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Ask The Expert: Fed Market

Posted on Monday, July 14th, 2003 by

Fed Market
Q.I’ve been told that, in order to sell to the federal government, my company should try to qualify for the HUBZone program. What is it and how do we participate?

A. HUBZone refers to Historically Underutilized Business Zones. U.S. Senator Christopher S. Bond, chairman of the Senate Small Business Committee, helped create the program in 1997. “The objective of the program is to use federal contracts to stimulate job creation and capital investment in more than 10,000 economically distressed communities throughout the nation,” says Tiffani Shea Clements, public affairs specialist at the U.S. Small Business Administration.

Illustration by Bryan Leister

For a small business to qualify, its principal office must be located in a HUBZone, and at least 35 percent of its employees must reside in one of these economically distressed areas. Also, the firm must be owned and controlled by U.S. citizens. Program participants can compete for federal contracts with other qualifiedHUBZone firms, or on a sole-source basis. During full and open competition, HUBZone firms also receive price preference in bidding over non-HUBZone (large) firms. To date, more than 7,500 small businesses have secured HUBZone certification nationwide.

For more information, contact the U.S. Small Business Administration (409 Third St. SW, 8th Floor, Washington, D.C. 20416; 202-205-8885; fax 202-205-7176). Or contact the SBA via email athubzone@sba.gov.

Selling the Company to Your Employees
Q. I plan to retire in a few years and will probably sell my company to my employees through an ESOP. How do these plans work?

A. Employee stock ownership plans, or ESOPs, were created by the federal government to help small businesses set up retirement plans. Employees like the plans because they get a piece of the action. Owners like ESOPs because “they help them get more stability and higher productivity from their employees,” says James Sheridan, president of SmartWealth Inc. (www.pretaxdollars .com), a financial services and consulting firm based in San Diego, Calif. The plans also enable you and your employees to defer a big chunk of change for retirement.

ESOPs are not for everyone, however. For one thing, you can’t qualify unless you have 10 or more employees. Another potential drawback: No single shareholder—not even the boss—can hold more than 10 percent of the stock. Also, ESOPs and so-called S-ESOPs—for S corporations—are so complicated that you need a lawyer who specializes in these instruments to set them up. And one more thing, warns Sheridan: “There are a lot of scams out there.” In other words, watch out for slick operators who promise you the moon and instead create elaborate shells. “The IRS is really going after the people selling these shells,” he says.

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