conforming loan limit of $417,000 falls far

short for the vast majority of home purchasers. As the credit crunch lingers on, guidelines continue to tighten, making it much harder to qualify. Loan programs are being discontinued. The gap between rates charged for jumbo vs. conforming loan amounts has widened. In response, lenders either don’t offer second mortgages or lower the combined loan-to-values (LTV) to 80% or less for fixed-rate seconds and Home Equity Lines of Credit (HELOC). jumbo purchases now require larger down payments and refinances require lower loan-to-values to qualify. All this means decreased qualifying ratios and raised minimum credit standards. Conforming loan guidelines, however, still allow 95–100% loan-to-value first mortgages when combined with Private Mortgage Insurance. There is still 100% financing available with a few lenders, although many have reduced maximum loan amounts in Los Angeles County by 5% due to declining values. Conforming guidelines allow for much higher qualifying ratios than jumbo guidelines. Certainly rates are much lower. As of this writing, conforming loans are 1% or more below jumbo rates. FHA-insured loans currently go up to $362,790 here. Since they are not credit score- or FICO score-driven, they make it easier to use non-traditional sources of credit. You don’t have to be a first-time buyer and there are no income or geographic restrictions. They can go up to 97% LTV and can provide drowning sub-prime borrowers a possible life preserver in a refinance out of their rising payments. For primary residence buyers, an FHA loan provides reasonable rates with a small down payment, (all of which can be gifts, grants or unsecured loans), less-than-stellar credit, easier qualifying ratios and the ability to take on a co-signer (non-occupant co-mortgagor) or two and blend the debts and income of all borrowers to help qualify. It is a great loan to use to buy two to four units if you are going to owner-occupy one of the units. To recap, FHA and conforming loans are cheaper, easier to get and require less money down. But for most people in the South Bay, unless you had a very large down payment in a purchase or a very large equity position in a refinance, you couldn’t take advantage of the benefits of an FHA or conforming loans. That is all about to change!

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BY KEN ROBERTS

The Economic Stimulus Act of 2008 passed by both houses of Congress and signed into law by the President holds much promise for Californians. It provides a temporary increase in both the limits on FHA loans and conforming loans purchased by Fannie Mae and Freddie Mac in the secondary mortgage market to $729,700 in certain high-cost areas (like most of California) until the end of 2008. The Mortgage Bankers Association has written letters to HUD and the Office of Federal Housing Enterprise Oversight to act quickly to establish new area median housing prices for each Metropolitan Statistical Area (MSA). I believe raising the loan limits for both conforming and FHA loans will be a substantial shot in the arm to our local real estate market and could potentially make 2008 real estate sales volume in California surpass that of 2007. It will also be an opportune time to refinance a current jumbo first mortgage over $417,000 and a second mortgage or HELOC into a new first loan at the coming lower conforming rates. Another issue confronting borrowers mentioned above is that some lenders are automatically reducing all loan-to-values by 5% because of their belief that all of Los Angeles County is a declining value area. Some lenders will allow the appraiser to determine whether the property being appraised is in a declining value area or not. In a purchase or refinance, imagine figuring your rate being based on 80% of the appraised value only to find out you have to factor in mortgage insurance premium because the loan you have chosen is priced as though it were 85% loan-to-value. Or, that you have to put an additional 5% down to get the same rate you thought you had! Something else to take note of is that Fannie Mae and Freddie Mac, the purchasers of conforming loans in the secondary market from the lenders that fund them, has moved to riskbased pricing. That means tiered pricing based on borrowers’ credit scores. The higher your credit score, the better the pricing. For example, should your middle credit score drop below 680, you will have to pay an additional .75 of a point in fee over someone with a score of 680 or greater. On a $400,000 loan, that amounts to $3,000 in points for the same rate. Now more than ever, make sure you manage your credit effectively. People aren’t aware that credit behavior that seems logical to them can actually lower their FICO scores. That, coupled with continued on page 33 B

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USINESSES OUTSOURCE OPERATIONS OVERSEAS FOR MYRIAD REASONS. Gen-

erally sent to Third World countries, outsourcing can bolster the bottom line, maximize profits and turbo-charge productivity. Our company was no different. We were an El Segundo-based custom publisher of directories, maps and visitor guides acting under contract for over 120 chambers of commerce clients spread over 18 states and generating over $3 million in annual revenue. We moved all of our graphic design and production labor overseas to a well-trained and very hard working labor force in Manila, the Philippines. Before embarking on this venture, we conducted an indepth analysis of our production operations to better understand our cost structures and determine if offshore outsourcing was right for our company. Armed with this newfound information, we spent a considerable amount of time reorganizing both the production group and the account management group in an effort to better match people to their highest and best use and to shorten the cycle. We trimmed a few days here and there, streamlined the process significantly and still came back to the nagging problem: we needed more bodies to process the sheer volume of ads. Yet with Los Angeles-based labor, there was no way the budget could support an expansion of direct costs by even one more person. We had to find a less expensive labor force where we could add more people and still save money. We first explored different regions in North America, analyzed wages and availability of staff: Memphis, Las Vegas and Canada and a few other candidates didn’t pencil out; the wage differential was just not enough. We then explored local companies to outsource ad production, but the costs actually came in higher than using our own labor. Subcontracting in North America was a non-starter. It became crystal clear that the massive difference in U.S. versus foreign wages meant outsourcing overseas was a missioncritical objective. Finally, with all U.S.-based options exhausted we decided to follow the outsourcing bandwagon and explore possibilities in India, Ireland and the Philippines.

Criteria for Choosing a Country Since we published in American English, the risk of having someone create an ad using British English might have been problematic. This alone moved India and Ireland lower on the list. In the Philippines, children learn American English in primary school with excellent written language skills. So we chose to focus on the Philippines as the primary candidate country. 10 S

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BY ED BURZMINSKI Sourcing Candidate Companies: Consulates and the Internet An Internet search came up with a number of companies, but we decided to approach the Consul General of the Philippines’ office in San Francisco for direction. It proved to be a veritable treasure trove of information. We received a package with descriptions of about 30 companies that had created outsourcing services in media. After looking through all the wide-ranging information and myriad offerings, nothing completely fit the bill. To get more organized, we created a standardized Request for Proposal (RFP) and sent it to each prospective candidate, giving each 60 days to respond. In the RFP, we described our company and defined as best we could exactly what we were looking to accomplish: namely to move all advertising production and ad traffic functions overseas with an eye towards ultimately moving all design and layout of the publications there as well. We spelled out the volume of ads, the number of people we employed in the targeted positions, the number of people we thought were appropriate to get the job done and an expected timeframe to be fully implemented. Ten companies sent us proposals. Not a bad response, we thought, considering we were looking for something unique. In a large company, the entire process is delegated to a team. Small companies simply can’t afford that, but all the above steps could be delegated to someone, or the owner can tackle it with a little help. At this point in the process, senior management needs to be involved to fully understand the offerings and capabilities of each prospective outsourcing partner. We interviewed each prospect and came up with a shortlist. One company stood apart from the others as being much further along with outsourcing graphic production for magazine publishers. After much discussion with each of the finalists on pricing, we determined the best pricing structure was simply to pay for FTEs (full-time equivalent staff) just as we did here for fulltime positions. We paid a flat monthly rate per person, which was all inclusive of benefits, insurance, etc., and included the vendor’s markup.

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Comparing the cost to American labor, we stood to save 50% on salaries without factoring in savings in other overhead line items in the profit and loss. The ancillary savings became evident only after we were knee-deep in the process, and were a welcome bonus. We ran the pricing through a pro-forma P&L to estimate the financial impact, taking educated guesses in some areas like workers’ compensation insurance, to prepare for discussions with the other stakeholders and begin the process of gaining buy-in from key stakeholders. We discussed our findings with senior managers, line managers and other major staff people who were in the trenches on a daily basis. Framing the discussions from beginning with the end in mind, we focused on providing excellent customer experience and delivering publications on time and possibly earlier. It’s important to stay focused on the positive aspect and provide solutions for those Americans who will ultimately lose their jobs. That bridge is difficult to cross without having thought through the options. The bottom line was simple: We were there to run a business and failing that, all of us would be looking for jobs. Bringing in key managers in the discussions proved invaluable. These decisions were simply too complex to be made from the top down. A representative from the overseas company came to the office for several meetings and was a key player in the process. Once everyone was able to get past the idea of lost jobs and put their arms around how many solutions could be realized, the excitement to move forward snowballed.

dened with overhead and marked up for profit. We established a monthly, fixed price for each FTE payable bi-weekly to coincide with our payroll. There were no additional costs involved other than our own travel for visits. We needed to be aware of special labor considerations in the Phillipines, such as a guaranteed 13th month payroll that is given to employees each year. In effect, it’s a guaranteed annual bonus of an extra month’s pay. Also, the concept of employeesat-will is, well, foreign. As part of the agreement negotiated, many of these issues became the responsibility of the overseas provider to handle; we just paid one amount per FTE. The production group had to follow an American schedule for holidays. All human resource issues filtered through the outsource company’s existing HR department and factored into their price. A point of contention arose around management of staff and who was to pay for it. An on-site manager was critical with the volume of work and number of people. We initially factored that person in as an extra FTE negotiated as part of their own overhead assigned to the client. As things later evolved, it made more sense for the cost of a dedicated manager to be generated by us. As an extra precaution, we hired a Filipino-speaking production coordinator on our side to make sure communication and management oversight was clear. The vendor absorbed telephone communication costs. We also installed a toll-free number and used voice-over IP technology for phone calls. After a few bumps with the technology, the voice communications were crystal clear.

Dealing with the Inevitable Layoffs

Written Protocols and Procedures

The fact that some people were going to lose their jobs had to be dealt with head-on. That is the negative aspect of outsourcing which can be turned into a positive by thinking through a transition plan, helping find jobs with other companies, and doing everything possible to ensure a soft landing for everyone. In our scenario, we offered a career opportunity to a junior artist to become the International Production Outsourcing Coordinator. It would look good on her resume and potentially increase her marketability. For others, we put the word out that these qualified people were entering the job market and we wanted to see them have a soft landing with some other company.

We spent a considerable amount of time working through the procedures for handling the most common advertiser issues, the production workflow process, and a glossary of terminology we used at the company. Involving the line managers and senior management helped create a well-rounded set of procedures and protocols. It was important to establish when to contact us regarding advertiser issues and when we needed to intercede. It took a considerable amount of time to train the ad traffic staff to temper their zeal to shorten the ad approval process and work with people more to find solutions. There were some complaints about aggressiveness which needed to be addressed and fixed.

The Outsourcing Agreement

Training

We structured our agreement around creating an entire design and production department overseas from scratch to solely service our company and not simply layer us in to an existing infrastructure. It was critical to have the production group available during U.S. work hours, primarily driven by the need for the ad traffic group to speak with advertisers by telephone. With the time difference, the Manila production group had to work the graveyard shift. The agreement reflected a minimum number of FTEs, to be recruited by the outsource company up to a maximum number, with additional FTEs to be negotiated as the volume of work increased. The annual salaries were fully-bur-

One of the overseas staff spent four weeks in the U.S. at our facility working to understand our process and document the workflow to train the growing team in Manila. It was awkward having him interact with staff members destined to lose their jobs, but he was very well-received and even became close with the U.S. team. He built camaraderie with the group and was sympathetic to their situation. That was the critical, personal component that helped the transition work well. To ensure the transfer of institutional knowledge, we offered some of the production staffers retention bonuses to stay on continued on page 16

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C U P O B L L U IMSNH EI N R S ’ SI DPEERR S P E C T I V E

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S THE JANUARY STOCK MARKET RAN WILD, financial guru Jim “Mad Money” Cramer went wild himself, going as far as calling for an investigation of the Federal Reserve. His ranting accusations followed Chairman Ben S. Bernanke’s unscheduled .75 percent cut in the Fed’s key lending rate, the biggest in over 20 years. “When you look at the statements that have accompanied every Fed rate cut, you could reach no conclusion other than the fact that the man has no idea what he’s doing,” Cramer told TheStreet.com in a January 22 video report. Then on January 30 at the Fed’s scheduled meeting, it slashed the rate again by another half percent. That’s a cut of 125 basis points in just nine days. The second cut occurred as the Commerce Department reported the gross domestic product, which is the broadest measure of U.S. economic growth, rose at an 0.6 percent annual rate during the fourth quarter of 2007, the weakest growth period since 2002 and an indicator that recession could be on the horizon if the downward trend continues. And as of this writing, Bernanke stands ready to cut again if necessary to keep the economy going. Among global investors, uncertainty with fundamentals of the U.S. economy has reached its lowest point in years. Americans tend to welcome rate cuts, believing they will save the day. Likewise, Wall Street always responds favorably to decisions to expand the money supply. But have you ever thought about the broad implications of our money creation process? 12 S

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Very few people I speak with in the South Bay business community have much interest in it. This is especially true in the real estate and financial communities most affected by Fed action. I can understand why their corporate parents want their personnel to focus on their jobs and let the skipper at the helm of the Fed worry about storms on the horizon without this kind of distraction. Yet the utter lack of transparency in the process and the esoteric nature of economics have created problems of their own that have gone unchecked for decades. If most people really understood how this process works, the history behind it and what these enormous imbalances could mean for the future of our nation, I believe they would be as concerned as Cramer. Rate cuts that create mounting trade deficits and other forms of debt, both public and private, would have been considered far too dangerous to consider as recently as 30 years ago. However, the Fed has dodged the bullet so long that most people simply accept its aggressive policies with a shrug. That’s because most people don’t know how to put the broader implications of these moves in their proper context. Politicians generally don’t bother with it to the point of supporting destructive policies if those appear to support their short-term agendas. Financial professionals delude themselves into believing all is good so long as they are making money. Hard truth about the state of the U.S. dollar is not considered polite conversation in financial circles. As a result, the major-

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Flooding the market with cheap money and gradually deflating the massive bubbles it creates plays fast and loose with the financial future of our nation. The post-911 lending rate dropped as low as one percent to pull us out of recession quickly while setting the housing market on fire. The Fed was accused of dropping money from helicopters, but the financial opium felt so good that nobody cared. ity of people have no idea how risky these actions are for America’s long-term prosperity. The only difference between Cramer and many enlightened financial experts who really understand the dynamics of monetary policy is his unrestrained candor. To a degree, I empathize with the call for restraint. This is a business where reaction makes reality. For example, the Federal Deposit Insurance Corporation (FDIC) needs some latitude for secrecy to prevent bank runs when it arranges buyouts for failing institutions. But there are limits. Although off-the-cuff comments from central bankers that tend to rock markets should be avoided, a lesson Bernanke learned the hard way, glossing over long-term monetary problems to fend off undesirable reactions allows deep-seated problems to fester and grow until they reach the crisis stage. To be frank, the American people have a right to know the true state of the economy and what its relationship to the global marketplace truly represents. But if the majority of the American people, including most in the political establishment, don’t know enough about monetary policy to have an informed opinion about it, central bankers with interests of their own are left to operate largely unchecked. Shouldn’t we be asking ourselves if this is appropriate given the extraordinary magnitude of their decisions? If Bernanke really doesn’t know what he is doing, as Cramer alleges, he must be replaced. If he does, the intensely secretive organization he represents has much to explain, and that includes his predecessor Alan Greenspan. Fed action this past decade created the bubbles that led to the dot com crash and the real estate boom now deflating before us. It prevented the post-911 recession from running deep and long when the economy was due for a major correction. It allowed the Bush administration to engage in an expensive war without having to implement austerity measures at home. Financial bubbles driven by cheap money transformed appreciating homes into lifestyle enhancing ATM machines. Misguided mortgage brokers and homebuyers bet the real estate market could rise forever. Is anyone really surprised they lost that bet? RealtyTrac.com reported over 2.2 million foreclosure filings nationwide in 2007 and the bloodbath continues in 2008. To make matters worse, unscrupulous securities brokers packaged these time bombs into investment packages and sold them all over the world. This actually 1

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caused the first run on a bank in Britain since the Great Depression! If you examine these wild rides carefully to identify their root causes, all roads lead to money bubbles created by the Federal Reserve.

Bubbles, Bubbles and More Bubbles! Artificially stimulating the economy time and again with unwarranted expansions of the money supply simply creates enormous imbalances that led to the dangerous kinds of blowouts we have seen in the mortgage and credit markets since mid-2007. Flooding the market with cheap money and gradually deflating the massive bubbles it creates plays fast and loose with the financial future of our nation. The post-911 lending rate dropped as low as one percent to pull us out of recession quickly while setting the housing market on fire. The Fed was accused of dropping money from helicopters, but the financial opium felt so good that nobody cared. Looking back further, China’s industrial machine went into high gear more than a decade ago driven by predatory monetary policies of its own, which continues to cause foreign debt to grow massive. Greenspan’s strategy of gradual rate increases to keep the bubbles he was creating in check simply didn’t work because there was no mechanism to reduce the mounting debt when the value of our main creditor’s currency followed ours during the globalization boom. The dollar grew much too strong in relation to global currencies, but continued to grow weaker in real terms as the debt accumulated. This has been going on for years and is now reaching a critical mass. All this was allowed to happen because of the collective ignorance of the money creation process and ill-advised trust in a central banking system that lacks appropriate checks and balances. The Fed’s decision to aggressively lower lending rates during an economic boom, which is an extraordinary no-no for traditional economists, was driven by astounding levels of foreign investment. It pushed the overall U.S. trade deficit from less than $100 billion in the early nineties to a recent peak of $758.5 billion in 2006. The deficit dropped approximately six percent to $711 billion in 2007 due primarily to the plunging dollar encouraging demand for more U.S. exports. The national debt rose from $5.7 trillion in 2001 to a staggering $9.2 trillion in 2008. continued on page 14 B

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C U O B L L U IMSNH EI N P R S ’ SI DPEERR S P E C T I V E

PUBLISHER’S PERSPECTIVE continued from page 13

back into the economy. But this move surely to be welcomed by taxpayers could fuel serious inflation that would cancel out most, if not all of the benefits for average Americans in the long run. In any case, it certainly makes marvelous sound bites that both parties can capitalize upon in an election year. The key problem is that most Americans put all their time and effort into earning money and few pay much attention to how money is made. They don’t know they are earning borrowed money, so when they continue to borrow and reborrow previously borrowed money they are not creating wealth, but speculating on debt-laden assets growing unsustainably. At one time, governments allowed, and in some cases incited, severe financial depressions because they understood to do otherwise would lead to catastrophe. The modern paradigm of economics believes that government intervention to keep the money supply in line with production and consumption in addition to

This recent cut in the Fed’s key lending rate transpired in the context of declining foreign investment and a rapidly declining U.S. dollar. Not only is this strategy flawed because it can’t deal with the debt — it has reached the point where there is nothing left to draw on to back this new expansion of the money supply without creating destructive inflation. In fact, many experts would argue the future of the dollar as the international reserve currency is in question and no other economic fundamentals can sustain the currency for much longer. That’s why Cramer is freaking out about what Bernanke is doing. Yet most people simply don’t get it.

Stimulus, Stimulus and More Stimulus! On February 13, 2008, President George W. Bush signed into law a $168 billion stimulus package including tax rebates to flush desperately needed cash

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maintaining a favorable balance of trade is no longer necessary. They now believe central banks manipulating markets through aggressive expansion of money supply is prudent economic policy if it stimulates short-term economic activity regardless of the long-term debt it creates.

Depressions are too Depressing for the Fed to Consider Both Greenspan and Bernanke hold doctorates in economics and both brag they have spent a great deal of time studying the Great Depression. The irony is that Greenspan’s radical economic policies continued by Bernanke have brought the nation closer to this kind of economic calamity than at any time since the late twenties. But this time the economic fundamentals are much further out of whack then they ever were in the early 20th Century. What worked for Greenspan can’t work the same way for Bernanke because we are reaching the point where the mounting debt simply can’t continue unchecked. Yet he appears to be engaging in exactly the same policy that created this bubble-building situation in the first place. There is a critical difference between the global economy of 1929 and 2008. The imbalances that led to the Great Depression resulted from unprecedented debt in Europe following World War I, unprecedented prosperity in the United States in the twenties driving production dangerously out of sync with domestic consumption, and hopeless attempts by economists and central bankers at implementing monetary stabilization that called for a return to the pre-1914 gold standard economy. Financial calamities occurred either because of draconian action or from politically charged deviations from sound economic principles. Greenspan apparently thought he had studied the process enough to avoid the kinds of calamities created by his predecessors and in many cases did exactly the opposite of what economists of past generations would have espoused. What he did was skillfully navigate through treacherous situations as the debt and risks continued to 1

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increase over time. We are now betting our future on the idea that uncontrolled debt can grow forever with occasional controlled deflations of the bubbles that will cause economic pain but not the kind of blowouts experienced in the past or more recently in developing nations. The Fed seems to believe we can maintain prosperity at home via astute maneuvers by central bankers enforced by superpower political influence to make sure the dollar remains the world’s reserve currency despite the lack of tangible economic fundamentals for this situation to continue. That’s the current paradigm in case you didn’t know. The history of the last four decades is even more telling. In the early seventies, the Nixon administration ended the Bretton Woods policy for post-war monetary stabilization, making it legal for trade deficits to proliferate. The $500 billion cost of the Vietnam War was the final nail in the coffin for the gold exchange standard in the United States. Since then, foreign investment has been the key backer of the U.S. dollar. During the early years of de-industrialization and acute inflation when Japan was the primary exporter to the United States, a gradual weakening of the dollar served to flush much of the mounting trade deficit away, which was calculated but considered manageable at the time. But the dollar got strong in the eighties; and during the nineties, foreign debt began to mount uncontrollably. Also, to this day, approximately 68 percent of the world’s oil is sold mostly on the New York and London exchanges in U.S. dollars. This is another instrument, which former secretary of state Henry Kissinger dubbed “petrodollars,” that the Fed uses to back the money supply. Still, once again, this process creates foreign debt and the world’s nations are pressing to make the Euro an alternative currency to buy oil. When China became the primary importer to the United States, its central bank pegged the value of the Yuan at a low point against the U.S. dollar. This process further eroded U.S. manufacturing because the Chinese workers were paid 63 cents an hour or less depending 1

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on the industry throughout the growth period. This further disrupted the balance of trade to astronomical levels. To keep this engine going, China began investing heavily in U.S. Treasury Bills, at one point reaching $15 billion a month. Now the debt is so extraordinary, I seriously question the feasibility of a soft landing. We seem to be at a point where this unsustainable paradigm is drawing to a close and I see no viable plan to replace it. Sometimes an economy needs to slow down to prevent a hard crash. Instead, we close our eyes and hit the gas. The Federal Reserve has been preventing gross imbalances to right itself for so long that something big must give at some point. Central bankers seem to believe all these things can be fixed with a money flush. We won’t know what we created until the flow stops and all the bills we can’t avoid come due. That is what people like Cramer are really afraid of and I share his concern. David Whitehead is the publisher of Business Insider Magazine

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OUTSOURCING continued from page 11 until the implementation was complete. To make the transition smoother, one person wrote a production process manual describing the operation as it was working at the time, defining a basis from which Manila could streamline and augment. Several weeks after the Manila staff member returned to the Philippines, we sent four people over the following four months for one- to two-week stints to train in different areas and share their perspectives on the entire process. Two were line managers and two were senior management, including both the CEO and the President. To maintain good management oversight we required a trip every quarter until the operation began to run smoothly, and then every six months.

Parallel Processing and the Layoffs It was important to keep the U.S.-based staff working in tandem with the Manila operation for a few months, just in case there was a serious problem and we had to pull back to the U.S. Fortunately, the process went so smoothly that we abandoned the U.S. production department within three months. Some people had already found new jobs and others were let go with many thanks, much praise for their professionalism, a cash bonus for their dedication and letters of recommendation.

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Outsourcing ad production and ultimately the entire magazine design and layout to Manila proved extremely successful. Ad approvals came in on average within four weeks after the sale rather than six, and the goal of reducing that to two weeks seemed to be in reach. We were finally able to add the number of bodies needed to do the job right and streamline the entire process more than ever. While we didn’t fully meet our goals, we did make significant improvements in shortening the operating cycle. In several cases, we were finally delivering publications in less than six months. The cost savings were huge for a small company. Factoring in costs for workers’ comp and health insurance, the reduced need for office supplies, telephone usage, and a big reduction in both toner and paper consumption for the laser printers, we shaved $300,000 of overhead from a $3 million company. The process was very time-consuming and took a great deal of work to implement, but the end result was worth all the effort. We finally had a scalable, high-performance manufacturing operation with a positive impact to the bottom line. Ed Burzminski is a Business and Management Consultant helping business owners realize maximum performance and value from their businesess. He was President and co-founder of Performance Publishing Group, Inc. in El Segundo, CA, which was sold in 2007. Ed can be reached at [email protected].

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BY BRIAN SIMON

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QUICK HISTORY LESSON: It wasn’t Horace Greeley

who coined the famous saying “Go West, young man” back in the mid 1800s. The actual author was a journalist named John B.L. Soule. Regardless of the source, if either of those gentlemen were alive today and residing in the Los Angeles basin, chances are he would urge anyone within ear shot to “Go South.” That has been the trend at least in commercial real estate, where developers, CEOs and small business entrepreneurs have begun to flock from traditional office bastions such as Downtown and the Westside to the South Bay. Aside from its decidedly favorable coastal location and easy access to freeways and light rail, the South Bay has several major points in its favor. First and foremost are cheaper rent and a larger supply of inventory, both of which continue to spur the so-called “405 migration.” Additionally, the area 1

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provides access to a variety of housing options that are now spurring executives to migrate from locales such as Beverly Hills. All this is fine and good when it comes to moving into pre-existing offices. Yet when it comes to new development, there are some serious challenges. “The whole South Bay has virtually run out of land,” said Brian Polkinghorne, Vice President of CB Richard Ellis. To combat the problem, developers have had to become creative by reusing old spaces and enticing entrepreneurial types with the opportunity to buy instead of lease. As an example, Polkinghorne pointed to cities such as Carson and Compton where major developers like the Watson Company and Carson Company have been demolishing existcontinued on page 18 B

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BUILDING THE SOUTH BAY continued from page 17 ing manufacturing facilities and converting those to distribution buildings. From campus-style business parks to destination resorts and office condos, the sheer diversity of new product coming down the pike may be unprecedented. The following is a look at some of the area’s most significant current and upcoming projects as well as the latest building trends.

El Segundo: Where the Action Is Home to the thriving aerospace and high-tech industries, El Segundo is arguably the hub of the South Bay’s commercial activity, with three largescale projects already in progress and additional plans on the drawing board. Located on the long-fallow Rockwell site on the east side of Sepulveda Boulevard, Campus El Segundo represents one of the last chunks of substantial land left to build on in the South Bay. Originally approved in 2001 (when it was called the El Segundo Corporate Campus), the proposed 2.2 million square foot, mixed-use, lushly landscaped office park has survived multiple obstacles over the years, including litigation from a rival developer, a failed voter referendum that intended to block the project, delays in the land purchase, and a decidedly soft office market. But the project is finally set to move forward in the coming months. “We’re looking to come out of the ground the second quarter of 2008 with a 225,000-square foot, six-story building on spec,” announced Charlie Smith, Vice President of Campus developer Thomas Properties Group, Inc. “We hope to be complete by the end of 2009 or early 2010.” Smith indicated that TPG would prefer a large tenant to assume the building and added that the company is also in negotiations with a major four-star, business-class hotel that would come with a 70,000-square foot fitness facility and full-service restaurant. “The master plan is to have eight buildings,” Smith noted. continued on page 20 18 S

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BUILDING THE SOUTH BAY continued from page 18 “We’re out there meeting all the brokers and getting the tenants aware.” Though no one has signed yet, Smith confirmed there has been a great deal of interest from would-be tenants. “What we’re building is going to be special,” he said. “Given what Jim (Thomas, TPG Chair) has built in the past (e.g. iconic downtown skyscrapers like the Gas Company and U.S. Bank towers in Downtown Los Angeles, Plaza Las Fuentes in Pasadena, Solana in Dallas, and Commerce Square in Philadelphia), people should be able to expect nothing short of phenomenal.” Smith added that the Campus offers more land and open space than Santa Monica’s celebrated Water Garden development as well as Aerial view artist’s rendering of Terranea, currently under construction lower lease rates than the Westside. “It’s on the old Marineland site in Rancho Palos Verdes. going to be 10 years newer than anyThe destination resort complex is scheduled to open in 2009. thing similar out there,” he said. TPG could begin construction on a second of high-end business parks in areas such as Irvine or North San building once a large tenant commits to the first, or if market Diego County. “Those are very attractive to the emerging techfeedback is positive. nology companies,” he said. Meanwhile on the north end of the same site, TorranceMackenzie confirmed pending deals with Xerox Federal based developer Mar Ventures has just completed a 14-acre Credit Union, Dimerco (corporate headquarters), Betty Dixon, office park aptly titled The Edge at Campus El Segundo. The Formula PR, Scottrade, Kaya Sushi and Noah’s Bagels. Addi215,000-square foot development will contain 20,000 square tional businesses are in negotiations and TPG itself (which sold feet of retail, with the rest devoted to office space. The layout the 14 acres to Mar Ventures) has bought a two-story office for the project follows the prescribed design guidelines for condo at The Edge to use as a marketing center. In all, about Campus El Segundo, incorporating lushly landscaped walkhalf the project space is spoken for, Mackenzie estimated. ways, distinctive architecture and open public areas. Mar VenMixed-use elements aside, perhaps the most innovative tures President Allan Mackenzie likened The Edge to a number aspect of the project is that tenants can actually purchase the available spaces, which Artist’s rendering of range in size from 1,500 to 20,000 square Campus El Segundo feet. Pricing for individual units vary, but qualified buyers can obtain up to 90 percent financing and can customize improvements in their particular buildings to create potentially spectacular designs of their liking. “People who own property tend to make a longer term commitment to the city than those who lease,” explained Mackenzie about the unusual arrangement. “We’re building something that’s hopefully unique. While most buildings out there are large with space for lease, we have small buildings with surface rather than structured parking, and space for sale.” Mackenzie is also involved with the group (Rosecrans Sepulveda Partners) that owns the landmark retail center Plaza El Segundo, which debuted at the end of 2006 on Sepul20 S

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veda Boulevard just north of Rosecrans Avenue. Phase 1A has opened incrementally, with three distinct sections incorporating different architectural themes and retail types; in all totaling just under 400,000 square feet of building space. The final 30,000 square feet will be completed by the end of 2008. Notable Plaza tenants include big box retailers (Best Buy, Borders), an upscale grocer (Whole Foods), hip fashion stores (Bebe, m. Frederic) and trendy eateries (Salt Creek Grille, Marmalade Café). Phase 1B, recently approved by the El Segundo City Council, will add another 70,000 square feet of what is anticipated to be “high-end retail” at the southern tip of the site. Mackenzie said crews will break ground by early summer with a completion date slated in late 2009.

Last But Not Lease: The Office Condo Craze While average asking rents in the South Bay remain lower than those on the Westside, Downtown or even nearby Playa Vista, they are still noticeably on the rise. That fact coupled with a recent decrease in mortgage rates could tempt business owners to consider purchasing a new office rather than paying a landlord. Aside from The Edge, which targets buyers who require larger spaces, several smaller office complexes have cropped up in the area that hope to lure those one and two-employee businesses that just need a little office of their own. In Hermosa Beach, where land is particularly at a premium, at least a half dozen moderately sized (10,000 to 20,000 square feet), general office use condo projects are either planned or under construction. Developer Nick Shaar tore down the 12,000 square foot Warren Miller Building at 200 Pier Avenue and will build in its stead an 18,000 square foot, 53-unit complex. A slightly smaller building but with larger individual units will be completed this spring on Second Street just west of Pacific Coast Highway at the site of a former car dealership storage area. Similar projects are planned just up continued on page 28 1

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A PERSPECTIVE BY ANGELA L.H. SAYERS, C.P.A., M.B.A.

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ALTERNATIVE MINIMUM TAX

share of tax. However, the law was poorly written and eventually twisted into something that it was never intended to be — an unfair financial burden to middle class working families because it lacks permanent provisions to index for inflation. Unfortunately, politicians from both parties maintain this tax generates too much revenue to abolish. I assert legislators should look for more equitable ways to make up for this revenue. Here are a few of the major issues that cause the most problems with the AMT: Under the current format, a married couple earning as little as $45,000 a year

(AMT) is causing many people to pay more in taxes by disallowing various deductions they could otherwise claim. Originally devised to prevent the wealthy from abusing the system, the AMT uses a complicated formula to determine who is liable. The law passed in 1969 after a distressed Congress found evidence of 155 wealthy Americans paying accountants and tax attorneys to find loopholes to avoid paying taxes. Lawmakers responded by passing legislation originally intended to make these individuals pay their fair

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may have to pay an AMT. This threshold may have been a reasonable limit a generation ago when the law first came into being. However at the very least, it needs to be brought up-to-date with the current economic situation and take future inflation into consideration. If it is not indexed for inflation, any dollar amount in the tax code used to calculate a tax or a tax credit will make that calculation even if the income is below middle class standards for a particular region. Permanently indexed for inflation, the dollar amount would rise by the annual inflation rate and would include only wealth households by the current standard for which it was originally intended. Unfortunately, if the AMT was permanently indexed for inflation, it would cost the government an estimated $523 billion over 10 years. That is why Congress has only been bold enough to pass “patches” to reduce the number of taxpayers subject to the AMT in a given year. Fortunately for 2007 filers, Congress passed a “patch” that President George W. Bush signed into law in late December to reduce the number of taxpayers subject to AMT from 20 million to 4.2 million. But the question of the 1

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2008 tax season and beyond is wide open and the debate continues. Also pressing Congress is the call for unrelated tax rebates to stave off a looming recession, further impacting the federal budget. This will make it even more difficult for legislators to come to agreement on a permanent solution for the AMT. To put the rapid growth of this controversy into in perspective, approximately 19,000 households paid the AMT in 1970, according to www.fidelity.com. In 2005, 3.5 million did. The Washington Post reported in 2006 that the AMT will likely apply to approximately 30 million taxpayers by 2010 if indexing for inflation is not implemented. Whenever income amounts are used and geographic areas are not taken into account, taxpayers in states with a higher cost of living (i.e. California) are significantly more adversely affected than those in states with a lower cost of living (i.e. Louisiana). In states with a higher cost of living, salaries tend to be higher. This drivers more taxpayers into higher tax brackets, though the individuals in question really have no more disposable income than those in states with a lower cost of living and the same disposable income. Here’s how the calculation works: The three elements that make a taxpayer subject to the AMT are getting married, having children, and paying state income tax. Even if we move beyond the obvious lack of family values that our politicians from both parties keep talking about, this was not the initial intent of the law. It is as if the tax code unfairly punishes taxpayers for getting married, having children, and paying their state income tax. Remember, the law was designed to tax the wealthy more. I have seen taxpayers with the same income levels, but with different filing statuses (single vs. married filing joint) where the single taxpayer is not subject to the AMT, yet it does apply to the married taxpayer. Since this law — the way it is practiced — is so out of step with its initial intent, Congress has a moral duty to repeal the AMT or at least index properly for inflation. If the revenue it generates is so great that the government cannot do without this tax, Congress has an obligation to find 1

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a different solution by eliminating waste in government spending. Also, Congress could remove the loopholes in the tax law allowing clever CPAs and tax attorneys to come up with legal tax strategies that the IRS deems “abusive.” There are many factors that may determine if you are subject to the AMT. To find out how the AMT could affect your own situation, check with a qualified CPA or tax professional.

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Angela L.H. Sayers, CPA, MBA has provided professional tax and accounting advice for over 12 years. Her full-service accountancy corporation offers a wide range of services that provide value and tax savings, while being small enough to be flexible and responsive to clients’ needs. You may contact Angela at 310-541-1611 or by email at [email protected]. Business Insider Magazine Publisher David Whitehead contributed research for this column.

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S A BUSINESS OWNER, YOU MAY NOT BE INCLINED to

The Capital Gains Tax Rate: Is Change on the Horizon?

keep yourself informed of every change in the tax law. However, the current battle over the capital gains tax rate would certainly be one to watch. A capital gains tax is a levy charged on the profit realized on the sale of an asset. While the most common capital gains are realized from the sale of stocks, bonds and precious metals, of far greater conse-

BY BOB GOMEZ

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quence is the impact of the capital gains tax when a valuable business is sold. The 2003 Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) reduced the maximum capital gains tax rate from 20% to 15% for long-term capital gains (investments owned for at least 12 months). This reduction could represent an exceptional tax-saving opportunity to investors and business owners looking to sell their holdings, given that the rate has not been below 20% in the past 60 years. The five-percentage point reduction made possible by the JGTRRA was not a permanent change, however. Originally set to expire in December 2008, President George Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), thereby extending the lower rate until 2010. Although the lower rate is not due to expire for another three years, the recent power shift in Congress has once again brought the capital gains tax rate into question. Not only does Congress have the ability to extend the favorable rate, it also has the power to raise the rate before its planned expiration in 2010. When the Democratic Party regained control of both the House and Senate in November 2006, the red flag on capital gains was raised once again. It would not be unusual for a Democratic Congress to raise the capital gains tax rate. The bipartisan political battle regarding tax cuts has been long-standing. Proponents of a lower rate, usually Republicans, argue that reducing these rates bolsters the economy by encouraging investment in promising enterprises and promoting the sale and transfer of property. Supporters also believe that by reducing “double taxation” (investments first taxed as regular income that are taxed again at the time of sale as capital gains), those considering new investment strategies would have extra incentive to make additional investments. Armed with these arguments, supporters believe the favorable rates should be made permanent. However, opponents — typically Democrats — believe that the lower rates create tax shelters and benefits for the wealthy, resulting in revenue loss for the government. They continued on page 30 1

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BY BOB GOMEZ

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N 2005, PRESIDENT GEORGE W. BUSH SIGNED THE TAX INCREASE PREVENTION AND RECONCILIATION ACT

(TIPRA) into law, creating many challenges and new opportunities for taxpayers. In 2010, for example, the new tax structure makes high-income earners eligible for Roth IRA conversions as it lifts the $100,000 income ceiling. Also, married taxpayers filing separately will be allowed to convert amounts in a Traditional IRA to a Roth IRA. Usually, taxes from converted funds (earnings and any deductible contributions) are due in the year of conversion. However, TIPRA allows the taxes on Roth conversions in 2010 to be paid over the next two years (2011 and 2012). Owners must leave converted funds in the Roth IRA for five years from the conversion date to withdraw the funds tax-free. Any distributions from a Roth conversion IRA before the fiveyear period will be subject to a 10% penalty. Additional contributions to a Roth IRA can only be made if the IRA holder’s adjusted gross income (AGI) is under $110,000 if single, or $160,000 if married. You may want to consider a Roth conversion if: • You are many years from retirement and have the time to earn back the amount of money paid for taxes when you converted your IRA. • Your Traditional IRA has been opened for a short period of time and the contributions have been mostly nondeductible. Your tax liability will likely be low at conversion because taxes are paid only on the growth of the funds and on the deductible contributions. • You plan to leave the bulk of your IRA funds to heirs. Your funds will have a longer time to grow tax-free and recover the taxes paid at conversion. Also, unlike a Traditional IRA, the Roth has no requirement to withdraw

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funds at age 70?, which gives you the potential to leave a larger tax-free account to children or grandchildren. • You anticipate your tax bracket will remain the same or will be higher during retirement. The tax-free withdrawals of a Roth will have more benefit. • You can pay the taxes from sources outside the IRA, so you don’t deplete the account further. If you’re under age 59, an additional penalty applies to funds withdrawn to pay the taxes. If you don’t have a Traditional IRA, you might want to fund an account for the next five years in anticipation of converting the account in 2010. If your contributions are non-deductible, you will owe taxes only on any growth in the account. If you have other IRAs, a pro-rata share of income in all your IRAs will be taxable. Every situation is different, but some general rules of thumb exist for converting to a Roth IRA. Speak with your tax and financial advisors about strategies that may be appropriate for your particular situation. Bob Gomez is a Financial Advisor with Smith Barney located in Rolling Hills Estates and may be reached at 310-544-3622. This article is based, in whole or in part, on information provided by the Planning Services Department of Smith Barney. Smith Barney is a division and service mark of Citigroup Global Markets Inc. Member SIPC. Citigroup Inc., its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor

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HROUGHOUT MY CAREER, IT HAS NEVER CEASED

TO AMAZE ME HOW COMPANIES STRUGGLE TO FIND THE RIGHT SALESPEOPLE.

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TOGETHER THE RIGHT SALES STAFF IS ONLY PART OF THE CHALLENGE.

KNOWING

THE RIGHT SALES PROCESS FOR

YOUR PRODUCT OR SERVICE IS JUST AS IMPORTANT.

For example, a company that sells vacuum cleaners needs a different kind of salesperson and sales process than a company that sells computer networks for major corporations. Sure, many of the sales fundamentals, such as prospecting, follow-up and addressing objections, come in to play in every sales situation. But sales techniques appropriate for some situations are certainly not appropriate in every situation. The first thing any company needs to do is evaluate the level of complexity required to sell its product or service. If the product is as simple as a vacuum cleaner, it is a “transactional sale.” What the product does is well-known and straightforward. It’s either a quality product or it isn’t. It works well or it doesn’t. The price is right or it’s not. Not much to it. Plus, anyone can use one. The pitch is short and the close is quick, or why bother? That means an aggressive salesperson has a shot to sell you one, whether you need it or not. A more finesse salesperson can make you believe you need it, at least at the time of purchase. If your product is this simple, you need attentive salespeople who can keep to a consistent pitch, think on their feet, treat prospecting as a numbers game, and know how to hang in there and close on the first sales call. The people who specialize in this type of sale surely have their limitations. Yet, the successful ones are definitely sales pros and many companies sell products and services that capitalize on their discipline and tactical skills. For this type of sale, management primarily oversees this process and keeps the engine going. Not surprisingly, these are also the kind of salespeople most of us loathe to deal with when they get aggressive. Plus, the more transactional the sell, the more the sales process tends to work like this.

Consultative sales entail getting on the prospects’ side of the table, probing in depth to discover their needs, tailoring a solution to fit those needs, and delivering for a competitive price. This is especially important when ongoing servicing is required and there are many variables to consider in tailoring a program.

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Now here’s the problem. Many companies, including major corporations, treat every sale like a “transactional sale” when what they really need is “consultative sales,” where the salesperson educates the prospect to make an informed decision. Transactional salespeople are scared to do that because they believe they will lose the sale when they don’t close on the first or second call. So you want to make sure you hire people with enough intellectual depth to understand why educating prospects is important in certain sales situations. Consultative sales entail getting on the prospects’ side of the table, probing in depth to discover their needs, tailoring a solution to fit those needs, and delivering for a competitive price. This is especially important when ongoing servicing is required and there are many variables to consider in tailoring a program. It is vital to your interests when the sale is complex enough that your salespeople are certain to encounter business you don’t want. Also, the knowledge base required for consultative salespeople to be effective is much greater, since the credibility they establish weighs in so heavily on the buying decision. For this reason, it would behoove companies selling complex products and services to focus their efforts on thoughtful companies looking for a vendor to partner with rather than the ones merely playing the deal-making game. First, the chances of satisfying price-focused clients disengaged from the value you offer are just about nil. Also, tossing deals on

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Savvy vendors don’t just throw out deals. They ask questions, even impertinent questions if those are relevant to the bid and affect their capacity to deliver profitably for themselves. They know when to push for the business and also when it’s in everyone’s best interest to walk away from the table. Remember, business that might be good for the company down the road might not be good for yours. the table without properly defining needs is risky for both parties because chances are costs won’t be evaluated properly for the services that end up being performed. Compare this to the transactional sale: It’s not that big a deal if customers didn’t really need that vacuum cleaner. If it’s not expensive and it picks up dirt, they can always use it. It is a huge deal when the customer makes a mistake on a large capital expenditure essential to the company’s operation that requires ongoing purchases and servicing.

Matching Up the Right Sellers with the Right Buyers First, we shouldn’t hang the entire problem on the sales team. Let’s examine how deal-hungry buyers create problems for themselves. Many buyers treat complex purchases like “transactional sales,” leading to horrible decisions because they are thinking about getting the best deal when they should be thinking about the long-term implications of their decision. If your executive management is rewarding your buyers for cutting great deals — stop it! Instead, reward them for finding great resources for a competitive price that help the company. That’s my definition of a great deal. Bidding processes exasperate this phenomenon, especially when committees and company politics get thrown in the mix. I once worked for a newspaper that dumped a million dollars into a new publishing system that had one notable hitch the buying group didn’t catch until the thing was up and running. The software couldn’t mix text with graphics. Consider this for a moment: They are a newspaper for God’s sake and they bought a seven-figure computer system that couldn’t mix text with graphics. And this was in 1994! I would say someone forgot to ask an important question, but at the time I’m sure they thought they got a good deal. I think a good consultative salesperson would have been pulling their hair out trying to get that group under control. This turned into expensive debacle that was completely avoidable. The lesson to be learned from this story is that when your purchase is complex and the stakes are high, both buyer and seller need to do their due diligence to determine if they really want the business, and most importantly, exactly what that business should be when it’s time to sign on the dotted line. This can only be attained if they work together during the sales process. Traditional bidding processes destroy the ability of both parties to accomplish this. If your company wants to shop around, request proposals from a short list of vendors best suited to the job, communicate with them thoroughly so they 1

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completely understand your needs and the value proposition you are looking for, and don’t force them to bid blind on cost structures — the latter being the biggest recipe for disaster. Many companies just send out a request for proposal and are annoyed when vendors call to ask questions. Some act like it’s a poker game and they want to see their cards. Only a fool bids on a job based on sketchy information. Unfortunately, competitive sales environments tend to cultivate foolish behavior. Savvy vendors don’t just throw out deals. They ask questions, even impertinent questions if those are relevant to the bid and affect the capacity to deliver profitably for themselves. They know when to push for the business and also when it’s in everyone’s best interest to walk away from the table. Remember, business that might be good for the company down the road might not be good for yours. Push the points where your company is strong and make sure they tie in to your prospects’ needs before you take the time to craft a proposal. Your first appointment should be strictly a fact-finding mission. Back off if you are dealing with someone who wants to play vendors off each other. The winner of that bid is likely to be the loser on the back end. Recognize that some people are great dealmakers, some are great analyzers and others are strong transactional closers. Buyers need analyzers to find the right program and dealmakers to step in to negotiate when the best vender is thoughtfully identified. Keep the buying decision in the hands of a few qualified people who really understand what the project is all about. Avoid letting these decisions get political, which often happens with a committee process. Sellers need people who can do all three, depending where they are in the sales process, with a strong focus on analysis at the proposal stage. The ability to properly analyze up front is the key difference between the transactional salesperson and the business development consultant. In the transaction sale, it’s in the salesperson’s best interest to not let the prospect think too much about the details of the product or service. In a consultative sales situation, the sales professional often does the opposite because it is costly for everyone if the deal isn’t a fit for both parties. The key is to recognize what is best for a specific sales situation and respect the need for professionalism from both buyer and seller. This is the best way to ensure what you close is really a good deal in the long run. David Whitehead is the publisher of Business Insider Magazine B

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BUILDING THE SOUTH BAY continued from page 21

Memorial Hospital. Owned by New York-based Rockefeller Group Development Corporation, marketed by the Klabin the street, one at another one-time car storage area (30th and Company and now under environmental review, the $100 PCH) and the other on what used to be a pumpkin patch lot million-plus Rockefeller Center will feature medical and pro(21st and PCH). fessional offices buildings and office condos for sale. And in downtown, on Hermosa Avenue and 14th Street, a In the middle of the spectrum, Pacsan Management Corpodeveloper has torn down a building that housed several fast ration will break ground mid-year on a two-story, 88,000 food operations and will build 32 office condos. City officials square foot multi-use business park, the largest of its kind in El Segundo ever west of Sepulveda. When completed, the view this as good news. “In the Downtown, we see it as a good balance to get more daytime activity,” said Hermosa Segundo Business Park (at the former International Rectifier site Beach Community Development Director Ken Robertson. on Kansas Street off of Grand Avenue) will feature 35–40 “Downtown is mostly known for its nighttime activity.” spaces and will cater to businesses in the three to 20-employee Robertson said the spaces, which have been advertised to range. Units will be split between traditional office elements sole proprietorships such as attorneys and architects, have and more eclectic space. Pacsan President Lyle Maul describes been selling and can add a nice influx of property tax revthe project as the “non-corporate version of Campus El Segundo,” targeting area residents and small business owners enues into the City’s coffers. The units themselves start from as little as 350 square feet with pricing from $1,000 per square looking to lease or purchase their own units. “We have foot and up depending on location. designed all the space so that the individual units purchased “Candidates will more than likely live by buyers stand-out as individual units in the area and have either outgrown to show pride of ownership and to make “Terranea will be located their home office or are looking for ownit possible to have signage on your own ership opportunities,” said Robertson of section of the building above your prion an exquisite bluff with the potential buyers. vate exterior entrance,” said Maul. “This expansive ocean and coastal views. That said he issued a caveat. “More will be a brand-new, custom-designed It offers a rare opportunity sites could be available, but the question campus setting, destination-style facility. to create a world-class It’ll have all the power, parking and is will this saturate the market for this amenities such as a little restaurant, type of product. I think the jury is still oceanfront destination resort showers, lockers, bicycle storage, and of out. It could be a good thing but it in the Los Angeles area.” course, pride of ownership. In contrast depends if they are sold and the right — Robert J. Lowe, to the numerous projects in the South kind of owners occupy them.” chairman and CEO Bay selling 300- to 600-square foot In neighboring Manhattan Beach, the offices, we’re catering to the 1,000- to first office condo project approved in that of Lowe Enterprises. 5,000-square foot buyer.” community’s downtown is set for compleThe project is the first of what could tion early next year at the former Good spur a redevelopment renaissance for El Segundo’s mixed-use Stuff restaurant site on Highland Avenue and 13th Street. The commercial/residential Smoky Hollow district (the area spantwo-story, 15,000 square foot, general office building will conning south of Grand between Sepulveda and Downtown) that is tain small units of 300 square feet upstairs and pedestrian-servbeing targeted for eventual revitalization by the City. “Our park ing businesses on the ground level — all for sale. “It was is meant to be a prototypical look for what could happen in the important we could maintain that type of activity (e.g. retail, real future in that area with eclectic office space, warehouse space estate, jewelry store), so we restricted the use for the first floor,” and adequate parking in a green environment responding to the said Manhattan Beach Director of Community Development needs of the small entrepreneurial business owners,” said Maul. Richard Thompson. So far, Maul has received verbal commitments to fill Meanwhile, the Manhattan Beach City Council recently roughly one-third of the projected spaces. The tentative tenant approved plans to construct a medical office building with list includes financial and medical (a physical therapist, gensome ground floor retail at 1000 N. Sepulveda (where Vereral practitioner and dentist have reserved 10,000 square feet sailles restaurant is still located). The developer has yet to pull alone) professionals. The land’s MM1 zoning designation also permits, but Thompson sees a certain momentum, especially allows for such diverse uses as retail, research and developgiven Manhattan Beach’s health and fitness-oriented demoment and light warehouse. graphic. “It seems to be the trend in this area, for both mediA retail/office condo project has also been discussed for cal office and general office use… for people who live in the Downtown El Segundo at a four-lot site on Main Street and community, whether they are doctors or other professionals,” Franklin Avenue once occupied by the outdoor patio of a local he said. “They don’t want to work out of their homes.” pizzeria and a parking area. The ground floor would be divided Another multi-use medical and professional office project into as many as three separate offices and/or retail businesses with retail is earmarked for a 23-acre vacant site on the south with smaller (275 square foot and up) units for sale upstairs. side of Lomita Boulevard strategically close to Torrance 28 S

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El Segundo’s downtown is also zoned for mixed commercial and residential uses that promote the concept of living and working in the district. Several new complexes, including a shopping center on Grand Avenue and an office building on Richmond Street, have popped up in the last couple of years with tenants residing on top of businesses. The same trend looks to be taking shape in Rolling Hills Estates on “top of the hill,” with several proposed projects online that would feature first-level retail and residential above. One new development is now under construction at the former McDonald’s site at Silver Spur and Crenshaw. “These aren’t large parcels — they’re one to three or four acres, but that area in between Crenshaw and Hawthorne is definitely getting reused,” said Brian Polkinghorne, who noted that additional projects of the same ilk are being earmarked at locations that formerly housed a car wash and an “old and tired strip mall.” But the biggest pending project in Rolling Hills Estates is an ambitious plan to build 112 new single family homes, a reconfigured 18-hole golf course and a 55,000 square foot clubhouse and related facilities at the existing sites of the Chandler Quarry and Rolling Hills Country Club. The quarry section, now a “clean landfill,” would house the new golf course. Then a portion of the existing country club would become the residential community. “We’d basically be swapping land,” said Rolling Hills Estates Senior Planner Niki Cutler, who noted that the project is still under environmental review.

The Last Resorts While the owners of the El Segundo Generating Station hope to land a contract with Southern California Edison so it can proceed with the long-planned redevelopment of its power plant on the beach, El Segundo City officials have discussed a contingency plan to rezone the area in order to accommodate a resort hotel to replace lost utility user tax revenues with transient occupancy tax dollars. If the power plant doesn’t move forward (the final decision was expected just after press time), El Segundo might look to Rancho Palos Verdes for some inspiration where the one-time Marineland site will soon be a Mediterranean-style destination resort hotel spread over 102 acres on the coast. Devel-

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oped by Brentwood-based Lowe Enterprises and slated for completion by spring of next year, the $450 million Terranea will feature 400 rooms, three restaurants, three pools, a ninehole golf course, 65,000 square foot convention and event space, 25,000 square foot luxury spa, walking and hiking trails, plus various shops and other services open to both guests and the general public. In keeping with the ownership theme highlighted in the previous section, Terranea also includes a collection of twoand three-bedroom villas and casitas for sale. The properties offer direct ocean views, range in size from 1,850 to 2,800 square feet and start at $2.25 million. Fifty-one of the units sold in just hours in 2005, while the remaining 31 were just released this past January. Limited term use and rental requirements apply, so owners may only reside in their villas and casitas for a total of 90 and 60 days a year respectively (and no more than 29 days at any one time). “Terranea will be located on an exquisite bluff with expansive ocean and coastal views. It offers a rare opportunity to create a world-class oceanfront destination resort in the Los Angeles area,” said Robert J. Lowe, chairman and CEO of Lowe Enterprises. “Terranea will bring the finest hotel accommodations and resort home ownership opportunities to the coast. The development takes advantage of the local environment, providing abundant pedestrian trails and view points that will allow people to enjoy the area’s natural beauty without disturbing the surroundings.” The road to Terranea was not an easy one by any stretch. The developer originally submitted plans for a hotel and golf resort in April 2000, but ran into numerous roadblocks along the way, most notably having to satisfy over 200 conditions mandated by the California Coastal Commission to incorporate environmental considerations, preserve the land and any hiking/biking trails, protect fauna and wildlife, and guarantee public use. Any native trees removed from the site have been stored at a nearby nursery and will be replanted when the resort is complete. Also, eighty percent of all materials removed are being recycled and reintroduced onto the property. When the project broke ground last spring, RPV Mayor Tom continued on page 31

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CAPITAL GAINS TAX RATE continued from page 24

to mention that a presidential election (and possible a party shift in the White House) is on the horizon, tax advisors are predicting that rate increases are more likely to occur; at a minimum, the 15% rate is expected to revert to 20% in 2010. An increase in the capital gains tax rate has important implications to business owners when it’s time to sell the business. A higher capital gains rate can

are inclined to vote for a raise in the rate. This dissension among political parties has caused rates to fluctuate widely in the past, rising as high as 35% and changing an average of every 4.5 years. Now that we are entering the fourth year of the lowest rate in recent history, and given that the Democrats are once again in control in Congress, not

substantially reduce the net returns to business owner sellers. With rates currently — and perhaps temporarily — at a historic low, financial services companies suggest that now may be an optimal time to consider selling a privately held business. We realize that the decision to sell a business is neither purely taxdriven, nor even a purely financial consideration. Business sales are usually motivated by personal factors. However, because we estimate that it can take anywhere from 6–18 months to sell a private business (on average, one year), we suggest that business owners thinking of selling in the near future should prepare now so they can take advantage of what we believe to be an excellent and probably impermanent opportunity. Bob Gomez is a Financial Advisor with Smith Barney located in Rolling Hills Estates and may be reached at 310-544-2622. This article is based, in whole or in part, on information provided by the Wealth Management Department of Smith Barney. Past performance is no guarantee of future results. Citigroup Inc., its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matters(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Smith Barney is a division and service mark of Citigroup Global Market Inc. Member SIPC. 1 www.heritage.org “Make the Dividend and Capital Gains Tax Rate Permanent to Keep the Economy Going,” Feb. 2006 2 Department of the Treasury, Office of Tax Analysis, “Historical Capital Gains and Taxes,” Nov. 2004 via www.taxpolicycenter.org 3 www.fairmark.com “Conferees Finally Agree on Tax Legislation,” May 2006 4 www.heritage.org “Make the Dividend and Capital Gains Tax Rate Permanent to Keep the Economy Going,” Feb. 2006 5 www.heritage.org “Make the Dividend and Capital Gains Tax Rate Permanent to Keep the Economy Going,” Feb. 2006 6 www.worldbook.com “Capital Gains Tax” Dec. 2004 7 Department of the Treasury, Office of Tax Analysis, “Historical Capital Gains and Taxes,” November 2004 via www.taxpolicycenter.org 8 Deloitte Development Tax News & Views “Democratic Resurgence Signals Possible Shift in 110th Congress,” Nov. 6 2006 v.7, No. 42 p1 (Special Edition) 9 www.inc.com “Most Business Owners Plan to Sell Within Three Years,” Sept. 2006 p5

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BUILDING THE SOUTH BAY continued from page 29 Long told the Palos Verdes Peninsula News that it was time to find a productive use for what had been vacant land for nearly a quarter center. “It’s been essentially vacant and mostly unused since Marineland closed … The city is looking forward to having it occupied again, and it’s a great setting for a resort,” he said at the time. “I think Lowe Enterprises had good vision in picking the site, and we hope they’re successful.” So far, so good. In addition to the sales of the villas and casitas, the hotel is already taking advance reservations for weddings and corporate events.

Green Projects: The Next Wave Terranea is one of a growing number of area projects with a strong environmental emphasis. In fact, the quest for cities to “go green” is changing the way developers and the rest of the world look at building. In 2004, Redondo Beach became one of the first cities in the region to draft a sustainable development strategic plan after a “green team” identified policy areas for land use, building, economic development, energy, water resources, materials and recycling, and transportation. In January, the City of Manhattan Beach began requiring more sustainable building practices in new construction. “We produced a green team report which looks at all opportunities for our city to become more environmentally responsible,” said City Manager Geoff Dolan.” Though nothing has been adopted yet, the Manhattan Beach City Council will soon consider issues such as retaining on-site stormwater, achieving LEED certification, recycling demolition debris, incorporating drought-tolerant plants, and of course, maximizing energy efficiency. One example of such a project is a mixed-use office and residential building now under construction at the corner of Manhattan Beach Boulevard and John Street, which features a landscaped green roof, among other energy-concontinued on page 36 1

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Calendar of Events Save the Date! El Segundo Chamber of Commerce For more information about the event listed, call 310-322-1220 or go to www.ElSegundoChamber.org. Thursday, March 13, 2008, 5:30–7:30 P.M. Mad March Mixer Flight Path Learning Center 6661 W Imperial Hwy, Los Angeles.

For more information about the events listed, call 310-545-5313 or go to www.MB-Chamber.com. Business Tool Box Meeting Wednesday, March 12, 2008, noon–1:30 P.M. AdventurePlex 1709 Marine Ave., Manhattan Beach. Ed Myska from Bank of Manhattan will speak on “Banking 101.” Lunch is available for purchase. Business After Hours Mixers Time: 5:30–7:30 P.M. Admission: Free for Chamber members, $10.00 for guests. Wednesday, March 19, 2008 Critics Choice Catering and Event Production, Inc., 2806 Phelan Lane, Redondo Beach. The event will include fine cuisine as well as hosted bar service. Additionally, vendors pertinent to the entertainment and event industry will be on hand to showcase all they have to offer. Young Professionals Kickoff Cocktail Hour Mixer Thursday, March 27, 2008 Twelve + Highland. 304 12th St., Manhattan Beach. Come join our new Chamber’s Young Professional (MBYP) group for a great opportunity to network after hours. Invite your friends and business acquaintances! Please RSVP to the Chamber at [email protected].

Palos Verdes Peninsula Chamber of Commerce For more information about the events listed or sponsorship opportunities, call 310-377-8111 or go to www.PalosVerdesChamber.com. Signature Events Looking for ways to get the most exposure out of your marketing dollars? Look no further! The Palos Verdes Peninsula Chamber of Commerce offers high-profile marketing opportunities through several sponsorship programs. Signature Event sponsors range from $1,000 to $3,000. Program ads range from $90.00 to $175.00. The next Signature Event is Citizen of the Year, April 3, at Trump National Golf Club, 1 Ocean Trails Drive, Rancho Palos Verdes. The event honors Frank and Pat Brown and Louise Brown as our 2008 “Citizens of the Year.” Donate auction items for events and mixer raffles to market your business! The Palos Verdes Street Fair and Music Festival, scheduled for the weekend of May 31/June 1, attracts 35,000 fairgoers and is widely publicized

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Redondo Beach Chamber of Commerce & Visitors Bureau For more information about the events listed, call 310-376-6911 or go to www.RedondoChamber.org Business After Hours Mixers Time: 5:30–7:30 P.M. Admission: $5.00 members, $10.00 Guests. Wednesday, March 19, 2008 Location: Gourmet Cheese & Wine Market, 1815 Hawthorne Blvd., #250. (inside the South Bay Galleria, second level, near Nordstroms), Redondo Beach. Everyone will be GREEN with envy that you’re going to the St.Patrick’s Day Business After Hours Mixer, so be seen in green & celebrate! Wednesday, April 16, 2008 Location: To Be Determined It’s going to be a home run, so come to the Business After Hours Mixer. We’re doing a Baseball theme this month, so wear your favorite team hat. Thursday, May 22, 2008 Location: To Be Determined It’s CRAZY SHADES month for our Business After Hours Mixer. Get out those Crazy Shades you’ve saved all these years & wear ‘em with pride! Network Café Time: 11:30 a.m. to 1 p.m. Enjoy a great lunch and learn about your fellow Chamber members and their businesses while promoting your own. Each person will get to present a 30-second commercial in front of the whole group! Advanced reservations are required and will save you $5. Members with reservations are $20, and guests and members without a reservation are $25. Please call 24 hours in advance to cancel. No shows will be invoiced. Bring a door prize to further market your business. Thursday, March 20, 2008 Phuket Thai Restaurant, 901 N. Pacific Coast Hwy., #100B, Redondo Beach. Thursday, May 8, 2008 Sammy’s Woodfired Pizza, 2575 Pacific Coast Hwy., Torrance.

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Business Valuation for Your Exit Strategy

BY GEORGE HICKS

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WITH BUSINESS OWNERS ON THEIR EXIT STRATEGIES IS WHAT THEIR TRUE EARNINGS ARE AND HOW THAT NUMBER WILL IMPACT THEIR

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EARNINGS ARE, A LITTLE BACKGROUND ABOUT THE DIFFERENCES BETWEEN PUBLIC AND PRIVATE COMPANIES MAY BE HELPFUL.

Public companies are highly regulated. They are SEC compliant and have audited financial reporting standards. They are required to publish 10k and Annual Reports. Public companies change hands at a multiple of earnings. Generally this happens as a Multiple of “Earnings, which is what the business earns, Before Interest and Taxes” (EBIT). Private companies on the other hand are often family run. This ownership structure can mean inclusion of discretionary perks as business expenses which really only directly benefit the owner. Private companies will also change hands at a Multiple of Earnings, but in this case it is a multiple of the “Seller’s Discretionary Earnings” (SDE). The definition of SDE is “Earnings, Before Interest, Taxes, Depreciation and Amortization” (EBITDA), PLUS the owner’s salary, benefits and perks. These line item earnings adjustments for determining SDE are identified by performing a recast of the operating statement and are called “add backs.” The simplest form of add backs would be the interest, taxes, depreciation and amortization expenses and the owner’s salary. Other more complicated add backs are found in the owner’s benefits and perks. They include things like family members working in the business at more (or less) than the market value for the job description, personal autos, an owner’s retirement plan contributions and medical insurance policies. There may be seller owned real estate and it may be leased at above (or below) market value. There are often non-recurring or one time expenses such as the business being relocated, leasehold improvement expenses or section #179 depreciation. When the sale of a business is part of an owner’s exit strategy, SDE will be one of the primary focuses of the transac32 S

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tion. The reason SDE is important is that most business sales require some form of financing. The SDE becomes the business’ profitability line item that does a couple of things. It services the payment on the acquisition debt, pays the salary of a new owner and/or provides Return on Investment for the buyer. We call this financial analysis a transaction that “cash flows.” At the end of the day, if the transaction does not cash flow with the businesses SDE, it will not get completed. This hard reality is sometimes in conflict with an owner’s perception of value or even an academic valuation supporting a higher transaction price. Documentation is everything in regard to SDE add backs. Business owners should understand ahead of time that a shoebox full of credit card receipts from Costco will not be considered an allowable add back by a buyer or a financial institution looking at financing the sale of your business. Proper documentation will allow you to maximize the value of your transaction and facilitate your retirement or exit plan. Local Business Broker George Hicks is a sought after speaker and author on subjects like “Buying, Selling and Valuing a Small Business.” He has been interviewed on KNX radio and spoken, authored or given educational seminars for the International Business Broker Association, the California Association of Business Brokers, UCLA Extension’s Entrepreneurial Program and numerous other professional trade associations and special interest groups. George is a licensed Business Broker with Business Team Business Sales and Acquisitions in Torrance and has been awarded two coveted industry designations: the Certified Business Intermediary designation (CBI) by the International Business Brokerage Association (IBBA) and the Certified Business Broker (CBB) awarded by the California Association of Business Brokers (CABB). He may be reached at 310-539-8300 [email protected]

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KEN ROBERTS continued from page 9 inaccuracies and credit theft, makes credit scoring a very important asset to monitor regularly. The timeframe for the increase in loan limits to take effect is still a bit up in the air. Some say it will happen as soon as the first week in March while others believe it will be at least 30 days from the date it was signed into law. Usually in anticipation of a loan limit increase, lenders will start funding conforming loans at the projected loan amounts and they will hold them until the secondary market actually starts buying them. That may not happen this time around, as some believe there may be special underwriting guideline changes associated with the loan limit increase and possibly pricing bumps as well. Either way, the time to prepare for a potential purchase or refinance with a loan amount up to $729,700 is now. Because the stock and mortgage bond markets have been extremely volatile of late, with both gyrating wildly up and down on short notice, I recommend getting ready and being in a position to lock your loan on a dip in rates. There are some brand new mortgage products in the marketplace that can help you pay off your mortgage in 5–15 years without making extra principal reduction payments! It is as powerful a new concept as I have seen in 30 years in the real estate industry and a safe, proven method to retire sooner with more assets. You may consider an annual mortgage and credit check-up with a mortgage planner to ensure your credit score is as high as it can be and that you are in the best possible loan product for your circumstances. Don’t put it off until later. There is a window open until the end of the year. And the clock is ticking. The race is on. Ladies and gentleman, start your engines! Ken Roberts is a mortgage planner with nearly 30 years experience in the South Bay real estate market. Ken can be reached at (310) 792-7090. 1

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C E R OC L R U U M INT M I N ES N ITD E I N RS I D E R

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E HAVE ALL WORKED WITH PEOPLE WHO FIT THIS DESCRIPTION

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IMPROVE THEIR PERFORMANCES AND MAKE THEM MORE PRODUCTIVE IN THEIR EXISTING ROLES.

YET,

HOW MANY TIMES HAS THIS

PROVEN TO BE EFFECTIVE? It is very important to understand what it takes to modify and change work behaviors and why it typically does not succeed. Most people are flexible enough to adapt behaviors for short periods of time and almost everyone can put on a show when the boss is around. The fact remains that people will modify the job to suit themselves, instead of the other way around. Have you ever tried to change an ingrained habit? Multiply this difficulty factor by 10 and you start to see how hard it is to change a core work trait and the behaviors that come from them. If you’re an executive or business owner, take a closer look at yourself and you will see that you modify or change the job to suit you. You delegate the regular tasks you don’t like to do to others: i.e., you assign a multi-page flash report you don’t want to put together for a corporate finance meeting to someone you trust who enjoys this type of work. I spoke with a regional sales manager who took a position running a 30-person phone room that required a tremendous amount of daily paperwork and preparation. He accepted the job so he would get better at handling the details, since he would be focusing on detail-oriented tasks daily. Within two months, he streamlined the processes and then reassigned these tasks to someone else. So what do you do? How about looking at this situation from a different angle — one that takes into account what people do best, enjoy the most and are most productive doing. If your first reaction is: I am the boss and I just tell them this is the way it is and make them do what I want… does this approach truly work? Sure, for short periods of time when you are there cracking the whip. But does it make for a healthy and productive work environment? Or maybe you have historically taken the performance appraisal route, pointing out all the weaknesses people have and explaining that in order to be well-rounded employees, they will have to improve in these areas. So how does this strategy work? I was talking with a top salesperson, who told her boss: “Why don’t you just photocopy last year’s performance appraisal that says the same things that I don’t do well and want me to fix, along with the one statement that I lead the company once again in revenue and new accounts?” 34 S

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BY TONY TRAVEN Let’s look at the issue again from another angle. How about clearly understanding what people do best and then structuring the work to suit them? Give it some real thought. If you clearly understood what people love to do and you assign them this type of work most of the day, what do you think would happen to their productivity? What about doing this with a whole workgroup? What would happen to profit? Employee morale? The current economy is uncertain to say the least. If your industry is still projecting growth and prospering, then you have an opportunity to find better talent. But if your company is on the other end of the scale and you are forced to do more with less, then you have to figure out how to maximize productivity with what’s already there. A very successful businessman said to me that he loves it when the economy slows down because he can raise the bar on performance and find more talented people who will make his company stronger. This may seem cold-hearted at first. Yet, I believe the best thing a business owner or executive can do on behalf of their great employees is surround them with people who will make them even better. The next best thing is to figure out who in the organization are misplaced and reassign them. These are the individuals who work very hard but just don’t fit the position — not the ones who should be asked to seek employment elsewhere. At a small company with only 12 employees, there was a salesperson struggling to meet the new sales objectives. He put in the necessary effort, but just was not able to reach his goal. Once we looked at his work traits, we noticed he was perfectly suited for sales support and management instead of sales. By reassigning him to manage sales support and splitting his old territory among stronger salespeople, profits increased by $300,000 in one year. In any company or corporate division, you have people you cannot live without and those you cannot figure out. You have people proactively moving the company forward and making you

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It is worth your time to learn how to strategically align people within your company based upon what they do best. Knowing precisely instead of trying to guess makes the difference. a fortune and others costing you money. Through a simple analysis and without ever meeting your staff, most organizational consultants can look at the results and tell you with a high degree of accuracy who falls into which group. Plus, they can identify those who are misplaced. There are many services available that measure work traits or behavior and can be used to conduct this type of workplace analysis. These processes have gone through extensive validity studies, are designed to meet and exceed the EEOC guidelines for testing and accuracy, and can be used in the hiring process as a selection tool. Of course, there are some well-known tools

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that have been and should only be used in team building workshops. It is worth your time to learn how to strategically align people within your company based upon what they do best. Knowing precisely instead of trying to guess makes the difference. When you can focus most of your time on growing your business or division instead trying to fit square pegs in round holes, you can dramatically change the dynamics of the workplace and significant impact your bottom line. Tony Traven is a licensee for Culture Index in the Los Angeles metro area. Tony works in the field of organizational development and can be reached at 310-683-3607 or [email protected].

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BUILDING THE SOUTH BAY continued from page 31

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future development is environmentally friendly. The decisions will no doubt be tough: while cost-efficiency is always a priority, sometimes the ecologically correct decision will entail spending more in the short run on materials and labor. “One goal will be to change the capital procedure itself such that when we approve capital projects, part of the process will be determining how will this affect the environment,” said El

serving amenities. “Developers for the past year or so have been incorporating sustainable building elements on their own,” added Richard Thompson. “The market is dictating it.” El Segundo recently established an Environmental Committee comprised of members of the residential, business and school district realms to ensure that

Segundo Mayor Pro Tem Eric Busch. Various business leaders are already paving the way. In El Segundo, BT British Telecom will complete the county’s largest solar panel project this summer, reducing carbon emissions by an estimated 642,000 pounds a year. Several office developments, including Campus El Segundo, hope to achieve LEED certification — the nationally accepted standard for environmentally responsible buildings and developments. TG Construction, the contractor for both the Pacsan and Downtown El Segundo projects, has achieved the highest-level platinum certification for three of its own green projects. “The design of the building is intended to reduce carbon footprint and electrical usage by incorporating opening windows, more shading, open-air hallways, more efficient air conditioning, solar paneling and additional insulation,” explained Lyle Maul about Segundo Business Park. Other communities are following suit. Last spring, Torrance pledged to reduce its carbon footprint and encourage green building practices. It already requires recycling of 50 percent of all construction materials. City of Hermosa Beach Assistant Planner Eva Choi said discussions are now underway to formulate an ordinance providing incentives to go green. That city’s Residential Green Committee, comprised of local citizens and architects, is behind the campaign to promote environmental practices and energy savings. And in Rolling Hills Estates, the City has adopted a resource-efficient land use policy and mandates water conservation for new landscaping in commercial, office and other developments.

Conclusion The evidence appears overwhelming: Reuse has indeed re-energized South Bay commercial development. The question may be how long developers can ride out the crest until the market is saturated. Indeed, certain communities may have already tapped out their potential. But for the foreseeable future, it appears the South Bay market is in full stride. 36 S

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T E LCU H C O M N N O I NLSO I DGE YR MANAGING DIGITAL ASSETS continued from page 7 among a group. The content itself can be stored on a central server or across individual workstations. These offerings include annotation capabilities and communications support for efficiently transferring files between remote users. Process-oriented solutions focus on workflow, revolving around a centralized database of project management information that allows an administrator to assign, prioritize, and track a project’s progress across the entire production team. These systems track the history of what has happened to a file, including edits, conversions, and sign-offs. Given that workflow varies greatly across different types of enterprises, process-centric solutions are often tailored to the needs of specific vertical markets. Industry-centric solutions extend the sharing of an enterprise’s digital assets to suppliers, contractors, and other partners. Such systems include high-level security that allows the primary enterprise to work with multiple parties without commingling proprietary assets.

I N S I D E R

When searching for a digital asset management system, the first thing to identify is your objective. What solutions should it provide to what problems? Do you simply want to find your digital assets on demand? Collaborate between departments? Increase efficiencies through improved workflow?

required to manage the approval process of digital assets, the time for DAMS is at hand.

DAMS is not for everyone — yet!

the not too distant future, we will be looking back and trying to remember how we managed our automated work lives without the use of our DAM systems.

“Who needs e-mail anyway?” It seems a bit strange to think there was a time when business was done without the use of e-mail. What about the phone book? With the Internet at our fingertips, we so rarely find ourselves looking through the phone book for a resource. And life before Google — how did we get our work done? At some point in

R. Boyd Zack is the President of R.B. Zack & Associates Inc., a Torrance, Californiabased company with 27 years of experience in development, implementation, maintenance and support of custom business software and IT services. “Building Business Applications that Work Since 1981.” He can be contacted at [email protected] or via the website at www.rbza.com

Are DAMS in your future? Years ago, the need for DAMS was more prevalent in marketing-related activities or departments. In today’s business environment, this need stretches far beyond its roots. Compliance regulations and the proliferation of digital assets are putting pressures on IT departments to get a handle on these types of assets. Left unchecked, many businesses will find their need for digital storage will continue to grow, while their ability to locate their assets will continue to decrease. When you find you are continually recreating your digital assets, finding multiple versions of ‘the truth’ or simply spending more time confirming you have the file you are looking for, the time for DAMS is at hand. When you request the replication and distribution of materials from your network only to find the incorrect version was utilized, the time for DAMS is at hand. When you are frustrated by the effort 1

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T E LCU H C O M N N O I NLSO I DGE YR SEARCH ENGINE OPTIMIZATION continued from page 8

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back to your site, you’re getting a subtle endorsement from that site. Users who trust and respect the linking site will extend that trust to you, and search engines trust it as well. When these users decide to visit your site, you’re no longer a pure stranger. The same phenomenon occurs with the articles, news releases, blogs, and forum postings that are often a big part of SEO. If you do your job right, almost everything you do for Search Engine Optimization can be tied to your PPC campaigns and you can drive targeted visitors to your new content using paid search. The ultimate reward comes when you get the highly-treasured “double link.” This happens when your ad shows up on a site where you’ve posted content. Users see your site in the content, and somewhere on the same page they see a paid advertisement for your site. This results in an exponentially higher Click Through Rate. Another version of this is when your paid Google, Yahoo! or MSN ad shows up

day and see your ad on a regular basis, they’re gradually going to think of your site when they need something related to your business. In other words, don’t limit yourself to thinking that a banner ad is a one-shot tactic. It won’t cost you anything to try getting more mileage from every click, so you might as well develop a longterm strategy that supports your SEO.

The Long View of SEO If you’ve implemented a Search Engine Optimization campaign with the hopes of a payoff half a year later, you might miss out on some immediate benefits. SEO can enhance your online marketing campaigns almost from day one. This is true because content, code, and a presence on other websites are all important parts of SEO, and they can be used to enhance sales as well. For example, consider the power of links. Every time another website links

on a search engine results page that also has your site as part of the natural search results. About 20% of users don’t know the difference between natural and sponsored links, so having both simultaneously is the holy grail of Internet marketing. Even the title tags, and the name of your website itself, can have benefits beyond your search engine status. “VintageAutoParts.com” looks more credible and relevant than “HarrysGarage.com.”

Tying It Together With Landing Pages A landing page is targeted to a specific product or service offering. It contains minimal distractions and a strong call to action. The goal of a landing page is to get the website visitor to complete a certain action, such as subscribing to a newsletter, filling out a contact form, or signing up for a special offer. You may want to create a unique landing page for each keyword group. For example if you have a website selling clothing, you would want to create a landing page focused on women’s shoes. The page would feature graphics, text and a specific call to action targeted only at women shopping for shoes.

It’s All About Connections If you want a useful mantra for Search Engine Optimization, it’s “everything is connected.” You should constantly think of ways to use PPC campaigns to enhance your online image. And look at how SEO strategies can lead to more sales and conversions as a long-term strategy. Businesses should use every tool available to gain more customers and increase their profits. Anyone who wastes time arguing over which tool is better has missed the whole point. For a $50 credit to new PPC accounts go here: www.netpaths.net/sem Cayley Vos is the owner of www.Netpaths.net, a forward thinking web design company that focuses on providing high value services to the online market. You can improve the value of your business with a well designed and promoted website. Cayley can be reached at 310372-3086. 38 S

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BUSINESS MEETING, EVENT, & BANQUET RESOURCES Banquet & Meeting Rooms DoubleTree Hotel LAX-El Segundo 310-322-0999 1985 E. Grand Ave. El Segundo, CA 90245 www.DoubletreeLAX.com

Banquet & Meeting Rooms Holiday Inn Torrance Hotel 310-791-9100

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19800 S. Vermont Torrance, CA 90502 www.holidayinn/torranceca

Meeting Rooms The Cyber Boardroom 310-303-7904 4451 Redondo Beach Blvd. Lawndale, CA 90260 www.TheCyberBoardroom.com

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