Jayne Gest

With lower lease rates and the Marcellus Shale boom, commercial real estate in the tri-state footprint is looking up. Greg Sipos, senior vice president, corporate banking manager, at First Commonwealth Bank, has been encouraged by recent commercial real estate activity in western Pennsylvania, as well as in Akron, Columbus and Youngstown, Ohio.

“When I say those names, you’re not like, ‘Wow, that’s a great place to go,’ but, you know what, it really is these days,” Sipos said. “They’ve had some real estate growth and nice projects in those markets. It’s well ahead of the rest of the country, and I’m encouraged by the amount of activity in the last six months.”

Smart Business spoke with Sipos about the state of the real estate market and how bankers are getting back to the fundamentals of lending.

How does the current commercial real estate market look?

When you look at this market, there was limited asset appreciation over the years, and the borrowers never overleveraged the way that it happened everywhere else. People built equity in their real estate by normal amortization of loans. So if they had a 15-year loan and they paid it back over 15 years, they built equity in their real estate. Western Pennsylvania has always been known for that, as opposed to the rest of U. S., where asset appreciation was due mostly to the perception of overall growth through demographics. Problems occurred because assets were overleveraged in a lot of ways. Conversely, Pittsburgh went from being one of the worst real estate markets in the country to being one of the best in the span of three years because of the steady equity growth.

The mood is very strong in this area with some game changers. The growth in the Marcellus Shale area and the oil and gas industry in western Pennsylvania has brought strength to the market through all aspects, from multifamily to the retail businesses and hospitality industry. Another thing that’s happened in the central business district, as far as Pittsburgh is concerned, is a lot of large firms headquartered in other cities realized that the rent per square foot in Pittsburgh is much more reasonable than the rent per square foot in Manhattan and other comparable markets. Companies are relocating to the central business district or to Pittsburgh in general because of favorable lease rates.

Hospitality is known as a good indicator for the economic health in commercial real estate. What is the outlook in the tri-state area?

Yes, hospitality is an indicator, and it is doing very well now. Western Pennsylvania had a lot of older product, but now a lot of newer product is coming online around Pittsburgh and in some of these smaller towns. Morningstar, a financial-data firm, reports that — at least for the next three or four years — it’s definitely an industry to lend in.

When banks make a loan for hospitality, they look at what the drivers will be — why will people be coming and staying here. A lot of the hospitality that got into trouble was in resort areas because, during recessionary periods, people tend to forgo vacation. The hotels that are successful are the ones that have many drivers. For example, is it a flagged property? It’s much easier in today’s market to get a loan for a Marriott, a Hilton, a Holiday Inn or a Choice product because of the reservation system. One hospitality loan was recently done in Latrobe, Pa., the home of professional golfer Arnold Palmer. There’s a lot of industrial around, it has a resort element because of Idlewild Park and the Laurel Highlands, it has St. Vincent College, hospitals, and it has Mr. Palmer’s name attached to it, which results in reciprocating agreements between Latrobe and Florida. So there are drivers for occupancy. You don’t want to open up a hotel where you have to bet on tourism or one industry.

How have lending practices changed, and how much emphasis is being placed on equity?

The one thing that’s different now — that hasn’t come back the whole way — is the lending rules were generally much less stringent pre-recession. Post-recession, it’s back to the fundamentals. When you want to buy something, you need to have a down payment for it and you need to have cash flow to repay it.

Banks are requiring down payments. As a business owner, when you are thinking about making that expansion or when you’re thinking about buying a new building, you need to make sure you have the right amount of equity to go into the project. The bank is no longer willing to take the equity risk it was taking pre-recession.

Having equity shows you can afford it and shows your commitment to the project. If you are able to buy real estate without putting equity into it, it’s much easier to walk away. Some people might be interpreting that as unfair, but it’s not really unfair, it’s just the way it’s always been done prior to the years leading up to the recession.

It’s important to remember there are differing ways to find equity. These include:

  • Equity through government programs.

  • Investors on the sidelines looking to invest.

  • Personally guaranteeing loans, a practice people were always comfortable with. Borrowers have to be willing to guarantee the indebtedness, maybe by pledging other equities in other properties as collateral.

Greg Sipos is a senior vice president, corporate banking manager, at First Commonwealth Bank. Reach him at (724) 463-2556 or gsipos@fcbanking.com.

Insights Wealth Management is brought to you by First Commonwealth Bank

In 2012, Chief Executive rated Texas as the No. 1 state for business, while California was the worst. Both states have held their titles for eight years in a row. In the survey, based on 650 CEO responses, Texas earned high marks in business-friendly tax, regulatory environment and work force quality.

Ryan K. Robinson, president and co-owner of Signal Metal Industries Inc., says he couldn’t imagine having his manufacturing business anywhere else. A second-generation company that has been in the area for 40 years, Signal specializes in building heavy equipment and machinery designed to specification.

“Texas is surely one of the most business-friendly states in the Union,” Robinson says. “I think within Texas, the city of Irving is somewhat unique in that 70 percent of Irving’s tax base comes from businesses. So the city of Irving and the Greater Irving-Las Colinas Chamber understand that business is the driver of this community.”

Smart Business spoke with Robinson about why Irving is the best location for them, and how to create a good working relationship between your business and municipal organizations.

Why is Irving, Texas, a good location for your business and others?

First and foremost, Irving is centrally located within the country. My company builds large, heavy products that ship coast to coast and out of the deep water port of Houston Another factor is our great airport — our plant is located within 10 minutes of the Dallas/Fort Worth International Airport, one of the five busiest airports in the world.

Also, the work force in Irving is great. North Irving is a bit glitzier and is where Las Colinas is located. This, along with our new Orange Line light rail service, gives Irving the sophistication that it needs to be a power player with everyone around the country.

South Irving residents are the blue collar, hard-working folks. Therefore, we have a tremendous pool of qualified workers that we eagerly draw from. It’s a great place to have a manufacturing company, especially if you are located in the southern part of the city along with many other manufacturing companies.

Finally, the city and Greater Irving-Las Colinas Chamber of Commerce have a lot to offer any business. In Irving, there are headquarters of Fortune 500 companies, medium-sized companies like Signal Metal and a whole host of the mom-and-pop types. The city and chamber realize the value in all of them and tailor programs for the big guys, the medium guys and the small guys.

In your experience, what makes a good relationship between a manufacturing company like yours and the city or chamber of commerce?

Becoming a member of the Greater Irving-Las Colinas Chamber three years ago created the relationship, but my relationship is somewhat unique — as with all of us here in Irving — because the chamber is the economic development wing of the city of Irving.

Most cities have their own economic development department. The city of Irving does not; it is a partnership between the city and the chamber. That is one of the main reasons why Signal wanted to become a member of the chamber and why I wanted to serve on the board, because it gives me the ability to network with city managers and the mayor of Irving directly because they sit on the same board as I do.

Why is this relationship important?

Once you have a relationship with the city, you understand how the city works. A lot of members in the Irving Chamber are retail companies that sell to the public in Irving, but I don’t have a single customer in Irving. However, you always have to deal with the bureaucracy of the city when you grow — as Signal has in the past five years — and buy property, construct buildings or expand existing facilities.

Since I’ve been involved in the chamber, it’s made things much easier because I know who does what and I have a chance to visit with them. I think that gives me an advantage when it comes to getting through the red tape in a timely fashion.

Signal hasn’t grown because of its membership with the chamber, but the relationship with the chamber has facilitated that growth because the chamber has helped negotiate and make sure everything is in line, whether it be with the fire department, building permits or code enforcement.

Do you have any advice for other business owners about creating a smooth working relationship with city officials or the chamber of commerce?

My advice is to join and get involved. There’s plenty of opportunity to get involved at the Irving Chamber. Your local chamber will welcome you with open arms to serve on a committee or to just take advantage of all the mixers and networking opportunities you get as a member.

Once you get involved in the chamber, you learn more about how the city operates because city officials sit on the board. They talk about the opportunities and the successes of the city. You’re right there in the middle of it. Getting involved gets you plugged in, and then you can take it from there.

Ryan K. Robinson is president and co-owner of Signal Metal Industries Inc. Reach him at (972) 438-1022 or ryan@signalmetal.com. Visit the Greater Irving-Las Colinas Chamber of Commerce at www.irvingchamber.com.

Insights Economic Development is brought to you by Greater Irving-Las Colinas Chamber of Commerce

Many employers feel they have no control over the health care events of their employee population, seeing themselves as victims rather than informed consumers. However, it’s important to understand there are alternative solutions outside of the “insurance” box options when choosing a health plan for employees.

“As an employer, whether you have 10 employees or 500 employees, there is a whole host of new products and concepts that may make some sense for you — that you really need to explore,” says Mark Haegele, director, sales and account management, at HealthLink.

These options, including small group self-funding, captives, exchanges and co-ops, are growing as the health care industry rapidly changes, based on improved data analysis and the drive to keep overall health care costs down.

Smart Business spoke with Haegele about how these out-of-the-box health plan options work and what advantages they can bring.

What options are available for smaller employers who want to self-fund?

There are a host of new programs under a self-funded environment for employers with 10 or more employees. The 15-life employers may never have thought these options were available, but that’s not the case anymore. Self-funded employers can avoid premium taxes and state-issued mandates, while getting away from insurance company risk and profit. The employer has additional freedom to structure its health plan and can receive more claim information to better manage the health of the employee population, and therefore lower costs. Self-funding continues to be of interest to employers.

How do captives work to some employers’ advantage?

Small employers, with help from third-party claims administrators or benefit consultants, join forces to set up their own captives or use a cell in an established captive to cover risk above a self-insured retention. It’s usually made up of similar-sized employers, not necessarily similar in industry-type. For example, a 50-life employer would take the risk up to $50,000 for each member in the health plan. The captive, getting contributions from all employers, takes the risk from $50,000 to $250,000. The re-insurance carrier would risk all costs over $250,000.

By boosting retentions and pooling risks with other employers — who typically agree to put in wellness, disease management and other programs to lower claims costs — employers hope to keep increases in health insurance costs more in check. Also, all contributions to the captive, such as the $50,000 to $250,000 in the example, are tax-free. Finally, by pooling risks, participating employers can hold on to profits — if premiums exceed claims and other costs — rather than surrendering profits to a commercial insurer, as with a fully insured program. Many employers are looking at captives and starting to understand the advantages.

How are employers exploring the use of health care exchanges, both public and private?

Exchanges are new organizations set up to create a more organized and competitive market for buying health insurance. They offer a choice of health plans, certify participating plans and provide information to help consumers better understand options. Private exchanges are beginning to pop up, and in 2014 government-run exchanges will come on line.

Like a cafeteria plan, the consumer has a menu of insurance alternatives, such as five different insurance companies and six different plans, for one rate. While this creates the ultimate choice, exchanges may not be cheaper. Exchanges take away an insurance company’s ability to decline, drawing bad risk like those with major health problems. Many national insurance carriers say when public exchanges start, commercial population premiums will increase by 40 percent.

Private exchanges may be able use their advantages over public ones to lower costs. Even though they cannot decline, they have more control over who is coming in and can make it less attractive for bad risk through higher prices or benefits. Also, public exchanges must take subsidized members — uninsured with income under a certain threshold — who are likely more of a bad-risk population.

Employers are determining whether to continue to offer a health plan or just pay the penalty and send employees to purchase health care off the exchanges. It’s not as simple as it seems — although an employer may pay $8,000 per employee per year to offer a health plan and the penalty is only $2,000 per employee, typically employees demand higher wages when not receiving benefits. Retaining and attracting key employees could be why employers offer benefits in the first place. There are also tax implications with the decision to terminate, including extra taxes. One model found that Company X with 10,030 employees, where 3,000 highly paid employees purchase health care no matter the cost, paid $26 million more to terminate its health plan rather than raise the employee premium.

What role do co-ops play with alternative health plan solutions?

Health insurance purchasing cooperatives allow small businesses and municipalities to band together to negotiate for improved health insurance coverage for employees. The California Health Care Foundation found that under the right circumstances pools can meet cost and coverage goals and expand insurance choices, but it depends on the cohesiveness of a pool’s members and the market in which it operates.

Whatever health plan alternative you find fits your company best, employers do have options outside of the big box. You can get away from typical insurance companies.

Mark Haegele is a director, sales and account management, at HealthLink. Reach him at (314) 753-2100 or mark.haegele@healthlink.com.

 Insights Health Care is brought to you by HealthLink®

Training really sets a foundation for your staff as to what you’re trying to get accomplished — your goals and visions. In addition, it gives employees an idea as to what’s in the future, because as an employee goes through the interview and training process, he or she wants to know what he or she gains from taking the position.

“Specifically in Houston, there are so many competitors here that if we don’t have a good training program in place — if we don’t have a good development program in place — we can lose some of our good talent to our competitors,” says Jeremy Wilcomb, the operations manager at The Daniel Group.

Smart Business spoke with Wilcomb about some best practices to follow when implementing an employee training and development program.

Why might some employers hesitate to put formal training or employee development in place?

Maybe in the past, you’ve hired experienced employees or didn’t have the manpower to put forth a formal training program or dedicate anyone to training employees. You just trusted that those you hired had enough experience to develop themselves. You might hesitate because of the time and effort that goes into putting a program in place. With any company, you want to see an instant return on your investment, and that isn’t always clear with a training and development program.

Also, employees sometimes have the tendency to hop to the next best paycheck, so it’s hard for companies — small companies specifically — to put a lot of money into training or development with the fear that trained employee will inevitably leave. However, that’s why it’s so important to set the standard up front with employee training, career development and constant education throughout the course of an employee’s employment. It will help the employee feel more valued and assist with retention.

What training and development opportunities should employers make available to employees?

Industry-specific training is always good to have, whether employees have been in the industry for a long period of time or are new to the industry. Make the training specific to their job so they are constantly getting educated about changes. That constant training will help keep them up to speed and potentially allow them to think ahead of the curve.

Even if it’s just little tidbits here and there, you can try to do some sort of continuing education quarterly. A lot of the continuing education is very minimal in cost — maybe someone comes up with a new idea that you can share. As long as someone is taking some sort of nugget away from a training session, you can consider it to be successful.

What type of training you should implement depends on the employee and situation. A lot of companies do online training. It can be inexpensive and really effective, but there’s no one-on-one interaction and it’s hard to ask questions. It’s more of an information dump, which works with busy schedules and provides people time outside of the workplace to continually educate themselves. With open forum topic training, there’s a dialog that is created between the trainee and the trainer so you can dive a little bit deeper into a particular topic. There are also webinars, which always open up to questions at the end.

You can create a combination that works for you. For example, it’s great to have some sort of roundtable or open forum training quarterly, with other supplemental training as necessary.

How should you deal with the cost while ensuring employees are making the most of the training?

There’s never a perfect science to that. However, you can have anyone who undertakes training write up an overview of what they learned — what they took away from it, what they liked, what they didn’t like. This can help you decide whether it was worth the cost. If you’re sending employees to a conference, which is expensive, that’s always the big question: Is it worth the cost, and which employees are ‘A players’ who can get the most out of it?

You should set up goals and parameters that you want your staff to meet, while budgeting additional training costs for new employees up front. As long as they are bringing some sort of piece out of any type of training and using it in the field to some success, the cost often will justify the means.

What are some common mistakes employers make when creating an employee training and development plan?

Some of the common mistakes include reading too much into it and putting too much information in it, or being too vague by rushing through it and saying, ‘Hey, here’s a pamphlet. Go get ’em, tiger.’ It’s like training your kids; there’s that medium level that you need to have to make sure that it’s comprehensible and that they can retain the information, while bringing in different inserts into the ongoing training. Another mistake is if there’s no followup.

The plan should have a small overview, a table of contents, as well as go over company values and all of the pertinent information of whatever area they are in. Then later, you can do the ongoing education and training and key in on specific points of their position. This keeps them from information overload.

Jeremy Wilcomb is the operations manager at The Daniel Group. Reach him at (713) 932-9313 or jwilcomb@danielgroupus.com.

Insights Staffing is brought to you by The Daniel Group

Seventy-five percent of small businesses have expressed that their financial institution doesn’t effectively understand their needs. As a result of this dissatisfaction, the banking industry is moving to more of a relationship manager model to service the small business segment.

“Banks are hiring full-time relationship managers who have a number of small businesses that they call on,” says Gary Wright, senior vice president, small business banking executive, at Cadence Bank. “These relationship managers offer expertise in the ‘business’ of small business, and also bring an understanding of particular segments and industries that can be extremely effective in identifying the right solutions to meet a small business’s financial goals.”

You, as a small business owner, have a person to call on if you have an issue — rather than an 800 number — and that banker knows who you are and is informed about the issues impacting your business, he says.

Smart Business spoke with Wright about choosing a bank and how relationship banking can give business owners the best service for their financial needs now and in the future.

As you begin to shop for a financial institution, what should you consider first?

First, you need to give thought to why you need a bank in the first place. Are you looking for deposit services? Do you need cash management solutions? Are you looking for loans or sound advice regarding what it takes to qualify for a loan or a loan that best fits your needs? While it’s important to evaluate a bank’s pricing or incentives, also think about the overall banking relationship that the bank is offering.

Look for a bank that can grow with you as your business progresses. You may only need a business checking account today, but what might your business need in the next five to 10 years? Think long term — approach the decision as you would consider any long-term investment. Do research to find a bank that is fiscally sound and will be around long term, as the industry deals with increased costly regulations.

Size is important, too, especially when it comes to lending. Regional banks generally can offer you more competitive rates compared with local community banks, as well as less bureaucracy and more personalized service than larger institutions. Regional banks often offer the advantage of online banking and treasury management services that can help increase your company’s efficiency.

How can businesses benefit from banks that are relationship focused? 

Relationship-focused banks are concerned with building relationships with small business customers by focusing on the long term and incorporating forward-thinking strategy. Their bankers take an interest in you and your business. They want to know how you got started and about the successes and challenges that led you to where you are. They really dig deep into the nuts and bolts of your company to learn your business and financial operations so they can offer solutions that are specific to your needs.

With a relationship focus, there’s greater accessibility. Working with a bank that knows you and your business can speed up problem solving, for example, as the bank already knows your company and can easily inform you about the different options that are available. The bank can match the solution to the need, rather than just pushing a product. That’s the whole point of building a relationship with the small business.

As a business owner, you may often be on the go and require banking services that allow you to bank 24/7, wherever you are. What sort of solutions should you look for?

Technology is one of the fastest-growing areas in banking. You should consider a bank that is committed to technology, such as:

• Online banking that provides businesses with access to business online banking and treasury solutions.

• Mobile banking. As the number of smartphone users grows, coupled with the countless demands small business owners face daily, mobile banking is increasingly becoming a necessity. Many banks offer mobile banking apps and specially designed mobile sites that allow small business customers to access online banking services using smartphones or tablets.

• Text banking, where you can text your request and receive details on your account almost instantly. You also can transfer funds from one account to another via text.

How does the bank provide cash management solutions that take into account a small business consumer’s needs?

Generally, treasury management solutions cater to larger commercial businesses, but many of these services are increasingly in demand by smaller businesses. Treasury management solutions now are being structured to affordably help small businesses with their cash flow processes and protect them from fraud. For example, remote deposit capture services can allow you to deposit checks to your business checking account from your desk and are designed and priced for businesses with a lower volume of checks.

Whatever services you need, the goal of the relationship manager is to help you identify and enact financial solutions that will help your business prosper today and tomorrow. Small business owners are busy juggling numerous responsibilities, and it’s valuable to have a steward that understands your business and can provide the tools necessary to make the right

decisions.

Gary Wright is a senior vice president, small business banking executive, at Cadence Bank. Reach him at (713) 871-3970 or gary.wright@cadencebank.com.

Insights Banking & Finance is brought to you by Cadence Bank

The insurance market is always cycling between hard and soft. As it continues to firm, employers will have fewer low-price options.

Expect your broker to communicate with you regarding what’s coming up, with respect to firming prices, says Craig Hassinger, president of SeibertKeck. In this type of environment — even if it’s not a typical market turn — employers have to take the initiative.

“Business owners need to proactively work to eliminate risk by putting in place policies and procedures that need to be formally written down and followed,” he says.

Smart Business spoke with Hassinger about how employers can react to the hardening market and future premium increases.

What’s the difference between a soft and hard insurance market?

In a soft market, insurance companies are looking to gain market share and grow, as they take on more risk at lower prices. This is good for the insured to a point because there are a lot of options. However, it’s called a cycle for a reason, and that soft market tends to quickly change — and competitive insurance options dry up.  As insurance companies have taken on more underpriced risk, they start to get bad results, which eats away at their surplus and they start to pull back. This turn is usually predicated after a catastrophe such as the 9/11 terrorist attack.

What are the conditions of the current market?

Rather than just one catastrophe, the turn that’s beginning now is more because of a series of weather events such as tornados in Tuscaloosa and Joplin, flooding in Thailand, the earthquake in Japan and Colorado wildfires. These property-driven stresses on the market have hurt insurers and pricing is starting to firm.

In the past, the insurance market turned on a dime from soft to hard — all rates across the board. In this market, you’re seeing some price increases, but not for all insurance types. Property and workers’ compensation premiums have gone up, while liability and vehicle rates have stayed pretty even. This is not a classic market turn yet, but brokers keep hearing the word ‘yet.’ Insurance companies’ base portfolios are not making a whole lot, so they will eventually have to make up the difference with larger premium increases or covering less risk. However, this year — so far — has been a fairly friendly weather catastrophe year, keeping the turn slow.

For the insured that have high loss ratios, insurance companies are hitting those businesses hard with premium increases or non-renewing their policies. In these cases, it could be hard to find replacement insurance. However, the best of the best are still being treated well — the businesses that have low loss ratios.

Have some industries been hit harder because of the unevenness of the market turn?

Yes. If, for example, you’re a property manager who manages apartment buildings or commercial office buildings, you’re probably going to be hit harder. Other industries that rely more on liability and vehicle insurance may not see as much change. Regardless of the industry, make sure your loss control program is up to date and follow any risk management recommendations from your insurance company or broker. You also may need to increase deductibles or further spread your risk.

How can you combat the harder market?

Business owners need to do what’s necessary to become the best of the best. Put policies and procedures in place to mitigate your risk and decrease losses. For example, employers can utilize systems like Fleet Watch, which monitors drivers and vehicle usage by keeping track of factors like driver’s speed to give business owners real fleet data. Employers can drill down, find risks and eliminate them to keep rates down.

Employers should use data provided by their broker to reach the right decisions, such as asking whether raising deductibles or stop loss limits will be economically smart strategy or just make your underwriter feel better.

A good broker will help analyze everything from your current vendor/client contracts to previous losses. You might see risks that you didn’t know about. For instance, there could be a better way to create a contract so you push the risk out to a subcontractor.

Communicate with your broker on a regular basis. Brokers typically have a stewardship meeting well before the renewal to go over each of your policies and formulate a strategy for the renewal. If your renewal includes diminished coverage or added exclusions, then it may simply be a matter of pushback. You and your broker might tell your insurance company that if this is to be done, then something will be needed in return, while being prepared to look elsewhere. A proactive broker will handle these negotiations for you.

What about using self-insurance in this type of market?

You’ve got to analyze the situation thoroughly. There’s always going to be self-retention that makes sense, but it’s important to figure out where. For any self-insured program it’s a matter of rolling the dice, and your company has to have information to put the odds in your favor.

Combatting this market cycle is about consistent loss control and having a strong business model. Too many businesses fly by the seat their pants when it comes to preventing losses. A little dose of long-term thinking combined with a professional insurance broker goes a long way in helping you navigate through the hard and soft market cycles.

Craig Hassinger is president of SeibertKeck. Reach him at (330) 865-6237 or chassinger@seibertkeck.com.

Insights Business Insurance is brought to you by SeibertKeck Insurance Agency

As your company experiences increasing global commercialization of products, services and technologies, you may face new tax challenges and uncertainties.

“Even the smallest of companies are experiencing some interaction with global suppliers or customers,” says George Koutouras, partner, international and transaction tax, at Moss Adams. “So that means they have the need to consider certain tax aspects associated with global transactions, on one end of the supply chain or the other.”

With a U.S. tax system based on global income, it may make sense for a company — transforming from predominantly domestic to global — to keep earnings offshore to reinvest in new growth for foreign jurisdiction subsidiaries, as opposed to taking U.S.-sourced capital and committing it to offshore operations, he says. However, you must have an economic or legal justification to organize your business that way, as solely tax-motivated transactions are not available in today’s environment.

Smart Business spoke with Koutouras about businesses experiencing increasing growth globally and the potential tax problems.

When migrating capital offshore, why are bank debt covenants important?

When a company decides to go offshore, setting up operations or buying facilities, the first question is not what does that do from a tax perspective, but what are the restrictions on your bank covenants? Lenders may place restrictions on a company’s ability to use lent funds offshore, recognizing the difficulty associated with returning that capital to the U.S.

Review your bank’s financing restrictions. If they limit your ability to migrate cash or capital, determine if you can re-negotiate some of the bank notes, which is not always easy. A company may need to replace certain financing with other debt financing — it’s not a matter to be taken lightly.

Ultimately, whenever sending capital offshore, businesses and their advisers need to understand the intended end result. Do they need to repatriate it at some point to service debt, or do they intend to keep that cash offshore indefinitely to finance offshore growth? The answers will influence the structure that is created from the outset.

How seriously should a company consider local financing options?

If a company migrates some activities offshore, you might need to obtain local financing to expand operations. However, certain jurisdictions, particularly in Europe, are experiencing a credit crisis and, as a result, bank financing is not readily available. Without local financing, question whether there is any ability to service U.S. bank debt, or will you need a mechanism for intercompany financing? Often cash-rich companies use intercompany loans to more freely transfer extra cash between jurisdictions.

But an inevitable hurdle with related-party transactions is the need for a secondary analysis to ensure those transactions are at arms length. Otherwise, the jurisdictions involved, such as the U.S. and Ireland, may attempt to re-characterize or re-price payments to be more consistent with market turns, creating some unanticipated tax consequences.

What intellectual property (IP) will you need within a foreign region?

IP is a relatively broad category of assets that not only consists of patents and trademarks but can also include know-how and processes, and companies should match the commercialization of IP with the development of the IP.

Often businesses take U.S.-developed IP and parse it up among various global commercial centers. However, if IP is being sold in Europe, there may be a need to manipulate or develop that IP in a European-centric way. Companies should identify centers of activity for offshore endeavors, including the development of IP. Areas, such as Ireland for Europe and Singapore for Asia, have a skilled work force, good technology infrastructure for research and development, and a relatively low tax rate when compared to the U.S.

IP is an area where the U.S. is vigilant about establishing policies to restrict companies’ ability to migrate assets offshore, so outright sales of IP offshore aren’t without their accompanying tax costs. Often, property, including IP, in its earliest stages of development and/or recently purchased is the easiest to convey offshore without the inclusion of taxes. To the extent IP and other U.S.-owned assets are needed offshore, consider both sides of related-party pricing to avoid unsupportable accumulations of income or loss in the relevant jurisdictions.

How should you quantify the support needed from domestic management, sales force, technical help or home office systems?

The cost for headquarter-support services needs to be chargebacked by the offshore entity. Companies that aren’t charging for management services and/or systems that go offshore are vulnerable. For example, the U.S. might assert that the foreign entity should be paying more back to the U.S. for the use of the U.S.-based management, thereby creating more potential U.S. tax income. This is something that needs to be reviewed periodically; the management chargebacks existing today might not be the chargebacks needed in a year’s time.

What tax considerations are important for how you sell goods within a region?

Pay attention to how your company conducts sales within the jurisdiction. Sending your domestic sales force into a foreign country will extend the taxable presence to that other jurisdiction. To avoid that, a company can compartmentalize sales by setting up a separate company or using a third-party, such as distributors, already within the country’s marketplace. Another mitigation is to avoid signing sales contracts within market and thereby creating a taxable presence. Ideally, in such cases, all sales are negotiated and executed remotely, and the salesperson is merely demonstrating the product with no authority to sell on behalf of company.

Also, when selling inventory, the placement of property within a jurisdiction could create a taxable presence. The U.S. will tax the income, and the foreign jurisdiction may assert tax liability for sales within its borders, creating the possibility that the same dollar could be taxed twice.

George Koutouras is a partner, international and transaction tax, at Moss Adams. Reach him at (415) 677-8212 or George.Koutouras@mossadams.com.

Insights Accounting is brought to you by Moss Adams

The insurance market is always cycling between hard and soft. As it continues to firm, employers will have fewer low-price options.

Expect your broker to communicate with you regarding what’s coming up, with respect to firming prices, says Marc McTeague, president of Best Hoovler McTeague Insurance Services, a member of the SeibertKeck Group. In this type of environment — even if it’s not a typical market turn — employers have to take the initiative.

“Business owners need to proactively work to eliminate risk by putting in place policies and procedures that need to be formally written down and followed,” he says.

Smart Business spoke with McTeague about how employers can react to the hardening market and future premium increases.

What’s the difference between a soft and hard insurance market?

In a soft market, insurance companies are looking to gain market share and grow, as they take on more risk at lower prices. This is good for the insured to a point because there are a lot of options. However, it’s called a cycle for a reason, and that soft market tends to quickly change — and competitive insurance options dry up.  As insurance companies have taken on more underpriced risk, they start to get bad results, which eats away at their surplus and they start to pull back. This turn is usually predicated after a catastrophe such as the 9/11 terrorist attack.

What are the conditions of the current market?

Rather than just one catastrophe, the turn that’s beginning now is more because of a series of weather events such as tornados in Tuscaloosa and Joplin, flooding in Thailand, the earthquake in Japan and Colorado wildfires. These property-driven stresses on the market have hurt insurers and pricing is starting to firm.

In the past, the insurance market turned on a dime from soft to hard — all rates across the board. In this market, you’re seeing some price increases, but not for all insurance types. Property and workers’ compensation premiums have gone up, while liability and vehicle rates have stayed pretty even. This is not a classic market turn yet, but brokers keep hearing the word ‘yet.’ Insurance companies’ base portfolios are not making a whole lot, so they will eventually have to make up the difference with larger premium increases or covering less risk. However, this year — so far — has been a fairly friendly weather catastrophe year, keeping the turn slow.

For the insured that have high loss ratios, insurance companies are hitting those businesses hard with premium increases or non-renewing their policies. In these cases, it could be hard to find replacement insurance. However, the best of the best are still being treated well — the businesses that have low loss ratios.

Have some industries been hit harder because of the unevenness of the market turn?

Yes. If, for example, you’re a property manager who manages apartment buildings or commercial office buildings, you’re probably going to be hit harder. Other industries that rely more on liability and vehicle insurance may not see as much change. Regardless of the industry, make sure your loss control program is up to date and follow any risk management recommendations from your insurance company or broker. You also may need to increase deductibles or further spread your risk.

How can you combat the harder market?

Business owners need to do what’s necessary to become the best of the best. Put policies and procedures in place to mitigate your risk and decrease losses. For example, employers can utilize systems like Fleet Watch, which monitors drivers and vehicle usage by keeping track of factors like driver’s speed to give business owners real fleet data. Employers can drill down, find risks and eliminate them to keep rates down.

Employers should use data provided by their broker to reach the right decisions, such as asking whether raising deductibles or stop loss limits will be economically smart strategy or just make your underwriter feel better.

A good broker will help analyze everything from your current vendor/client contracts to previous losses. You might see risks that you didn’t know about. For instance, there could be a better way to create a contract so you push the risk out to a subcontractor.

Communicate with your broker on a regular basis. Brokers typically have a stewardship meeting well before the renewal to go over each of your policies and formulate a strategy for the renewal. If your renewal includes diminished coverage or added exclusions, then it may simply be a matter of pushback. You and your broker might tell your insurance company that if this is to be done, then something will be needed in return, while being prepared to look elsewhere. A proactive broker will handle these negotiations for you.

What about using self-insurance in this type of market?

You’ve got to analyze the situation thoroughly. There’s always going to be self-retention that makes sense, but it’s important to figure out where. For any self-insured program it’s a matter of rolling the dice, and your company has to have information to put the odds in your favor.

Combatting this market cycle is about consistent loss control and having a strong business model. Too many businesses fly by the seat their pants when it comes to preventing losses. A little dose of long-term thinking combined with a professional insurance broker goes a long way in helping you navigate through the hard and soft market cycles.

Marc McTeague is president of Best Hoovler McTeague Insurance Services, a member of the SeibertKeck Group. Reach him at (614) 246-RISK or mmcteague@bhmins.com.

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Managed services are increasing in popularity, as more companies outsource their computer network management.

“A properly structured managed services program can provide the benefits of reducing your IT costs and reducing your risks of hardware failure while standardizing IT management through streamlined efficiency, often all at lower costs than the company could manage by doing it in-house,” says Eric Folkman, manager of the Managed Services Division at Blue Technologies.

This has been especially advantageous for companies that either don’t have in-house IT talent or the capacity to manage their networks. Even with the improving economy, Folkman says many small and mid-sized businesses have not replaced the IT staff they once had on the payroll, so managed service providers (MSP) can fill that gap easily and cost effectively.

Smart Business spoke with Folkman about how a company can effectively use a MSP to cut IT costs and improve service.

What are managed service providers and how has cloud storage impacted this field?

In most cases, MSPs are value-added providers that remotely monitor and manage computer networks, which include servers, workstations, Internet usage, anti-virus, data backup and other infrastructure components. The remote access can also incorporate help desk functions as well. By providing expert assistance, MSPs deliver a significant amount of IT functionality at a lower cost.

Cloud computing already has had a dramatic impact on IT and is starting to have some impact on MSPs. Depending on what the business is looking for, MSPs can offer cloud storage or facilitate storage with a cloud service provider like Amazon or Google. Cloud storage also can be an important tool for disaster recovery. It’s a good place to store your backup files so at least you have data off-site.

How can business owners decide which service(s) to outsource? 

Some companies instinctively know what services they need to keep, but many don’t; they may have a hunch that they could be doing something better but they don’t know anything beyond that.

The MSP will ask pointed, direct questions designed to ascertain what services are of value. Expert MSPs take the core services and modularize them to put them into different packages and separate tiers, as an effort to match the bulk of a client’s needs. Then it can be customized further to get the perfect fit, as necessary.

Some companies just want monitoring, with the MSP calling or texting if there’s a problem. However, most employers who are going down this path will say, ‘It would be nice to know if there’s a problem but we don’t have the skills to deal with it.’ Therefore, the MSP should not only identify the problem but also fix it, even though that company may have the capacity to do so. A business might continue to handle, on its own, an existing backup mechanism.

If a firm is not an IT firm but has to do IT functions, does it really make sense to devote employees to these tasks? If it’s a non-core competency, you should seriously look at outsourcing these non-core competencies as a way to reduce costs and let the experts handle things.

How should companies deal with pushback from their internal IT staff?

An IT person’s first thought might be, ‘Hey that’s my job, and if someone comes in to help me I’m not doing my job right.’ There is a degree of that, but managed service providers are not out to get anyone fired. They come to help and are hopefully viewed as a friend and resource to count on.

From an IT perspective, networking computer management is not that exciting. It’s one of those necessary evils, and very frequently the smaller, internal team doesn’t have the capacity to deal with computer management — doing the patching, the anti-virus and updates. In fact, for a lot of smaller companies, there may not be a dedicated IT resource at all. Sometimes the president, CFO or the controller manage all the technology in addition to his or her full-time job.

What are some best practices when moving into managed services?

Talk to whoever is providing IT support for your company and ask very direct questions related to the costs to maintain the workstations, software revisions, server status or network status, etc. Generally, a business owner will know if there are frequent outages or problems with the network or viruses, but the owner really needs to get answers from the IT people and get it with proof. For example, a report that shows the system is fully patched or one that shows the anti-virus is up to date.

Secondly, determine the cost of maintaining your equipment. Rough estimates are generally good enough, but factor in labor costs, including salary and benefits, technology costs, contract costs, etc. Then, compare these costs against what an MSP will charge you. Look at your written proof to see if you’re in good shape or if you need a more cost-effective expert.

Finally, execute a document with your MSP called a service level agreement. This agreement spells out, in full detail, exactly how things are going to go. It’s the responsibility of both parties to negotiate and fully understand the terms before they get started. Then you know the full extent of the services and how they will be delivered, because the last thing you want is a surprise when you need somebody.

Eric Folkman is manager of the Managed Services Division at Blue Technologies. Reach him at (216) 271-4800, ext. 2249, or efolkman@BTOhio.com.

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More than 13.4 million people are currently working from home, according to the U.S. Census Bureau. The challenging economy has forced employers to cut back on costs, such as office expenses, and let people work remotely. There’s also evidence that those unable to find traditional jobs are earning a living by starting home-based businesses and work-from-home businesses.

In order to be successful at telecommuting, an employee — or even a home-based business owner — needs to have the right phone equipment.

“When a client is contacting you, you want to put your most professional foot forward,” says John Putnam, vice president of direct sales at PowerNet Global. “You don’t want your client to see that you’re sending calls to people working from home; you want them to get that same professional experience, regardless of where  that call is being taken.”

Smart Business spoke with Putnam about how the right virtual phone technology can ensure a seamless transition from the office to home and back again.

What are some of the advantages that can be found with telecommuting?

It reduces cost. Employees don’t have to drive to work, avoiding wear and tear on their cars, paying for gas and spending time stuck in traffic. Business owners don’t need as much space in their facilities and can reduce the heating, air conditioning, electricity, etc., that go along with having that person in your building.

Another advantage is flexibility. When a client calls on the East Coast at 7 p.m., you can route those calls to someone’s home or someone on the West Coast, giving business owners the ability to expand their service hours.

It’s also a recruiting tool. If the employee is disciplined and can do the work from home, it gives him or her the opportunity to work flexible hours that fit better into his or her schedule.

Why do employers need to ensure telecommuters have the right phone technology?

Along with having a dedicated workspace, telecommuters need technology that doesn’t limit their ability to do their jobs. With a home phone, someone within the household could pick up a phone and interrupt a call, and a cell phone only gives you the ability to answer and place calls. A cell phone also has more of a chance to be used for personal calls or get lost or stolen.

With a dedicated work-from-home handset, you have the ability to transfer calls, put calls on hold, place conference calls and create hunt groups that select which of several phones will receive the call. This creates the appearance of the telecommuter being at your facility, while providing customers with a more professional experience.

Using a home or cell phone can lessen the client experience. A prospective client may even think twice about giving you their business because of questioning your company’s level of commitment. The prospect might think, ‘If this guy is working off his cell phone, is he really in business or is he just doing this until he finds something better?’

How does this phone technology create efficiencies for telecommuters?

With a premise-based IP or  a hosted IP private branch exchange (PBX), phone handsets can be used anywhere in the world, as long as you have a high-speed Internet connection.  With both of these solutions you have all of the business-class features unavailable on a cell phone.

There’s also a higher level of accountability with a phone system that is tied back to the company. The service provider can put limits — such as limiting international calling and the time of day that the phone is in use — on that phone versus just handing someone a cell phone. Also, if an employee uses a personal cell phone, it can raise questions about them receiving business calls after separation from the company.

How expensive are these types of phones? 

It’s not that expensive. For between $25 and $35 per month, you can lease an IP PBX handset and get phone service. The company gets a more professional experience for clients that makes that expense easy to justify. Otherwise, the company would be paying for a cell phone or reimbursing for a home line at the same cost, with fewer features.

How will phone technology continue to assist with telecommuting in the future?

As more applications continue making it ‘into the cloud,’ it makes telecommuting even easier. The applications a person needs to do their job — whether voice or data related — are getting taken off office computers and phone systems, so it doesn’t matter where you are located to access those resources.

As more companies replace their internal phones with an IP phone system, it also gives employees the flexibility to work from home part of the week, for example, by taking their phone home and then bringing it back to the office. They can move that handset to anyplace with a high-speed Internet connection, working as if they were in their office. Employers get the best of both worlds by giving employees the flexibility of working from home one or two days per week, while keeping the same phone system and having the accountability that comes from seeing them daily and knowing they are working.

John Putnam is vice president of direct sales at PowerNet Global. Reach him at (866) 764-7329 or pngdirectsales@pngmail.com.

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