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Legal & Liability: What you need to know to protect your small business.

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SPECIAL EDITION: 30 H

ampton Ro businesses ads are featured on the 2010 Inc. 500/50 00 List.

November/December 2010

p. 30

Going

The Distance

Marathon Consulting is one of the fastest-growing privately held companies in America. Four years ago, it didn’t exist. p. 32

Ben Ricks, Partner

Harris Pezzella, Vice President

Tony Continas, Partner

ALSO INSIDE

Al Moore, President

Laying the Groundwork for Your Future

PAGE 11

Unleash Your Inner Geek(ette)

PAGE 46

SBI 900 Commonwealth Place, Ste. 215 Virginia Beach, VA 23464

PRESORTED STANDARD US POSTAGE PAID RICHMOND VA PERMIT 930


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Calendar of Events November

December

January

Lake Wright, Virginia Beach • 11:30 a.m.1 p.m. $40 online at inchonoreeluncheon.eventbrite.com. Register before Oct. 27. Open to the public. A special reception for Owners Council members begins at 11 a.m. For more information, e-mail info@smallbusinessinsight.com

Just George’s, Virginia Beach • 5:30 p.m. Proceeds from the event will benefit the FoodBank of Southeastern Virginia. For more information, visit www.smallbusinessinsight.com, or e-mail sbiownerscouncilhr@gmail.com.

Event Tripps Restaurant, Virginia Beach • 4-6 p.m. $6 online at sbivbjan.eventbrite.com or $10 at the door. Open to the public.

4— Local Inc. Honoree Luncheon

16— SBI of Hampton Roads Networking

Event Tripps Restaurant, Virginia Beach • 4-6 p.m. $6 online at sbivbnov.eventbrite.com or $10 at the door. Open to the public.

8 — SBI Owners Council Charity Event*

14 — SBI of Hampton Roads Networking

Event Tripps Restaurant, Virginia Beach • 4-6 p.m. $6 online at sbivbdec.eventbrite.com or $10 at the door. Open to the public.

23 — SBI of Hampton Roads Networking

Event The Pub, Hampton • 4-6 p.m. $6 online at sbipeninsulanov.eventbrite.com or $10 at the door. Open to the public.

18 — SBI of Hampton Roads Networking

25 — SBI of Hampton Roads Networking Event The Pub, Hampton • 4-6 p.m. $6 online at sbipeninsulajan.eventbrite.com or $10 at the door. Open to the public.

27 — SBI of Hampton Roads Appreciation Luncheon Location TBA • 11:30-1 p.m. Those formerly featured in the magazine will enjoy lunch with one another. By invitation only.

* Guests who qualify for membership of the Owners Council can attend a Council event once for the member price of the event.

Come meet our friends at SBI of Hampton Roads networking events! Top Left: Sandy Travis of Commonwealth Planning and Brenda Tusing, owner of The Royal Chocolate. Top Right: Gary Roberson, CPA, and Monica Bennett, VP of Operations at KIS, Inc. Bottom Right: Kristen Walker, owner of Creative Landscapes; John Vernon, CIO of KIS, Inc.; Charlene Brewster, financial planner with MassMutual Financial Group. Photos by Paul Chin, Jr.

4 Small Business Insight | November/December 2010


CONTENTS

Nov. Dec. 2010

Photo by Jessica O. Swink

INSIGHT

Legal & Liability For Your Small Business

SBI takes a look at a few issues regarding legalities and commercial insurance for small business owners in Hampton Roads.

p. 16

On the cover

SBI’s own Al Moore debuted Marathon Consulting on the Inc. 500 List this year at #466. Special thanks to Princess Anne High School for allowing us to use their track. Photo by Paul Chin, Jr.

Did I Say That? Pick up a few tips on how to describe your business to your underwriter.

p. 17 Friedman Associates Neil Friedman has been in the insurance business for almost 40 years and seen many changes.

p. 18

Privacy Liability Insurance What happens after a security breach at the workplace? What you need to know to protect yourself from damages.

p. 20

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CONTENTS INSIGHT Tax Legislation Update

local tax attorney 22 Aexplains new changes.

Product Liability Insurance

much is enough to 23 How make sure you’re covered?

Risks for Government Contractors

about the ITARs, and 24 Learn how they affect exports.

Immigration Law

26

Owners want to follow the rules on hiring, so here are a few tips.

Succession Planning

p. 31

“From a growth perspective, we are very happy and pleased to make the Inc. 500 List. It’s a great benchmark. But as we look at that, our goal is now to continue that growth. Right now, we’re in the game.”

— Fred O’Brien, president and CEO of Insignia Technology Services, ranked #29 of the fastest-growing private companies in America.

Z

COLUMNS

Check out The List: Hampton Roads’ Inc 500/5000 Honorees | Page 30

Each year, Inc. magazine looks at the fastestgrowing private companies in America and highlights the top 500 and top 5000 in the country. This year, 30 small businesses in Hampton Roads made that list, representing: Chesapeake, Corolla, Elizabeth City, Hampton, Newport News, Virginia Beach, Williamsburg, and Yorktown. We’ve met up with those companies and would like to introduce you to how they look at small business management in 2010.

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CHARITY Kids Priority One

44

11 12

Commercial Real Estate

How does fire insurance affect you?

SBI Owners Council

42

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6 Small Business Insight | November/December 2010

OC luncheons are in full swing with special speakers and guests.

SwimWays

45

Owner David Arias makes a splash with his business.

The Geekettes Club

Internet Marketing

Don’t cringe: IT audits can help safeguard your privacy online.

One website makes it easy to aggregate resources for children

COMMUNITY

Financial Planning

When you throw in the towel, what’s the next step after business ownership?

The time is now to begin planning the next step in business ownership.

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Calling all business women: Unleash your inner geek!


Soundoff.

Nov./Dec. 2010 Vol. 2, Issue 7 900 Commonwealth Place, Suite 212 Virginia Beach, VA 23464 757-742-3233 | smallbusinessinsight.com e-mail: info@smallbusinessinsight.com

PUBLISHER Art Radtke

Q.

How will the closing of Joint Forces Command affect small businesses in Hampton Roads?

E-mail editor@smallbusinessinsight.com to let your voices be heard! You can also visit www.facebook.com/sbi.hamptonroads to leave your responses in our “Discussions section.”

editor

Jessica O. Swink

Copy Editors

Caroline Dozier Jackie Gilmartin

Art Director Paul Chin, Jr.

Contributing Writers

William J. Benos Paul Chin, Jr. Ellie Donahue Blake Dozier Ted Enright Alison V. Lennarz John L. Lubatti Thomas McVey Al Moore Nathan Olansen T.J. Prieur Art Radtke Jessica O. Swink

Contact Us Please e-mail info@smallbusinessinsight.com for information regarding: Advertising SBI Emerging Businesses Letters to the Editor Subscriptions E-mail sbiownerscouncilHR@ gmail.com for info on SBI Owners Council

*

Did you know...

... eight of the 30 local Inc. 500/5000 honorees this year are members of the SBI Owners Council? Check out their profiles in our special Inc. honoree section on p. 31.

Kudos!

In the July issue of Small Business Insight, we featured Marcie Laumann, owner of Hampton Roads Pirahnas soccer team. On Sept. 27, Laumann was honored by the Norfolk Sports Club and received the Frank Margiotta Unsung Hero Award. This honor is given to an individual who best exemplifies dedicated service and unselfish devotion to a community. This award was founded in 2008 after the founding father of the Norfolk Sports Club. Margiotta, age 99, is the only surviving member of the club, which began in 1944. Laumann founded the Hampton Roads Piranhas in 1995 and has been president of the organization since that time, making the Piranhas the oldest-active W-League franchise in the United Soccer League (USL). Other honors Laumann has received include the United Soccer League’s W-League Executive of the Year in 2001 and, in 2004, she was inducted into the United Soccer League’s Hall of Fame.

As a community leader, Laumann has served on the Virginia Power Soccer (for powerwheelchair users) board of directors and led the USL Hurricane Katrina Relief charity auction efforts in 2005. She also spends her time volunteering with include: the Virginia Beach SPCA, the Mary Kay Ash Foundation, the American Red Cross, the FoodBank of South Hampton Roads and numerous youth organizations throughout the area. SBI of Hampton Roads congratulates Laumann on yet another incredible accomplishment, and we won’t be surprised to hear when she racks up another award in the future!

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Let’s grow together.

Editor’s Desk

Big (Ginormous) Shoes to Fill Growing up, I was always told “Follow your dreams and you can do anything you can imagine.”

For a limited time, the application fee is waived to join SBI Emerging Businesses. Pay only the yearly rate. More details available at www.smallbusinessinsight.com.

Apologies to my first grade teacher, but there’s a lot more to it than that. Sure, just about everything starts with an idea, but when it comes down to it, there are the dreamers and the doers. Want to get an idea of what the doers look like? Turn to page 30 and you’ll see a list of 30 small business owners passionate about what they do and how their passions are played out daily. Listening to some of these stories of start-up to mature businesses is not only inspiring, but very promising for this day in age. In a time when we are going through one of the worst recessions in our country’s history, these folks are still moving onward and upward in terms of growth. While I’m a firm believer in being original and loving what you do, there is still a lot to learn from people like John Hewitt (CEO of Liberty Tax, page 40) or Jeff Wassmer (CEO of Spectrum, page 45). The most successful companies in America have one common denominator: unparalleled leadership. There isn’t one product or service I can think of that sells itself enough to keep a business profitable, let alone afloat, on its own. It doesn’t take pretty office buildings or top-of-theline equipment 90 percent of the time. A great workforce of dedicated employees are most of the 30 Inc. honorees’ ticket to success, but still, those employees need leadership and vision to take their business to the next level. Beginning on page 31, you can see the faces of business owners who didn’t use the recession as an excuse for not growing their businesses. It’s clear to us these aren’t the only 30 in Hampton Roads. There are other businesses here that didn’t apply for the Inc. 500/5000 List, and we encourage those to do so next year. Some might have come in just shy of the list. We know you’re out there though, and we congratulate you as well. If you are like me and want to surround yourself with the doers and go-getters in the business community here in Hampton Roads, I invite you to come to a luncheon on Nov. 3 at Lake Wright. (Details can be found on page 25.) Until next time, friends, continue following your dreams... just make sure that’s not all you’re doing. Be bold, follow your gut and all that good stuff. See you on the list next year.


We all start somewhere. Growing a business can be an overwhelming task when you have big dreams and not quite enough resources. We’re here to help. Join SBI Emerging Businesses and meet other owners and entrepreneurs, as well as participate in workshops, seminars, networking events and luncheons designed to help you take that next step with your business. Membership is open to a broad range of companies: financial, legal, industrial, sales, and more.

For details about SBI Emerging Businesses, visit www.smallbusinessinsight.com.


Columns | Financial Planning T.J. PRIEUR SAGEMARK CONSULTING

M

Laying the Groundwork For Your Future any small business owners are so busy running their companies, they rarely give much thought to the day when they’ll move on to something else.

But a long-term capital strategy can lay the groundwork for that eventuality. It lets you draw equity from your company to diversify assets and meet future needs, while transferring and maintaining the financial strength of the business. Drawing On Equity To prepare for the future, business owners may draw equity from their companies to help meet long-term asset diversification and financial needs. Quite frequently, owners may have 80 percent to 90 percent of their personal wealth locked inside the equity of a closely held company. Thus, they might be rich on paper, but they may still feel cash poor. If it’s a mature company, they can tap into that equity and also have an exit strategy for whenever that time comes. The challenge in drawing equity from a company is maintaining its financial vitality so the business can continue to grow and finance retirement and incentive plans for owners and key employees. These programs are often as much a factor in a company’s value as its profitability. To build value, small business owners can develop “golden handcuffs,” such as nonqualified deferred-compensation plans, to creatively reward select employees. For example, they might provide longevity bonuses of up to $75,000 a year postretirement to key employees who stay on to age 65. Unlike a 401(k), which must be offered to all employees, owners can pick and choose who will be covered by these more lucrative plans.

Taking Stock When considering long-term capital needs, business owners may want to: • Take inventory of personal assets and liabilities, income sources and expenses. • Get a formal business valuation to know what your business is worth. • Draw up a succession plan. Ask yourself if you want to transfer your business to partners, family members, employees or to outside parties. • Plan a target date to leave your business. For example, would it be three, five, or 10 years down the road? Exiting Gracefully Oftentimes small-business owners don’t have comprehensive exit strategies for transferring ownership, or they have outdated plans that fail to address tax law changes. This tends to occur because they typically reach out to their business advisors only when there’s a crisis or deadline, like when it’s April 15 and they have to file taxes. To help make a smooth exit, business owners should have their advisor develop a buy-sell agreement, which is especially important when there are multiple owners. These agreements outline detailed succession plans should a business owner retire, become disabled, die or get divorced.

Everyone will exit their business voluntarily or otherwise. The question is, are you going to do it on your terms, or is it going to happen as a result of some catastrophic event? Exiting a business is often the biggest event in an owner’s life. You want to get it right because you only have one shot at it. And if you do it right, you’ll be able to reap the benefits of your life’s work and retire in style. T.J. Prieur is a registered representative of Lincoln Financial Advisors Corp., a broker/dealer, member SIPC, and offers investment advisory service through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor, One Columbus Center, Suite 800, Virginia Beach, VA 23462. (757) 777-3137. TJ.Prieur@LFG.com . Insurance offered through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors for its representatives and their clients. CRN: 200807-2018282

Everyone will exit their business voluntarily or otherwise. The question is, are you going to do it on your own terms, or is it going to happen as a result of some catastrophic event?

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Columns | Commercial Real Estate BLAKE DOZIER CB RICHARD ELLIS

I

Fire Protection in Your Building Affects You More Than You Think f you’ve never owned or leased warehouse, flex, or office space, or represented someone who has, you probably have never thought much about the sprinkler system in the building where you work. The fact is in many cases, building owners and tenants haven’t given it much thought either.

Whether you are informed on the issue, fire protection has caused problems for owners and tenants in the commercial real estate leasing industry in Hampton Roads, and not being informed might cost you. Fire protection and fire code can be extremely complicated. Each municipality in Hampton Roads uses the same code books for building plan approvals and building inspections; however, they all interpret the code differently. A fire marshal in one city may walk into a building and fine a company for something that would be approved in another city, and this is solely based on that particular fire marshal’s interpretation of the fire code. For example, a company recently signed a long-term lease on a warehouse in a Hampton Roads municipality with the intention of racking products 18’ high; the building was sprinkled and had a 24’ ceiling height. The city fire marshal came in soon after for an inspection. He fined the company and ruled that they were only allowed to rack 12’ high with the current specifications of the sprinkler system in place based on the commodities they were storing. The company was still legally obligated to their lease, but now their storage capacity was reduced by a third and the space was no longer big enough. In another case in the same locality, a developer built a large multi-tenant warehouse on a speculative basis to attract new tenants. Because of costs, the owner did not install a high capacity sprinkler system in the building and instead opted for a more mid-range system that is very common in industrial buildings. The building (and the locality) lost several potential tenants to other buildings in other parts of Hampton Roads because the tenants knew their uses

would not be allowed by the fire marshal in in the industry of fire protection system that locality. The developer then had to go designers and he asked his boss if he could back and do a costly retrofit of the sprinkler become a designer. Meehan’s boss gave him system in order to convince tenants to sign a chance and 30 years later, he is an industry leases in the building. In fact, one of the leader with a significant ownership interest tenants who signed a lease in that building in the company. His industry involvement actually left their old building in the same even includes currently serving on the govcity because the fire marshal wouldn’t allow erning body of the National Fire Protection them to rack their products above 12’. Agency, which creates and modifies the Knowing that this is a serious issue for national fire code. tenants and building owners in Hampton With so many separate localities in HampRoads, I decided to sit down with an expert ton Roads, Meehan confirmed what we were to better understand fire protection rather seeing with our clients. than trying to rummage through thousands “The subjective nature of the fire code is of pages of fire code on my own. one of the biggest challenges to tenants and Michael Meehan, senior vice president owners, since each municipality interprets it and partner at VSC Fire and Security, was differently,” Meehan said. kind enough to chat with me in his office He went on to say, “Tenants who are hit about sprinkler systems and fire code and with a fire code violation from their municihow it is interpreted across Hampton Roads. pality’s fire marshal shouldn’t always just Meehan is the general manager of VSC’s accept that the fire marshal’s interpretation Virginia Beach branch, but also part owner of the code is correct — an expert opinion of the entire company. VSC was origifrom a professional sprinkler contractor or a nally Virginia Sprinkler Company, and was licensed fire protection engineer can somestarted in the founder’s home in Ashland times successfully challenge a fire marshal’s in 1958. It has since grown to 750 employruling.” ees across 13 branches from Maryland to Meehan also explained that it doesn’t alFlorida that collectively gross over $100 ways take a really expensive modification to million per year. upgrade a system so it passes code. SomeThey provide a wide variety of prodtimes the solution can be as simple as just ucts and services including fire protection, changing out the sprinkler heads. inspections and security solutions for fire suppression, fire detection, fire You don’t want to get a surprise visit sprinklers, alarms, and security systems. from the fire marshal two months Meehan started with the company during after moving in that requires a his college years as an $200,000 upgrade to the system. apprentice pipe fitter. He noticed the scarcity

12 Small Business Insight | November/December 2010


For tenants proposing to lease space in a warehouse building, it is better to consult an expert before moving in rather than assume the sprinkler system is compatible with the commodity and method of storage. You don’t want to get a surprise visit from the fire marshal two months after moving in that requires a $200,000 upgrade to the system. Meehan mentioned that an engineering study on a system’s capacity relative to the proposed commodity can be done quickly and cheaply when compared to the potential costs and headaches of moving into a building with an inadequate system and being required to upgrade it. A worst case scenario could be the potential inventory losses a company could sustain in a fire because of an insufficient system that was not checked out before moving in. Sophisticated national tenants today know that fire suppression and compliance with fire code can be one of the most important things to research going into leasing a building. I am currently representing a Fortune 100 national retailer in acquiring warehouse space in Hampton Roads, and their first step in this and any proposed lease situation is to obtain detailed specifications on the

fire suppression system in every building under consideration. They then use that information to eliminate any buildings that do not have sufficient systems. Local small business owners would be wise to adopt this best practice. The fire code manual is so thick and cumbersome, it is no wonder that it is difficult to interpret. It is not worth risking potential fines and expensive modification requirements to save a little bit of time and money before moving into a space. This issue is growing in commercial real estate leasing, and it is only going to be more important as time goes on and more fire code regulations come into effect. Building owners and tenants would be wise to investigate their fire suppression system’s limitations so that they can avoid future fines and fire hazards, because it is only a matter of time before the fire marshal will show up for an inspection. Blake Dozier is a commercial real estate agent in the Norfolk, Virginia office of CB Richard Ellis. He can be reached at 757.217.1878 or by e-mail at blake.dozier@ cbre.com.

A HOT TOPIC | Michael Meehan, senior vice president and partner at VSC Fire and Security, encourages tenants to fully understand their building’s fire code. Photo by Paul Chin, Jr.

www.paulchinjr.com paulchinjr@gmail.com | 757.630.2183

Commercial, Event & Por trait Photography


Columns | Internet Marketing

AL MOORE MARATHON CONSULTING

I

When An IT Audit May Be A Good Thing f your business requires annual audits to validate your financial statements, and your information technology systems are critical to your operation, perhaps you should consider having your CPA conduct an IT audit.

As we know, a financial audit is directed toward enabling the CPA to render an opinion on the accuracy of your financial statements. If your use of IT is limited to purely financial transactions like accounts payable processing, accounts receivable, and general ledger reporting, the complexity of the IT component of a regular audit can be relatively limited. However, if your IT systems are critical to the core mission of your business, the IT audit will be both more complicated, and possibly mandatory. If you rely on automated systems for such functions as sales order management, purchasing, shop floor control, inventory control, or the handling of patient healthcare information, an IT audit definitely deserves consideration. There are several reasons why the IT audit should be important to the business owner or chief executive. A few of these reasons are cited on the www.jerichoforum. org website. They include: 1. Without an appropriate IT audit, important IT controls within an organization may not be fully tested. This can lead to higher levels of risk, including regulatory compliance risks, and real financial risks.

2. An IT audit is a measurement of IT risk management, which translates into business risk management. 3. Improper management of IT risks carries severe business impacts if regulatory noncompliance is revealed. The SarbanesOxley Act (SOX) represents an example. 4. Against a landscape of increasing threats, vulnerabilities and regulatory compliance demands, the need for evidence that adequate governance of information security has been implemented and operates effectively across the scope of the organization and its IT infrastructure will increase. IT audits frequently address many interrelated topics, most of which focus on protecting the organization’s assets. If internal controls are lax, assets can be diverted, inadvertently or intentionally. In either case, there is a high probability that these misappropriations will not be accurately reflected on the financial statements. While the boundaries among the topics are somewhat grey, the categorization of specific audit tasks is immaterial. The important considerations are whether or not the audit tasks are completed, and what they reveal.

14 Small Business Insight | November/December 2010

Specific audit topics usually include: • Control of Admin Privileges • Access Control • Physical Security • Internet & E-mail Use • Password Security • User Account Management • Anti-SPAM Policies • Use of Social Media • Mobile Computing • Anti-Virus Protection • Database Access • Network Access Control • Network Configuration Mgmt. • Transaction Logging/Audit Trails • Data Privacy • Change Management • Incident Reporting • Intrusion Detection • Secure Software Development Lifecycle • Data Backup & Storage • Business Continuity Planning Once the organization’s procedural intentions are understood and documented, the IT audit will typically include some form of validation — “Testing” in the auditors’ glossary. Tests and how they are applied are defined in the various auditing standards that


govern the public accounting profession. In many cases, statistically defined sample sizes are used to review and assess different types of transactions to determine if those activities were done in a manner that complies with the defined policies and procedures. Testing transactional artifacts is relatively simple compared to testing what is going on inside any given software or database component. These types of tests can require automated tools in order to run data through a program and inspect the results. Databases often need to be inspected to determine the validity of their contents or use of certain database management techniques. Depending on the situation, automated test tools might be custom written for a given audit client, or acquired as a Commercial off the Shelf (“COTS”) packaged software product. This decision is frequently driven by nature of previous audit findings and budget constraints. If the auditor finds or suspects weak

Like many business functions, information technology presents ample opportunity for error, and worse, theft. controls, the automated testing might be quite extensive and require a “Build vs. Buy” decision regarding the test software. In light of the diverse nature of technology platforms, each case warrants careful consideration. It is important for the business owner to understand what tools are used and how effective they were in his or her particular IT audit. Many, if not most, owners of small and mid-tier sized businesses do not have the time or skills required to monitor dayto-day business activities and ensure that defined information technology procedures are consistently followed. Smaller businesses typically have to rely on an outsider for help.

As the business grows, the owners can find themselves relying on a group of employees with whom they have only limited contact. Like many business functions, information technology presents ample opportunities for error, and worse, theft. Relying on a thorough IT audit can ensure that adequate controls are in place and protecting the assets of the firm. Al Moore is the president of Marathon Consulting, LLC, a Virginia Beach-based IT consulting firm serving commercial and local government organizations since 2006. Al specializes in identifying and implementing IT solutions that bring measurable value to Marathon’s clients.

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Insight

Legal & Liability

“Uh-oh.”

Why is it always after the fact that you realize it’s just too late?

SBI of Hampton Roads takes a look into a few issues facing small business owners today in the areas of legal and liability, and highlights a few areas that should not go unnoticed.

Index

17 What NOT To Say to Your Underwriter 18 Business profile: Friedman Associates 20 Privacy Liability Insurance 22 Important Tax Revisions 23 Product Liability Insurance 24 Legal Risks for Government Contractors 26 Immigration Law Strategies 28 Succession Planning for Business Owners 16 Small Business Insight | November/December 2010


Doing business with your underwriter. It’s inevitable. At some point (if you haven’t already), you’re going to need to take a moment and hash out the details of your business with your insurer. Here, Neil Friedman sits down with SBI to answer a few questions to help in that process. What are some of the things someone can say that may or may not set right with his or her underwriter? If one of their comments is “our insurance is to pay claims,” we pretty much know that we have to be very careful with this person because insurance is a transfer of risk for the unexpected. If your attitude is ‘I can do what I want to do because I have insurance,’ that tells me you have no safety programs in place, and you don’t care about safefy, which tells me you are going to have claims because your employees aren’t going to be supervised properly. In order to keep rates down, one of the things we look at is your loss history, so when we work with our clients, we want to help them prevent claims, which helps lower cost. Insurance should really be for peace of mind — it’s for that once in a lifetime happening that could put you into bankruptcy. How can a business owner describe his or her business in a way that will benefit him or her? Well, we don’t practice “creative underwriting.” We want to know what you do. If you have an employee that does multiple jobs, for the sake of worker’s compensation, the rules say you take the highest exposure job, Continued on p. 19

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Insight

Legal & Liability

Being there for one policy at a When Neil Friedman decided to open his own insurance business, he wasn’t quite sure how he came to that decision. At the time, he was brokering a lot of business at Lincoln National Life. Starting a new business meant risks and new pressures, but he jumped in feet-first and has never looked back. BY T.J. PRIEUR PHOTO BY PAUL CHIN JR. One thing Friedman is sure of, however, is being able to provide everything a small business owner will need for his or her business, all under one roof. Friedman Associates opened in 1976 and now has 18 employees. To shed light on what makes an insurance business successful, Neil Friedman shares a few things about his company.

Neil Friedman, President

18 Small Business Insight | November/December 2010

On Employee Retention “The processes in the office have all been developed by staff,” Friedman explains. “One thing I do well is give people responsibility and let them run with it. If you dictate to people, they may object to what you’re doing. If they have input, they will buy into it.” Even his family members have been team players with the business. His son, Ross, was brought

in two years ago. With his undergrad focusing in accounting and a Master’s in international trade policies, his son’s background would help further the need to take the company to the next level. Ross’ controller skills brought in more corporate structure to the business. Friedman’s wife Abby also played a major role in the success of the business. While she got her start with the business as the bookkeeper, she quickly became licensed in employee benefits and property/casualty. “We learned very quickly our own areas of responsibility and didn’t cross it,” Friedman explains. “She’s all about details, and I’m a dreamer. It worked out well.” One way Friedman keeps his expectations of his staff in check is realizing that everyone has different talents, and he capitalizes on the strongest talents of each individual. “I realize that I am a great salesman, but I am not a great


small businesses, time. manager,” Friedman says. “I realize that you can’t keep control of everything in it, but if you let people have control and ownership, they will do a better job.” And this isn’t just a great idea, but a philosophy Friedman lives by. Each of the salespeople in his office are on full salary, and everyone refers to someone else if that other person is more knowledgeable in that particular area. His reasoning is simple: A person can’t live off commission if he or she knows nothing about what they are selling. “You can’t bring a young salesperson in on commission and expect them to survive,” Friedman states. “We know we have to invest in people and their careers, so we don’t bring in 10 people and throw them against the wall to see who survives.” For Friedman, the payoff is worth it. Some of his sales staff have been with the company for 15 years, and the youngest salespeople have been there for two years. On Determining Success Because this is the softest insurance market in history, strategies must be in place to keep the business afloat. Pricing is as low as it’s been in a while, and Friedman is seeing products sold today at 50-60 percent lower than the unit cost basis three years ago.

“Less people are buying insurance, so this is a challenging time,” Friedman says. “With margin compression, property/casualty commissions are down. Percent premium basis is down.” How does Friedman deal with the market? He makes up for revenue loss with new clients and continuously writes new business. “We take things one step at a time and think five, 10 and 20 years out, so there isn’t one thing we can look at and say ‘Yeah, we made it,’” Friedman says. After the company hit $1 million in commissions, they quickly focused on the next goal. Friedman Associates now produces just under $2 million in commission a year, and is still growing. On Customer Satisfaction “Service is key,” Friedman says. “In any competitive market, price is important, but you have to provide more than that.” The team at Friedman Associates is not comprised of “high pressure” people, according to Friedman. The sales team is trained to walk away from an account that either asks them to

do something they don’t want to do, or something that is incorrect. What the team does do is go the extra mile in providing everything a small business will need to be properly insured. Instead of dialing an 800-number, clients call direct lines to speak with someone at Friedman Associates. “You are never on your own,” Friedman says. “We really believe you have to bring more value than a price or insurance product.” Friedman and his team demonstrate this by offering programs to help educate about lead paint, as well as providing OSHA training, with literature and information in both English and Spanish. “The insurance business is a futures business — it’s an annuity contract, basically. You must reinvest in it,” Friedman explains. By being totally honest with everyone from clients to underwriters, Neil Friedman has demonstrated just how successful this strategy can be. “Knowledge brings confidence, confidence brings success,” Friedman explains. “People want to deal with people they have confidence in.”

“We really believe you have to bring more value than a price or insurance product.”

From p. 17 and pay the premium on that. But, if you have a way to break your payroll down into percentages of what he does, and you can prove that, then you can save some money. For example, if you tell the worker’s comp auditor you have a handyman (for routine maintenance), but you tell them he occasionally does roofing, his entire payroll is going in the roofing class, which is a huge rate, like 18-22 percent of payroll. So you have to be aware of worker’s comp classes. But you don’t encourage people to withhold anything, right? No, no no no no. You don’t want to lie. If the guy went up on the roof one time, you know, that’s alright. But if you get a hard-nosed guy, or if you are in the assigned risk pool for bad claims, or have an agent who doesn’t have a lot of insurance companies to represent, you may end up there. Those who work for assigned risk carriers tend to be very strict, where other underwriters may take a look at it and say, “no big deal.” Is there anything you should make a point to mention to your underwriter? Yes, you should mention if your company offers safety programs, and you have a drug-free work place ­— especially random drug testing, because that gives you a 5 percent discount on worker’s comp. You should mention if you have mandatory post-accident drug testing, which we highly recommend. In Virginia, if the primary cause of a worker’s comp claim is because the employee is under the influence of anything, you don’t have to pay the claim. Where is the balance of finding affordable, yet thorough insurance? Well that’s the issue. You cover the primary exposures. You don’t need collision on vehicles on 10 years or more, or a “Cadillac” policy. What everyone needs is good basic liability, worker’s comp and auto. — interview conducted by Jessica O. Swink Find more questions at smallbusinessinsight.com

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Insight

Legal & Liability

Take Another Look at Privacy Liability Coverage John L. Lubatti of USI Insurance Services explains why all privacy liability coverages are not created equal. It stands to reason that hardly anybody wants to spend money on yet another insurance policy, especially in today’s economy. Combine this with a healthy skepticism toward the insurance industry born out of a history of adding new exclusions to commonly purchased policies only to then offer other, separate policy products to provide coverage that the exclusions removed, and a business owner or manager can experience a natural tendency to look for reasons to discount the need for privacy liability coverage. Possibly the most common misunderstanding about privacy liability is that a company not doing business over the Internet has nothing to fear. The reality is, however, that over a recent 5-year period, the largest category of data security breaches at 22.4 percent had to do with stolen or lost laptops containing personal data. Another common misconception is because a company does not possess customer personal data, it has nothing to fear. This fails to recognize, though, that all companies with employees possess employee personal data that can be compromised, stolen or lost. Yet another belief is that only personal data in digital form can lead to privacy liability. In fact, personal data can be in any form, including old-fashioned

paper, when it is compromised, stolen or lost triggering privacy liability. Maybe not as common as those already mentioned, but still heard a lot is “My computers are not networked, so somebody can’t access one from another to steal personal data.” Well, here is the bad news: an employee can steal the equivalent of a pickup bed full of paper containing personal data using a tiny flash drive. So what happens when personal data in a company’s possession is compromised, stolen or lost, putting the individual or individuals in jeopardy? Currently all states but Alabama, Kentucky, Missouri, New Mexico and South Dakota, as well as Washington D.C., require the company that had the personal data to notify in writing each and every affected individual. Many also require that the company offer a period of credit monitoring at their own cost. While the majority of these states also exempt the notification and credit monitoring if the data was encrypted at the time it was compromised, stolen or lost, the exemption does not apply when an employee or outside contractor with encryption knowledge was involved. The cost of notification plus credit monitoring is between $60 and $160 per affected person according to some sources familiar with these activities. If you add

20 Small Business Insight | November/December 2010

the indirect costs of company personnel time and effort devoted to determining actually who was affected, the cost can rise to well over $300 per affected person. Do the math and you will see that as few as 1,000 affected people can add up to tens or even hundreds of thousands of dollars. None of this also takes into account the possibility of banks serving affected people suing the company to recoup the cost of reissuing credit cards and debit cards. Nor does it include the cost of damage control when it comes to the company’s reputation. Finally, if certain federal laws are violated in the course of the data security breach, substantial fines and other penalties could apply. The bottom line is a company, especially one with liquidity and/or loan covenant challenges, could be put out of business because of a major data security breach and not having the benefit of adequate privacy liability coverage. If through reading this article you have developed a new appreciation for the potential value

of privacy liability coverage, there is one more nugget of information you need to know: not all privacy liability coverages are created equal. The length to which a particular policy covers the varieties of data security breaches and the resulting costs to your company is not necessarily an easy thing to discern ­— it takes an agent or broker with extensive coverage knowledge and the keen ability to interpret policy language. This article started with the comment that “hardly anybody wants to spend money on yet another insurance policy.” To that let’s now add: the most expensive insurance policy may very well be the one bought, but ended up not covering what it was bought for in the first place. John Lubatti is the Regional Marketing Manager for USI Insurance Services LLC, 757-6251800.


Insight

Legal & Liability Extension of enhanced small business expensing

Tax Legislation Update Nathan Olansen of Rack Law Firm admits it’s not possible to capture and summarize every tax provision that exists, but here are a few you should know. For small businesses owners, recently enacted legislation includes key tax provisions to which we must pay attention. The following is a very brief overview of a few of the noteworthy tax provisions found in the 2010 Health Care Act as Amended by the 2010 Health Care Reconciliation Act (“Health Care Act”), and the Hiring Incentives to Restore Employment Act of 2010 (“HIRE Act”). The provisions discussed are effective in either 2010 or 2011, and include a few provisions to keep an eye on over the next few years. This discussion casts a wide net and highlights several relevant provisions that provide both tax benefits and limitations on many small businesses, their owners and employees. For comprehensive advice regarding any of the discussed provisions, and how they may affect you or your business, we highly recommend contacting your tax professional. Contributions to health flexible spending arrangements (FSAs) limited to $2,500

An FSA is one of a number of tax-advantaged financial accounts that can be set up through an employer’s cafeteria plan that allows an employee to set aside a portion of his or her pre-tax earnings to pay for qualified expenses, most commonly medical expenses, but often for dependent care or other expenses. Under current law, there is no limit on the amount of contributions to an FSA. Beginning Jan. 1, 2013, the Health Care Act limits allowable contributions to health FSAs to only $2,500 per year.

***

Dependent coverage in employer health plans

Effective March 30, 2010, the Health Care Act extends the general exclusion for reimbursement of medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the tax year. This change also applies to the exclusion for employer-provided coverage under an accident or health plan for injuries or sickness for a child. Further, the law permits self-employed individuals to take a deduction for the health insurance costs of any child of the taxpayer who has not attained age 27 as of the end of the tax year.

***

Payroll tax holiday and credit for employers who hire unemployed workers

The HIRE Act exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800—the maximum amount of wages subject to Social Security taxes—by the end of the year. As an additional incentive, for any qualifying worker hired under this initiative who remains on the employer’s payroll for 52 continuous weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000, which the employer may take on its 2011 tax return. Only wages paid after March 18, 2010 receive the exemption for payroll taxes.

***

Limit reimbursement of over-the-counter medications from HSAs, FSAs, and MSAs

Beginning Jan. 1, 2011, the Health Care Act prohibits reimbursement from HSAs, FSAs and MSAs, for the costs of over-the-counter drugs not prescribed by a doctor.

22 Small Business Insight | November/December 2010

The HIRE Act also gives a one-year lease on life to enhanced expensing rules, allowing qualifying businesses the option to deduct the cost of business machinery and equipment, instead of depreciating it over a number of years. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensingeligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009, which would have dropped to $134,000 and $530,000, respectively, had Congress not acted.

***

Tax credits to certain small employers that provide insurance

The Health Care Act provides small employers with a tax credit for non-elective contributions to purchase health insurance for their employees. This credit can offset an employer’s regular tax or its alternative minimum tax liability. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost. The business must have no more than 25 full-time equivalent employees, and the employees must have annual full-time equivalent wages that average no more than $50,000. The credit is initially available for any tax year beginning in 2010, 2011, 2012 or 2013, and the credit phases out as business size and average wages increase.

***

Higher Medicare taxes on high-income taxpayers

Under the provisions of the Health Care Act, which takes effect in 2013, single filers earning more than $200,0000 and joint filers earning more than $250,000 will pay an additional 0.9% Medicare tax (2.35% in total) on the excess over the base amount, and self-employed persons will also pay an additional .9% tax (3.8% total). In addition, beginning in 2013, investment income becomes subject to the Medicare tax for the first time in U.S. history. The new tax is a 3.8% surtax imposed on net investment income of single taxpayers with adjusted gross income above $200,000 and joint filers over $250,000. Net investment income includes interest, dividends, royalties, rents and gain from capital transactions. However, the new tax will not apply to income in taxdeferred retirement accounts.

***


Product Liability Insurance Ted Enright of Nusbaum Insurance explains how to protect your business from potentially damaging claims.

F

rom manufacturer to distributor to retailer, every party involved in the production to the final sale of a product bears that product’s liability.

Especially in a challenging economy, it is important that business owners carefully examine their insurance coverages with their broker to confirm that their policies indeed protect their company from potential claims arising from product liability, and that their limits are adequate. In order to examine the reasoning behind the importance of adequate product liability protection, one first should first have a clear understanding that, in order for a third party to bring a successful lawsuit suit against a business owner, that party only needs to show that the product in question is/was unsuitable for its intended use, and injury resulted. Granted, this liability should fall on the producer/manufacturer; however, there is not always a clear path to find protection from a manufacturer’s insurance policy, even with contractual agreements in place. For example, what if the failure of a product does not surface for several years, and the manufacturer has since let its insurance policy expire, or has gone out of business due to economic conditions? Or maybe in an effort to save money, a manufacturer chose inadequate coverage within its own insurance program for the product it sells. In both cases, a distributor and/or retailer cannot necessarily rely on the manufacturer’s policy for protection. It’s no secret that many of the products,

or components of products we purchase as consumers are manufactured outside of the United States. This isn’t just a result of companies trying to cut costs in a down economy, but also of companies trying to meet a surge of demand in a robust economy. In many cases these sources are foreign based companies with no assets in the United States. This presents an interesting dilemma for a domestic distributor in that it likely will bear the entire responsibility for a certain product’s liability even though the distributor may have had nothing to do with the physical manufacturing of the product. Think back to the issue of Chinese drywall imported, distributed, and installed in homes across the United States between 2004 and 2007. A combination of a housing construction boom and an unexpected demand for housing repairs due to an active Gulf Coast hurricane season led to a severe shortage of building supplies, including drywall. The short-term solution was to purchase drywall from foreign companies. A host of problems related to bodily injury and property damage was discovered after a period of time. As it turns out, the imported drywall was not made quite the same as domestic drywall. Many vendors in the U.S. relied on assumptions that testing standards in China were equal to those in the U.S. The problem is that a U.S. distributor has almost no control over what methods and means go into the production process. It is equally difficult to monitor quality control efforts that may have

been agreed upon originally between the foreign manufacturer and domestic distributor. What may be reprehensibly unacceptable in terms of domestic regulations can often pass as standard for foreign production facilities. Because there is little to no recourse against a company based in a foreign country, the U.S. distributor will have to be held accountable for unexpected injuries sustained in the normal use of the product it has sold. In this case, it is important that the exposure is understood by all parties involved in the insurance program for the distributor, and coverage is appropriate for the risk. Certainly, when raising this issue, many carriers will shy away from the risk, and/or the insured might have to pay a higher premium for the right coverage. In the long run, it makes more sense to acquire the right insurance for the exposure than to leave it up to chance. Whatever the case may be, any company that has sold, or intends to sell a product, should regularly review their product liability insurance for exclusions and restrictions which may limit the very coverage they intended to have in the first place. One cannot always predict how a slow economy may affect a supplier of a component or manufacturer of a final product. Nor can one count on a foreign manufacturing company to fall back on if their product fails after it is sold domestically. It is these uncertainties, and many other unpredictable circumstances, why an adequate insurance program is necessary, and why product liability coverage should never be taken for granted.

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Insight

Legal & Liability

Legal Risks for Government Contractors Thomas McVey of Williams Mullen discusses the hidden dangers lying beneath the surface for government contract firms — the ITARs. Failure to understand and comply with these requirements presents significant legal risk for government contracts firms of all sizes. ITAR stands for International Traffic In Arms Regulations and are part of the U.S. export control laws. The ITARs provide a number of requirements for U.S. firms that sell products and services to military customers. While many provisions of the ITAR apply to exports, certain provisions apply even if a company does not conduct any export activities or only exports to U.S. government customers overseas. Since violations can result in significant criminal liability for the company, including imprisonment for the company’s owners and employees, it is imperative for government contract firms to have a clear understanding of this important area of the law. U.S. Munitions List

The cornerstone of the ITAR is a list of products called the U.S. Munitions List (“USML”). If a company’s product or service is on the list, the company is subject to the ITAR requirements. Every company should check the USML

to determine if its products or services are set forth on the USML. Special Application For Government Contractors

One of the categories on the USML is Category XXI, a broad catch-all which provides, in effect: any other product, service or technology that was developed or modified for a military use. Category XXI causes great heartburn for government contract firms since developing almost any product or service for a U.S. military customer can result in the products or service being on the USML. Also developing products using U.S. defense research funding — such as SBIR grants or DOD grants for research projects — can often place products and technologies on the USML. Hence it is very common for companies that provide products, services or technologies to federal defense agencies to be swept into ITAR’s reach. Obligations Under ITAR

If a company’s products or services are on the USML, it is subject to a number of ITAR requirements including:

24 Small Business Insight | November/December 2010

1. Registration ­­— The company must register with the U.S. State Department even if it does not export any of its products. 2. Export Licenses — If the company exports any of its products, it is required to obtain an export license. 3. Services — If a company performs services on the USML for foreign persons, it is required to obtain export authorization for the performance of these services called a Technical Assistance Agreement (“TAA”). This includes providing training services, technical services, logistics services, design services, warranty repairs, etc. Transfer of Technical Data to Foreign Nationals

The USML covers a wide array of technical data. If a company transfers technical data listed on the USML overseas it must obtain an export license. In addition, companies are prohibited from disclosing technical data set

forth on the USML to foreign nationals in the U.S. without an export license. This is even if the foreign national is an employee of your company. Exports To U.S. Government Customers

These rules apply even if the company is exporting products, performing services or disclosing technologies to DOD customers overseas. If there is an export, the company may be required to obtain an export license, TAA or otherwise comply with the ITAR requirements. Sanctions

As referenced above, violations under the ITAR can result in criminal and civil penalties, including imprisonment of company owners, officers and employees, disbarment and significant fines, among other penalties. Compliance Strategy

As a first step, it is imperative that companies review the USML


to determine if they are covered under the ITAR. If they are, most companies adopt an ITAR compliance program to establish written policies and procedures for their employees to comply with the ITAR requirements. In addition, if a company is found to have an ITAR violation in the future, the State Department will often reduce penalties for companies which have adopted compliance programs. Voluntary Disclosure

If a company has inadvertently violated ITAR requirements, there is a procedure available for companies to voluntarily disclosure previous violations to the State Department which often result in no penalties being assessed against the company. In many cases this procedure provides an opportunity to “wipe the slate clean” of past violations if companies commit to compliance in future operations. This procedure, called “voluntary disclosures,” can be extremely valuable for small government

contractors in organizing their export compliance activities. Operations Under ITAR

If a company determines that it is regulated under ITAR, it is still permitted to conduct most business activities to operate in the international markets. It can still export its products and perform services overseas; it must simply obtain the appropriate export licenses or TAAs and comply with other ITAR requirements. Life still goes on – it simply must incorporate the ITAR procedures into its business model. Many defense contractors conduct robust international businesses within the parameters of the ITAR. The author is an attorney who advises companies on strategies for organizing for and complying with ITAR. For a free subscription to the Williams Mullen export control newsletter, please contact the author at tmcvey@williamsmullen.com or 202.293.8118.


Insight

Legal & Liability

Immigration Strategies for Hiring and Maintaining a Legal Workforce William J. Benos of Williams Mullen presents a few important considerations to ensure your workforce is compliant with immigration standards. At a time when immigration reform is elusive, the common challenge faced by all businesses employing foreign workers continues to be how to hire and maintain a legal workforce. Below are some important areas on which businesses should focus. Start Off on the Right Foot.

One way for a business to avoid or mitigate immigration risks when hiring workers

is to adhere to the existing I-9 employment verification system. By complying with the I-9 system, an employer can avoid knowingly hiring an undocumented foreign worker, and can avail itself of the safe harbor protection against employer sanctions. The I-9 system applies to all new hires (i.e., those hired after Nov. 6, 1986) and those who left employment but who are then rehired. Certain types of workers

26 Small Business Insight | November/December 2010

are not subject to I-9 verification, most notably employees of independent contractors. Care should be taken by engaging contractors to ensure that their workers perform their work by their own means and methods, and where the employer gains knowledge that a contractor’s worker is not work authorized. Getting things straight from the outset means that an employer must review a prospective employee’s documents which prove his or her employment authorization and identity, and complete the Form I-9 within three business days of hire. Employers should also be careful to avoid potential unfair immigration-related employment practices, such as inconsistently maintaining document copies, or insisting on being provided with specific documents to review during the I-9 process. Preserving One’s Safe Harbor.

Maintaining a legal workforce does not stop after an employer completes the Form I-9. An employer must also attend to “re-verifications” if need be. In cases where a foreign worker’s employment authorization has an expiration date (i.e., where an employee is hired pursuant to an Employment Authorization Document), the employer is obligated to re-verify the employee’s employment authorization on the Form I-9 before the expiration date. Employers should maintain a tickler system to be given sufficient advance reminders of re-verification dates well before they arise. An employer also should not jeopardize its safe harbor protection by acquiring knowledge that an employee

does not have or has lost his or her employment authorization. Some common examples of this is are: (i) where an employee has claimed to be properly documented (i.e., has produced a Permanent Resident Card when first hired) and later asks to be sponsored to become a lawful permanent resident, and (ii) where the employer is notified that an employee’s Social Security Number does not match official records and learns of an employee’s lack of valid immigration status upon subsequent follow up. E-Verify Compliance.

Some employers may find it desirable or even necessary to participate in the E-Verify system. It is a free Internet-based system operated by the Department of Homeland Security (DHS) along with the Social Security Administration to enable employers to electronically verify the employment eligibility of newly hired employees. Businesses should note that an increasing number of states restrict companies from entering into state contracts or jeopardize their business licenses if they have not verified the identity and immigration status of their workers. Since the fall of 2009, businesses which enter into federal contracts are required to use the E-Verify system. For businesses with longstanding federal contract relationships, one issue they may need to tackle is whether or not to use E-Verify for their entire workforce. Federal regulations mandate that the E-Verify system must be used for new hires and for employees assigned to a federal contract (i.e., typically those who directly perform the work). Care should


be taken regarding the scope and timing of implementing the E-Verify system, as well as in situations where subcontracts are involved, specifically to ascertain which, if any, of such subcontracts may also be subject to E-Verify requirements.

from the foregoing discussion, there are several areas on which an employer should focus its attention to prevent or mitigate immigration risks and problems. As is the case with many things in life, an ounce of prevention is always worth a pound of cure.

Bill Benos is chair of the Immigration Practice Group at Williams Mullen, a full service law firm serving businesses for more than a century. For more information, please contact Mr. Benos by calling 804.420.6402, or by emailing him at bbenos@

williamsmullen.com. This article is not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.

ICE Investigations and Audit Preparedness.

One area which is re-emerging as an area of concern for businesses is the upsurge of investigations and audits by Immigration and Customs Enforcement (ICE). In November 2009 alone, ICE announced an additional 1,000 workplace audits; this was recently supplemented by the issuance by ICE of Notices of Inspection to 180 businesses in five states. In anticipation of further ICE investigations and audits, businesses should conduct their own internal I-9 reviews, properly correct any errors they find, and consider conducting periodic staff training sessions. Downsizing Considerations.

The following are two instances where downsizing in the current down economy may cause an employer to run afoul of immigration regulations. Employers, notably those who employ foreign workers in what is known as the H-1B visa classification, should be mindful that they are required to notify immigration authorities when an H-1B worker’s employment is terminated prior to its natural expiration. When downsizing, employers must also be cautious of how workforce reductions may jeopardize cases in which the employer is sponsoring an employee to obtain his or her lawful permanent resident status (i.e., ‘green card’). In conclusion, as is apparent smallbusinessinsight.com

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Insight

Legal & Liability

Planning for the Entrepreneur’s Demise (Beyond Taxes and Trusts) Alison V. Lennarz of Kaufman & Canoles, P.C. discusses the sometimes difficult area of succession planning for business owners. Successful entrepreneurs, with numerous demands on their time and the perception that other responsibilities are more pressing, find ample excuses to postpone hard discussions about what will happen to their business following their demise. Many wait to address this inevitability until terminal illness or imminent death leaves no alternative. Under

such circumstances, succession planning becomes emotional, highlighting weaknesses and aggravating friction among family members. Business is more likely to be disrupted when transitions are sudden and rash. To minimize risks and maximize opportunities, owners should therefore undertake business succession planning while they

28 Small Business Insight | November/December 2010

are still healthy and in control. A threshold planning issue concerns what happens to the firm at the owner’s death: liquidation, sale, or continuation of the business? Liquidation may be the only available option if inadequate planning leaves the firm unable to meet its obligations after the owner’s death, or the owner’s estate with taxes or other debts. While liquidation usually results in a significant loss of value, the sale of a business as a going concern will likely generate more money for the owner’s beneficiaries. The owner may direct the sale of the business if the owner has particular expertise that cannot be replaced or the family has no interest in continuing the business. Often, however, the owner wishes to pass ownership and control of the business to one or more family members. Successfully transitioning a business to family members requires years of careful preparation and communication. First, the business owner must prime the family by presenting

the succession issues and articulating a clear vision, including the broad ownership, governance, and management goals of business. These in turn will direct the organizational structures which connect the family with its assets and values and which balance the family’s economic and non-economic goals. In many cases, an owner’s successor is an obvious choice. In the event the successor is not predetermined, a succession committee may be tasked with deciding who will select the successor and setting the criteria for selection. The best candidates are those who want the job for the right reasons and who have the trust and respect of family members and employees. Candidates do not just appear; they are developed, ideally by involving children at an early age, designing positions to match their interests, providing responsibilities and training, and possibly requiring work outside the organization. These strategies should promote competence, foster independence, and provide exit strategies. Incumbent business owners must prepare not just their successors but themselves, both financially and emotionally. A successor might not be able to afford the outright purchase of ownership interests, so the plan must include financial arrangements that ensure the incumbent’s financial security. The plan may also include a clearly defined role and responsibilities for the retiring incumbent that may diminish over time. Finally, the succession plan should be timed so that transition occurs when the incumbent is secure and confident in the successor’s competence and status in the business and family. A team of outside professionals


can provide critical objectivity, problem-solving experience, and financial and legal expertise necessary to value the business, to draft operating or buy-sell agreements, trust instruments and other documents, and to perform other necessary tasks. Ownership and management of the firm may not always transfer to family members equally. If a business owner’s children make unequal contributions to the business but share ownership and management rights equally, problems resulting from resentment among siblings or spouses are likely to impact the business. Therefore, a succession plan must realistically acknowledge and address the family dynamics, passing the business to family members willing and competent to run it and providing for non-business assets to pass to other family members. Alternatively, the plan may call for a capital structure with preferred or voting and non-voting stock, or an operating agreement that separates management powers from ownership, to give those active in the business the authority needed to fulfill their responsibilities without enough power to abuse their positions. Such structures may also segregate investment assets of a business (such as real estate or intellectual property) from the operating assets of the business, to accomplish estate planning, tax and creditor protection goals. In all events, preservation of family harmony depends upon achieving the perception of fairness in planning the transfer of business and nonbusiness assets. A prerequisite to the fair allocation and preservation of family wealth is a clear understanding of the value of the business, along with how intrinsic characteristics of the business

and outside influences impact the value. While methods such as net asset or market value may be used to value the business, business valuation remains more inexact art than precise science. Business value will determine how much life insurance may be needed to fund the purchase price to be paid to beneficiaries who will have no ownership interest in the firm, or to augment the owner’s estate to the extent that the business will pass to some family members but not others. If certain employees contribute disproportionately to the value of the business, the succession plan should include one or more of the following: a board of advisors that may include non-family members to periodically review the operations of the business; employment agreements with key employees to prevent the death of the owner from jeopardizing their employment and to assure that key employees do not abandon the company following the death of the owner; and key person life insurance, payable to business to compensate for loss of leadership and management skills of owner, in order to recruit or retain talented management. Business succession planning must take place within the context of a larger estate plan; indeed, succession and estate plans cannot be made independently of one another. In addition to addressing transition matters, an effective plan should include lifetime strategies to reduce estate and gift taxes, such as annual and lifetime gifting, creation of grantor retained annuity installment sales to intentionally defective trusts, and similar tactics. A business succession plan is much more than the transactions necessary to transition ownership and minimize taxes: without it, neither the family nor the business will thrive. smallbusinessinsight.com

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Z The List

Local Inc. 500/5000 Honorees

The Local Inc. 500/5000 Honorees

2010

INTERVIEWS BY Blake Dozier, Rob Hamlin, Al Moore, Harris Pezzella, T.J. Prieur, Art Radtke and Jessica O. Swink PHOTOGRAPHS BY Paul Chin, Jr., Al Moore and Jessica O. Swink

Z Insignia Technology Services Z Andromeda Systems Z GSS Gear Z Marathon Consulting Z Anchor Innovation Z Snow Companies Z Spectrum Z ITA International Z SDV Solutions Z Bosh Global Services Z Brindley Vacation Rentals Z DOMA Technologies Z E&E Enterprises Global Z Alliance Solutions Group Z UrsaNav Z Avalon Global Solutions Z VectorCSP Z Impressions In Print Z ArcaMax Publishing Z Accelerated Financial Solutions Z Mobile One Courier & Logistics Z C&K Systems Z DMG Federal Z Doormation Z Money Clip Magazine Z IssueTrak Z Liberty Tax Service Z GStek Z Jo-Kell, Inc Z Rocket Direct Communications

For complete profiles on each company, visit www.smallbusinessinsight.com. Three-year growth, 2009 revenue and industry information taken from Inc.com.

30 Small Business Insight | November/December 2010


#29 Insignia Technology Services

Newport News

growth: 6430% Z Three-year 2009 revenue: $8.9 million

Industry: Government services

Fred O’Brien, President

Fred O’Brien got into small business ownership for the flexibility and pleasure that comes with doing what he loves. “I was in the Army for 20 years, and got used to being in control,” O’Brien says. “So, applied to business, every employee we hire is a strategic hire and they have the ability to influence and change the way we do business, which is pretty cool.” By delegating responsibilities and putting the right people in place, Insignia has grown rapidly in the past three years. Growing this fast presents unique challenges, though. “It’s definitely a balancing act,” O’Brien explains. “You adapt or die. You build a strong infrastructure, or backend, in order to win large work, but in turn, you have to win that large work in order to build that infrastructure.” That’s why, O’Brien says, each employee has a primary duty and an additional duty. “The main thing we focus on is processes. Things aren’t going to be perfect, and they are tailorable for each client, but you have to have that starting point to move forward,” O’Brien says. The philosophy at Insignia is to make each employee on the job site successful so, in turn, the employees on the site can make the client successful. If they can’t make the client successful, O’Brien says, they fail the overall mission. “From a growth perspective, we are very happy and pleased to make the Inc. 500 List. It’s a great benchmark,” O’Brien explains. “But as we look at that, our goal is now to continue that growth. Right now, we’re in the game.” O’Brien plans to re-evaluate his company in two years to see where they are, and he believes he’ll be able to tell at that point if they’ve grown and invested in the right locations and people. So far, he thinks they have. Looking at the growth numbers, that may be a safe assumption.

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Z The List

Local Inc. 500/5000 Honorees

#272

John Kobelski, President

Andromeda Systems Virginia Beach

Andromeda Systems, headed by John Kobelski, developed a new concept for performing aircraft maintenance. The concept has proven to be highly effective and is now being applied to vehicles and industrial machinery of all types. That path was not an easy one. John proposed the concept to the local Naval Air command and watched as the idea made its way up the chain and into Congress. Once approved, funding was granted for a pilot program to be managed by Naval Air. Andromeda’s recent recognition as one of the fastest growing, privately held companies in the country by Inc. magazine is testament to Andromeda’s ability to execute. Andromeda’s status as an Inc. 500 honoree should not be a surprise to anyone who has spent any time with John Kobelski, founder and president of the organization. “I’ve always wanted to be in business,” said John, when asked about his transition from Naval officer to corporate leader. He followed a well-defined career path that saw him enter the civilian engineering world through an entry-level engineering position and worked his way to the top of the profession. He spent time with five separate companies before launching Andromeda Systems in 2005.

32 Small Business Insight | November/December 2010

growth: 1130% Z Three-year 2009 revenue: $5.8 million Industry: Engineering

Obviously, he was paying attention and learning a lot about business along the way. The firm now has approximately 70 employees operating from five locations in the mid-Atlantic region, Florida, and California. The firm offers services in such areas as engineering, information technology, integrated logistics support, management consulting, training, and maintenance management through the use of EBM and reliability-centered maintenance (“RCM”). While most (75 percent) of the firm’s revenue comes from the federal sector, a significant proportion is generated through commercial clients and local governments. John gives credit for Andromeda’s success to a strong core group of leaders and employees, modestly saying, “I’m just here for the ride.” While that’s obviously an understatement of his contribution, John has assembled a very strong leadership team, all of whom bring unique skill sets to the organization. Kobelski is enthusiastic about Andromeda’s future, and has even set a target for how many years he intends to place Andromeda on the Inc. 500 list and exactly how much revenue he’ll have to earn each year to achieve that goal.


#338 GSS Gear

Virginia Beach, VA

growth: 870% Z Three-year Gross revenue: $14.5 million

Industry: Government services

GSS Gear fills a somewhat unique role among the local federal contracting community. Rather than providing services in such areas as ship repair, logistics, operational planning, or aircraft maintenance, GSS sells tactical gear to various military commands and government agencies. In fact, GSS shows several sides of their uniqueness from the moment you walk in the door. First and foremost, they display their products in a very appealing retail showroom that looks more like a sporting goods store than a military distributor. Another unique characteristic is the make-up of the GSS work force. Of the 20 employees, 16 are women. According to the owner and CEO, Emily Whittaker, “the poor men really have to stay on their toes.” Whittaker is probably the most unique characteristic of GSS Gear. Possessing high energy, this attractive entrepreneur holds your attention. Educated at Stetson University in Florida, and a seasoned sales professional for Dale Carnegie, she is a genuine people person. She and three partners formed the business in November of 2004 working with private capital in the back of their house. Two partners, a married couple, eventually withdrew, leaving Emily and her significant other, Rob Banta, in charge of the business. Rob now holds the position of Chief Operating Officer. Emily’s enthusiasm for the business, its employees, and customers seems unlimited. She credits most of the GSS success to the strong relationships that are

Emily Whittaker, President formed among this group. Because most of her business originates with customers in Hampton Roads, these strong relationships have been instrumental in gaining and retaining customers. GSS has an inside sales team that knows their products and is dedicated to providing top-shelf customer service. Selling more than 100,000 SKUs demands a high performance sales team. When discussing GSS’s appearance on the 2020 Inc. 500 List, Emily quickly de-

scribed “the way we treat people” as the key to that success, saying, “I might be speaking in cliches, but cliches are true. The Golden Rule really does work.” This approach has resulted in amazing growth. GSS has doubled its revenue in each year of its existence, now topping the $14 million mark. Considering the fact that they have not ventured far from the Hampton Roads base, the potential for continuing that growth seems pretty high.

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Z The List

Local Inc. 500/5000 Honorees

#466

Marathon Consulting

Virginia Beach growth: 644% Z Three-year 2009 revenue: $2.5 million Industry: IT Services

Al Moore, President

Formerly the managing director at Keane Operations, Marathon Consulting president Al Moore knows a thing or two about information technology. Moore, along with Harris Pezzella, Tony Continas and Ben Ricks, owns Marathon Consulting and all have experience in commercial IT services. “We saw a gap in the consulting industry that was affecting our customers’ ability to get solid IT services in Hampton Roads,” Moore explains. Moore has been in the business for almost 40 years, and enjoys his work because it is not only a point of interest to him, but because of the ability to help people solve problems. “You get to see the impact of your work immediately, and a lot of times, people you are helping are at wit’s end,” Moore explains. “When you give them a solid solution, it’s oftentimes much appreciated.”

One benefit to doing business in Hampton Roads, he explains, is the relatively small community in his arena. If you are doing a good job, word gets around and more people come to you. “Another great aspect of Hampton Roads is the diversity. A lot of people are not from here, and I think that adds a lot to it,” the Norfolk native says. Moore’s advice for small business owners: set goals, and have discipline to stick to the plan. By focusing on delivering high-quality services, Moore and his team “let the growth take care of itself.” Marathon currently employees 27 fulltime staff. Living by the saying, “Take care of the troops,” Moore stresses the importance of taking care of employees, as one of the biggest challenges facing business owners today is recruiting and maintaining Class-A talent.


#592

#627

Snow Companies

Anchor Innovation

Virginia Beach

Williamsburg

Z Three-year growth: 483% 2009 revenue: $16 million Industry: Health

Z Three-year growth: 514% 2009 revenue: $7 million Industry: Government Services With Anchor Innovation, everything is a team effort. Steve Palmer describes it best as a relay, where his employees operate by passing the baton from one area to the next. “This really shows the flexibility that all small businesses can provide,” he explains. After nearly tripling his workforce in one year, it appears Anchor Innovation is winning the race. Anchor Innovation also made the Inc. 5000 List in 2009 (#1299).

Steve Palmer, CEO

#649 Spectrum

Newport News

Z Three-year growth: 467% 2009 revenue: $43.8 million Industry: Government Services Spectrum is organized as an ESOP and every employee feels responsible for the success of the firm. Owner Jeff Wassmer serves as the “Culture Steven F. LaFata, Senior VP of Coach” to ensure that Business Relations and Anthoney the culture is maintained Stoney, Executive VP and COO throughout the company’s growth. Wassmer has a policy of meeting every employee faceto-face at least once per year. This includes approximately 300 employees working in 20 locations in such areas as Korea, California, and Hawaii. Spectrum made the Inc. 5000 List in 2009 (#944) and 2008 (#2575).

In two and a half years, Snow Companies has grown from eight employees to 85, with the bulk of the workforce here, but Brenda Snow, CEO employees also in Europe and India. According to COO Corbin Wood, “The growth has come at the expense of training and standard procedures, and hiring good senior leaders who can train and develop people on the job.” One of the biggest challenges Wood says they face is managing a younger workforce and appealing to a different generation. The company prides itself on finding potential employees who possess transferable skills like hospitality and customer service. “This is such a specialized industry, so you need an understanding of how it all works,” Wood says.

#711 ITA International

Yorktown

Z Three-year growth: 431% 2009 revenue: $11.9 million Industry: Government Services ITA is an acronym for In The Arena, attributed to a famous quote by Theodore Roosevelt. Mike Melo and his team Mike Melo, President at ITA International do just that, providing services to their customers, and focusing on complete customer satisfaction across the board. “If our client fails in their arena, regardless the reasons behind the failure, then we’ve failed too,” Melo says. Because 85 percent of his employees are former military, he feels ITA has an advantage working in the government contracting arena. ITA International debuted on the Inc. 500 List in 2009 at #19.


Z The List

Local Inc. 500/5000 Honorees

#741

#747

SDV Solutions

Bosh Global Services

Williamsburg

Z Three-year growth: 413% 2009 revenue: $12.8 million Industry: Government services Mike McMahan attributes his success in the Inc. 5000 List to a simple philosophy: There is no Plan B. “You have to focus, and Mike McMahan, President not get distracted by other opportunities,” he states. The best piece of advice he’s ever received came from his father-in-law, who encouraged him to enter into government contracting. Luckily McMahan took that advice, and his future in contracting continues to look bright. SDV Solutions debuted on the Inc. 500 list in 2009 at #27.

#820

Brindley Beach Vacations

Corolla, NC

Z Three-year growth: 367% 2009 revenue: $6.8 million Industry: Travel Doug Brindley got his start in vacation rentals while helping his father with a small development in Doug Brindley, Owner Duck, N.C. “Small business success is fully dependent upon how you work with the people around you,” Brindley explains. “We believe there are three customers in our industry: one is the rental guest, one is the home owner, but when we get these two to understand, we are also their customer and we all win together.” Brindley Beach Vacations also made the Inc. 5000 List in 2009 (#728) and 2008 (#603).

Newport News

Z Three-year growth: 410% 2009 revenue: $18.1 million Industry: Government Services Bob Fitzgerald runs his business following the MVP mission statement that he and his employees abide by: Robert Fitzgerald, President Mission ­— Understand the customer’s mission as well or better than they do; Vision — Envision how to service the customer to meet their vision; Passion — Whatever you do, they do with passion and heart. He started with 3 employees; today he has 135, and attributes his company’s success to his high-caliber people. Bosh Global Services made the Inc. 500 List in 2009 (#122).

#939 DOMA Technologies Virginia Beach

Z Three-year growth: 316% 2009 revenue: $10.9 million Industry: Business Products & Services

Wayne Zinn, COO

One phrase embodies DOMA Technologies: Customer Satisfaction. Since the company’s inception in 2000, they have had nearly 100 percent customer retention. They have achieved this by placing customer service at the forefront of everything they do. DOMA Technologies (short for Document Management Technologies) president Pat Feliciano and CFO Wayne Zinn explained a corporate philosophy that is more than just the “work hard, play hard” that many good companies hold. They view success in the office as a vehicle for them and their employees to do more for charity and the community. DOMA Technologies made the Inc. 500 List in 2009 (#472) and 2008 (#437).


#1017

#1162

E&E Enterprises Global

Alliance Solutions Group

Hampton

Z Three-year growth: 295% 2009 revenue: $16.5 million Industry: Government Services One of the keys to success for Ernest Green and his company is investing in people. Ernest Green, President Not a single employee there earns minimum wage, and he firmly believes that regardless of the employee, position and company, no one ever makes what they are worth. “You can not only make more money when you pay people more, but you also reduce turnover,” Green explains. E&E Enterprises Global also made the Inc. 5000 List in 2008 (#569).

Z Three-year growth: 256% 2009 revenue: $2.1 million Industry: Government Services While Bob Campbell attributes most of his leadership experience to his time spent in the U.S. Air Force, it was also there that he developed Bob Campbell, CEO a passion for improving our country’s emergency response capabilities. Combined with the entrepreneurial spirit of always wanting to own his own business, Campbell has been in business since 2005, and charges his 17 employees every day with the company’s mission statement: “Preparing communities for tomorrow’s threats.”

#1580

#1263

Avalon Global Solutions

UrsaNav

Chesapeake

Z Three-year growth: 235% 2009 revenue: $14.3 million Industry: Engineering

Newport News

Hampton

Z Three-year growth: 182% 2009 revenue: $16.2 million Industry: Telecommunications Chuck Schue, President and Randy Hall, Executive VP

Chuck Schue was in business during the “dot-com bust” and took away a valuable lesson: “When things get bad, you can ‘go to the mattresses’ and lock yourself up in a room, but when you do that, you’ve fallen behind,” Schue said. Being multi-focused and taking advantage of opportunities has contributed to UrsaNav’s growth in the past year. UrsaNav also made the Inc. 5000 List in 2009 (#807).

According to its website, Avalon Global Solutions, Inc. (formerly Avalon Technology) is a leading provider of mobile and fixed communications, lifecycle management services, technology and solutions. Services Avalon provides for small businesses include: reducing telecom expense, procuring mobile devices, and bolstering mobile security. AGS has a solution to meet your needs. Avalon Global Solutions made the Inc. 5000 List in the following years: 2009 (#3392), 2008 (#2435) and 2007 (#667).

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Z The List

Local Inc. 500/5000 Honorees

#1615 VectorCSP

Elizabeth City, NC

Z Three-year growth: 177% 2009 revenue: $11.7 million Industry: Government Services For Stan Walz, the biggest challenge facing small business owners is the ability to scale up and compete with much larger organizations. As a business grows, Stan Walz, President the need to pursue larger engagements increases, putting the company into direct competition with larger firms with more resources. Despite these challenge, Walz proves VectorCSP has this challenge down to a fine art because of its successful growth through the years. VectorCSP also made the Inc. 500/5000 List in the following years: 2009 (#1335), 2008 (#802) and 2007 (#74).

#1832 ArcaMax Publishing

Newport News

Three-year growth: Z 149% 2009 revenue: $5 million Industry: Media As a small company of 20 employees, ArcaMax is very careful about how it manages resources. Therefore, Scott Wolf deScott Wolf, CEO ploys these resources where they will yield the greatest return. “In the pre-down years, we deployed them in revenue generated programs. We looked at costs, made improvements and also focused on resource allocation.” Through subscription acquisition efforts via social media and e-mail marketing, ArcaMax has proven that hard work pays off. ArcaMax also made the Inc. 5000 List in 2009 (#1560). 38 Small Business Insight | November/December 2010

#1770

Impressions In Print

Virginia Beach

Z Three-year growth: 155% 2009 revenue: $4.5 million Industry: Business Products & Services To Debbie Higgins, this recognition shows the dedication of her employees and successful partnerships with their clients. Ashleigh Bagwell, COO and Debbie Higgins, CEO “We believe that our success is attributable to an unwavering commitment to excellence, attentive service and superb quality,” she says. Impressions in Print also made the Inc. 5000 List in 2009 (#2391).

#1874

Accelerated Financial Solutions

Chesapeake

Z Three-year growth: 145% 2009 revenue: $4.5 million Josh Tawes, CEO and Anthony Stile, COO Industry: Financial Services Having both had a background in debt recovery and wanting to change the way the game was played, Josh Tawes and Anthony Stile began Accelerated Financial Solutions in October 2004. “We saw our industry in corporate America and the way Josh and I saw it, we figured if people had the money to pay off their debt, they’d have already paid it,” Stile says. “We offer a more payment-over-time approach, focused on customer services.” Accelerated Financial Solutions is continuing to grow, with their recent purchase of office space in Smithfield and employee growth rising to 70.


#2597

#3153

Mobile One Courier & Logistics

C&K Systems

Chesapeake

Z Three-year growth: 63% 2009 revenue: $2.2 million Industry: IT Services

Virginia Beach

Z Three-year growth: 90% 2009 revenue: $2.1 million Industry: Logistics & Transportation

Eric Brown, CEO

Eric Brown believes in two core values every business owner should have: leadership and execution. Having a clear vision for the business, focusing on core competencies and always having a strategic plan in place for the next three to five years are the keys to his success with Mobile One. His advice to other small business owners: “Follow your gut when making decisions.”

#3775

#3757

Doormation

DMG Federal

Virginia Beach

Newport News

Z Three-year growth: 40% 2009 revenue: $2.6 million Industry: Business Products & Services

Z Three-year growth: 41% 2009 revenue: $10.3 million Industry: IT Services One expression Keith Boyer lives by is, “Trust your instincts.” To him, our instincts often reveal the clear solution, but we make the mistake of rejecting them because they appear too simple. Combined with the right blend of talented people and effective processes, DMG has an equation for success. DMG Federal made the Inc. 5000 List the following years: 2009 (#4789), 2008 (#2899) and 2007 (#3245).

Kevin Bowden deals with rapid growth through successfully transitioning his business from a Phase 1 to a Phase 2 through the development of a middle management layer in the Kevin Bowden, President organization. Changing his style of management to adapt from being a company of 10 to a company of 30 employees was a key to his success. “You can hire talented expensive people who turn out to be lazy. You can also hire people that are hungry. I would rather hire someone who’s hungry,” Bowden says. C&K Systems also made the Inc. 5000 List in 2009 (#2234).

Keith Boyer, COO

Life as a small business owner is a revolving door for Dave Giesen. One quote seems to sum it up well: “You can’t go to school to learn about being a busiDavid Giesen, CEO ness owner,” he explains. His business manufactures and installs every type of automated door for a wide variety of uses in office buildings, hospitals, and retail stores. About 70 percent of the business is construction (whether that is building new doors, or retrofitting older) and 30 percent is service. Doormation also made the Inc. 5000 List in 2009 (#3045) and 2008 (#1132). smallbusinessinsight.com

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Z The List

Local Inc. 500/5000 Honorees

#3884 Money Clip Magazine Virginia Beach Z Three-year growth: 37% 2009 revenue: $4.1 million Industry: Advertising & Marketing Ron Brooks remembers a high school teacher mentioning that you could make good money in advertising without going to college. Ron Brooks, President He worked for another firm for six years, and decided that he could do it better. His first year in business (1998), he started with 30,000 addresses; today he has 1.6 million. He does this by doing what’s best for the customer, and giving them more for less. They do triple the addresses of the competition (Val-Pak) for less money, by using more efficient printing and postage practices. Money Clip Magazine has also made the Inc. 500/5000 List for the following years: 2009 (#3990), 2008 (#4304), 2007 (#3776) and 2003 (#308).

#4350 Liberty Tax Service

Virginia Beach

Z Three-year growth: 23% 2009 revenue: $83.9 million Industry: Financial Services Hewitt believes he’s found a recession-proof business. With 2,000 franchisees, and 300 year-round John Hewitt, CEO employees, his key to success is focusing on corporate culture. “I’ve been doing this for 41 years,” Hewitt explains. “For years, I struggled with this concept of ‘What makes a great company great?’ You can hire the most educated and those with the most experience, but in my analysis, I zeroed in on the culture. If you want your customers to be No. 1, you have to treat your employees No. 1.” Liberty Tax also made the Inc. 500/5000 List for the following years: 2008 (4355), 2007 (#2394), 2004 (#167) and 2003 (#106).

#4030 IssueTrak

Virginia Beach

Z Three-year growth: 32% 2009 revenue: $5.7 million Industry: Software Hank Luhring, CEO Issuetrak founder Hank Luhring started Luhring and Associates in 1992 as a software development firm that did custom programming for companies. He wrote the Issuetrak software in 2000, and changed the company’s name to Issuetrak in 2002 after the product became so successful. Today, the company is a Microsoft Gold Certified Partner and has grown to more than 42 employees with 1,700 customers spread across 35 countries around the globe. Some names include: Cisco, Johnson & Johnson, Ralph Lauren Polo, Pepsi, UPS, Verizon, Delta Airlines, Raytheon, Lockheed Martin, Symantec, Canon, UBS, Deutsche Bank, Merrill Lynch, Rite Aid, Canon, and the U.S. Department of Defense. Issuetrak made the Inc. 500/5000 List the following years: 2009 (3589), 2008 (#1468) and 2007 (#421).

#4644 GStek Chesapeake Z Three-year growth: 14% 2009 revenue: $20.3 million Industry: Engineering

Matt Strother, VP; Gene Strother, President; Tim Strother, VP

According to GStek’s president Gene Strother, “If you are averse to taking a risk, and find that you are more concerned about failure than success, then starting a business is probably not a good idea.” Clearly, the team at GStek are focused on success. The decision to get started in the business was the desire to succeed. When asked about the best piece of advice he’s ever received, Strother answered, “The only way to lose your integrity is to be willing to give it up.” The company was founded in 1992, and is a family-owned business. The owners include: B. E. Strother, Jr., Sherry L. Strother, Michael E. Strother, Timothy J. Strother and Matthew T. Strother. GStek also made the Inc. 5000 List in 2009 (#3659) and 2008 (3593).


#4741

#4874

Jo-Kell, Inc.

Rocket Direct

Communications

Chesapeake

Virginia Beach

Z Three-year growth: 11% 2009 revenue: $32.4 million Industry: Engineering Jo-Kell CEO Suzy Kelly is quite involved in the Hampton Roads community. Her resume contains almost 20 boards and organizations she has served on, in addition to her recent election to the Chesapeake City Council. Kelly has the same fervor for her business that she does for community service, and attributes the company’s success to a strong leadership team and dedicated, hardworking employees.

Z Three-year growth: 6% 2009 revenue: $5.9 million Industry: Advertising & Marketing

In a time when the direct mail marketing industry is tougher than ever and some companies are going out of business, Rocket Direct has Henry Martin, President managed to grow and flourish. Founder Henry Martin started the company in 1985 out of his garage in his Virginia Beach home and has been wowing clients ever since. Today, Rocket Direct has grown to over 50 employees and is one of the top direct mail marketing companies in the region. In addition to their respect and love for Martin, employees appreciate the company’s heavy focus on giving back to the community through involvement in charities and events.

Suzy Kelly, CEO

The SBI Owners Council

congratulates our members who were honored in Inc. Magazine’s 5000 Fastest Growing Companies in America. •

Photo by Caroline Dozier

• • • •

Accelerated Financial Solutions Anchor Innovation DMG Federal Impressions in Print Jo-Kell, Inc.

• • •

Marathon Consulting Mobile One Courier & Logistics UrsaNav

We are inspired by your leadership and applaud your commitment to excellence. Thank you for making Hampton Roads a more vibrant center of commerce.

them. Z Join For every business owner who joins the Owners Council between now and the end of the year, 50% of their membership fee will be donated to support local charities.


SBI Owners Council 足

Top left | From left: Debbie Higgins of Impressions in Print, Dean Gonsior of Tropical Smoothie and Dr. Vinod Agarwal of ODU. Top right | From left Josh Tawes and Anthony Stile of Accelerated Financial Solutions, and Judy and Jamie Fox of Consumer Recovery Associates. Bottom left | From left: Blake Dozier from CBRE, Geri and Don Pratt of Aromas and Amma Guerrier of Monarch Bank. Bottom right | Joanna Brumsey of Wall, Einhorn & Chernitzer, P.C. and John Walker of Cinema Cafe.

42 Small Business Insight | November/December 2010


Proactive networking

Exceptional events

Unmatched leaders

Providing Foresight

Special guest speakers attend OC luncheons to give business owners helpful advice Despite rainy weather, September’s Owners Council luncheon at McCormick and Schmick’s was a successful event. Dr. Vinod B. Agarwal, professor of economics sponsor of the Economic Forecasting Project at Old Dominion University, delivered an engaging and enlightening presentation on the economic forecast for Hampton Roads. He detailed and mapped out where the Hampton Roads economy and businesses have been, are currently, and their projected status in the coming year. Most notably he commented on how the Hampton Roads area is a very internal economy, which supports our mission to sustain, grow, and connect small, local businesses. More than 30 notable businesses owners and guests were present at this luncheon and enjoyed the opportunity to meet and visit with other attendees. New connections and friendships were made and old ones rekindled; two friends from elementary school re-introduced themselves at the event. In August, W. Michael Howlett and Bill Seratt from Cherry, Bekaert & Holland delivered a brief presentation on how the new healthcare law affects small business owners. Because of an overwhelming interest in the topic, two separate luncheons were held ­­­ at McCormick & Schmick’s in Virginia Beach and Schlesinger’s in Newport News. Looking ahead, the OC is hosting a special golf outing at Bayville Golf course on Oct. 28. Members will meet for lunch in the club house around 11:30 a.m. with tee times immediately following. Limited space available and event is open exclusively to members and their guests. (Contact sbiownerscouncilhr@gmail. com if you are interested.) Also, the Owners Council is hosting a special reception for the Inc. 500/5000 honorees immediately prior to the luncheon on Nov. 3. All OC members are invited to attend and should contact sbiownerscouncilhr@gmail.com if interested. — compiled by Ellie Donahue

TOP | Dr. Vinod B. Agarwal speaks about the economic forecast of Hampton Roads in the next couple of years. BOTTOM | From left, Steve Alperin of Alperin Law and Ned Lilly of xTuple reunited at the luncheon from their time in elementary school.

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Charity | Kids Priority One

Keeping children happy

... one click @ a time

F

STORY & PHOTO BY PAUL CHIN JR.

inding information today seems easy with Google and the Internet, but the same forces that make information easier to access also make it harder to curate. Without a proper filter, you can also be overwhelmed with facts and figures. To solve that problem, Kids Priority One has been dedicated to compiling information and resources for Hampton Roads’ families. The goal at Kids Priority One is helping parents find the help and information they need to raise happy, healthy children. The program was launched in 2003 by the Kiwanis Children’s Council of Hampton Roads when they found that many agencies were providing services to families, but nobody knew how to easily access them. There was no single place for parents to go to when looking for help. In 2007, the Council formed a partnership with the YMCA of South Hampton Roads, which now oversees the day to day operations. These two charities rely on grants and donations, and organize fundraising efforts to ensure the program remains viable. The website at www.kidspriorityone.org hosts a database of more than 1,000 organizations across all of Hampton Roads, a community calendar, and web-pages related to parenting all ages of children, health and wellness, education, a teens’ page, and more. The need is so strong that it has gotten larger each year. The site is always evolving to be more user friendly, making it easier to find specific children’s needs, and updating a calendar of parenting events amongst all the agencies. The biggest challenge KPO faces is getting the word out and getting more

people to use it. There’s still lots of people who don’t know about it. It isn’t always a critical situation that leads families to Kids Priority One. It could be they need an afterschool program, ideas for home-schooling, an art or music class, information on a disability, or a parenting class. The great thing about KPO is it’s ability to help everyone. Small businesses should let their employees know about the site. There’s no employee that won’t have a need for it at some point. This is a resource for everyone at any stage of life. Thanks to a dedicated Kiwanis Children’s Council board member, Kids Priority One will benefit from a fundraising raffle this fall. The prize is a trip for two to the Island of St. Kitts in the Caribbean. Jeff and Elaine Cavanaugh have donated

a week’s stay at their condo at Timothy’s Beach Resort. The trip includes airfare, maid service, and a bit of spending cash — all valued at $5,000. Tickets will be on sale beginning in September, with the drawing planned for late December. Your chance to win the prize and support this great charity — only $20. There are always other small business owners can help KPO and the families of Hampton Roads. Become a corporate sponsor for the Kids Priority One website, consider joining the board of directors, help with public awareness, or put other skills to use . For more information on the raffle or to find other ways to help contact Brenda Garrett, the program director at 757-2445373; director@kidspriorityone.org or visit the website – www.kidspriorityone.org.

All Smiles | From left, Brenda Garrett, Kids Priority One director and Neva Griffin, website manager.

44 Small Business Insight | November/December 2010


Community | SwimWays

SwimWays:

An Unsinkable Formula for Success

All in a Day’s Work | David Arias, president of Swimways, performs quality control on one on his products.

BY AL MOORE PHOTO BY PAUL CHIN JR. While Hampton Roads is primarily known for its economic links to the federal government and distribution industry, numerous manufacturers also call this region home. With a few notable exceptions like Stihl and Northrop Grumman, most maintain a relatively low profile. Even those manufacturers who have a successful global presence tend to avoid the limelight. Virginia Beach-based SwimWays Corp. is a prime example. David Arias, president of SwimWays, agrees. “We tend to focus on hiring and retaining the best people we can. Public relations has never been a priority with

us. We take care of our people and operate as a family business,” he said. While SwimWays’ support of its employee community has a strong interpersonal touch, the company demonstrates an innovative approach to several key aspects of its business. Arias commented, “We run an open company by sharing financial results with the senior management team.” This is not something they are required to do. Because SwimWays is owned by a family trust, there is no requirement to share the financial data with the management team. “We’ve found it to be very effective in helping the managers understand how every decision finds its way to the bottom line. We even rotate the presentation of each month’s financial results among various managers. That requires them to really understand the numbers,” he said. Understanding financials is important and all SwimWays managers are required to enroll in an accounting class. However, it is only one example of how involved the employees are in other critical decisions. Arias implemented the use of employee involvement teams as early as 1993 on order to get participation in the product development function. Regular offsite meetings are held in which product ideas are brainstormed, then evaluated. They develop a list of about 500 ideas, cull out the impractical, and then focus on a smaller set that have appeal. Arias said, “We have employees here who have been with the company since long before it broke away

from Mattel in ‘93. They have a lot of great ideas and know what it takes to actually construct the product.” This approach has allowed SwimWays to completely replace all of their product offerings since 1993, keeping their products fresh. In addition to replacing their products, they’ve steadily increased the number of SKUs available. This, combined with the acquisition of the Kelsyus and Coop brands of outdoor products, has enabled SwimWays to achieve a cumulative annual growth rate of 15 percent. Things slowed down a bit in 2008 and 2009, but SwimWays used that time to fine tune the operation and is back on the growth path. “We’ve also been able to grow by entering markets through retailers who were not previously selling our types of products,” said Arias. This initiative has succeeded as well. SwimWays, Kelsyus, and Coop products are now in over 50,000 storefronts globally. SwimWays also launched an ecommerce storefront in time for the North American season in May of this year. This is their first retail initiative and has exceeded expectations. “It’s been interesting. We had a couple of our wholesale customers express concerns about us selling direct. However, we’ve implemented policies to protect them and their ability to be profitable with our brands,” said Arias. When asked to discuss some of the challenges a manufacturer encounters in Hampton Roads, Arias was quick to respond. “Hiring people with consumer product manufacturing experience. There are simply not enough consumer product companies in the area and that reduces the labor pool,” he says. He went on to say that the quality of life in Hampton Roads makes it relatively easy to attract people to the area, “Once you find them.”

smallbusinessinsight.com

45


Community | The Geekettes Club

Anything you can do...

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One woman in Hampton Roads is determined to help businesswomen play nice, and help each other from board meetings to the dinner table. ccording to Sonya Schweitzer, the biggest problem facing female business owners in Hampton Roads is “the old-school boy’s club mindset,” and she’s seen and heard that from many professional women. She’s come to the conclusion that it’s not what you know, but who you know in this area. How does she plan on breaking through that mentality? Starting a new-school girls’ club, just for geekettes — women who have a desire to learn, and become experts in their field. Regardless what aspect of business, all women are invited to the club.

46 Small Business Insight | November/December 2010


The idea wasn’t on whim, based from a bad day at work or woman, rather than in a co-ed atmosphere,” Schweitzer says. school. Rather, The Geekettes Club was born from years of attendWhat the club is not after, however, is compassion. The last ing networking events where Schweitzer noticed women seeming thing Schweitzer wants for the club is a pity party. She even alto always take back seats to men in interactions and discussions. lows for a few exceptions to the all-girls rule. Also, in corporate America, where she worked at AOL, she found “We need the guys. We totally need them, but there is a way we that women were often talked over, or meekly stepping back when can help educate them on how to work with women versus seeing open-ended discussions took place. them as just women,” Schweitzer says. “I’ve lived all over the “I’d be at a networking event, and women would always find country and in different parts of the world, and it’s in the more a way to get together and share ideas, rather than mixing in with conservative areas that I hear the term ‘secretary,’ and to me, secthe men,” Schweitzer says. “So, I saw an opportunity and thought retary is such an old-fashioned term, and it’s more associated with ‘Why don’t we make an organization where women can come women.” together and the focus is on helping each other?’” So Schweizer is charging women to get men to change their No competition. No backstabbing. No crawling over each other mentality, understanding that there are plenty of women who are to reach the top, but helping each other get there. equally brilliant as them who can do an equally great job, and So on March 24, The Geekettes Club officially began in Hamp- women’s emotions can be involved in a way to bring more colton Roads with a launch party at Aloft Hotel in Chesapeake. laboration and productivity to the workplace. Each month, the club holds networking events which attract “I’ve read that a lot of times, women managers actually do betanywhere from 30-60 women. At each networking event, a few ter because they have these certain attributes men do not, and it’s women share five minutes about their business, and some of their almost like men could incorporate certain aspects of emotions and joys and struggles. feelings into what they do.” “A couple of weeks ago at a meeting, two financial advisors Schweitzer admits she’s generalizing. Not every woman is stood up and said a few words. Everyone was so into it, and ask- highly emotional, and not every man is insensitive to women’s ing questions, that it went on for 30 minutes. These were ques- feelings. “But in creating any association or group, you want in tions that could have otherwise gone unasked,” Schweitzer says. general for people to know what the focus is, and generally speak“These women got different appointments out of that one meet- ing, everyone knows that when women are involved in groups, ing. So, out of that one opportunity to speak, all of the women there is some kind of bitchiness involved,” Schweizer says. “Litwho attended got a lot of out it.” tle cliques are formed — ­ it’s just the way we are.” With women, Schweitzer says, there is more emotion involved. Embracing these traits and creating opportunities to use these This differs from for the greater good in business is what The Geekettes Club was a man’s businesscreated to do. driven mindset, who Currently, the club offers one-on-one peer counseling, which “does what it takes to many small business members take advantage of already. Here, get the job done.” To Schweitzer or another mentor will sit down with each member Schweitzer, women and help plan out strategies to help her grow her business meare more aware of thodically and in different directions. feelings involved, so This fall, the club is also offering training classes with topics when women offer focusing on how to start a business, how to do your taxes, marconstructive criticism, keting strategies, and employee recruiting, to name a few. it truly is construcAlong with monthly networking events, the club also offers a tive because women book club for its members, where women can meet once a month understand women a to read through business and personal development books to help little better. grow their business. “How does a guy —Story by Jessica O. Swink understand? You have a bad day, you have PMS, kids are screaming driving you crazy in the mornings, etc. Men don’t deal with that. Women have a better understanding MEET SONYA. and are more likely Captured at a Wine, Women and Chocolate to open up with each networking event at Atlanta Bread Company, other about things Sonya is all smiles at a record attendance. Photo by Paul Chin, Jr. and discuss woman to


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Small Business Insight of Hampton Roads  

In this issue of SBI of Hampton Roads, we profile each of the 30 local honorees on the Inc. 500/5000 List of Fastest Growing Companies in Am...

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