Thursday, 25 November 2010 19:00

3 Questions

Darci Congrove joined GBQ Partners in 1998, became a partner with the firm in 2002 and was named managing director earlier this year. She has nearly two decades of industry experience, primarily with closely held businesses and their owners, real estate companies, and individuals, for whom she performs a range of tax planning and compliance services and general business consulting.

Q. What can an accounting firm do to help its business clients come out of the recession in sound financial condition?

Entrepreneurs are cautious now about managing cost and hiring, because the environment is still uncertain. From a financing standpoint, we’re doing a lot of work helping people understand their capital structure and what they need. There are banks that are lending at the moment, but you have to have a solid establishment. We are also helping our clients find equity sources. There are investors out there, and there a lot of people who sat on the sideline and have a stockpile of cash.

Q. What will likely be the most pressing issues for businesses in 2011 and beyond?

The tax issue is really paralyzing for businesses that are trying to plan, particularly for those that are trying to invest or grow. There are not a lot of businesses that could handle a tax increase without that becoming a big number. So the two challenges a lot of businesses are facing are still financing and taxes.

Q. Have businesses worked with their accounting firms more, less or about the same during the last year or two?

What we had seen during recent years is that those companies that were in trouble are spending more time with us, because they needed advice and assistance, and that the businesses that were doing fairly well were being more cost-efficient about the things they were asking us to do. In 2010, what we see now is that we’re not spending nearly as much time with businesses that are troubled or turnaround situations, and we are spending more time on consultative services again. What we’re doing now is a little different than what we were doing 12 or 18 months ago.

Published in Columbus
Thursday, 25 November 2010 19:00

Pinching pennies

If you are sending your senior executives out into the parking lot to look for coins to help you meet this week’s payroll, your financial woes may be beyond repair. But for everyone else, there are a lot of ways that you could be working with your accounting firm to benefit your business.

The first step is to get beyond thinking of your accountant as someone who just helps you with taxes. Most accounting firms now offer a wide range of financial advisory services that, when properly utilized, can help you do anything from manage your cash flow better to meet the challenges of health care reform. But what might really grab your attention is that your firm can help you come out of the recession in sound financial condition, ready to take advantage of any opportunities that present themselves.

“Although the recession forced many companies to explore cost-saving and efficiency opportunities, in some instances, those companies may have simply deferred maintenance and now realize there are opportunities to invest and further elevate their operational efficiency and effectiveness,” says Steve Howe, Americas area managing partner, Ernst & Young. “They’ll be seeking resources that have proven experience in identifying and executing on these opportunities. Accounting firms will offer experiences and best practices to draw upon, having met similar challenges with other clients or market sectors.”

Even something as simple as getting all of your reporting done on time can mean the difference between success or failure. Why? Because your lenders want to know what’s going on.

“I think it puts them in the best possible light they can be in with their big creditors,” says Roger Hendren, Dallas office managing partner, McGladrey. “Along with that, an accounting firm can coach its clients to make sure they have the right financing in place — in terms of length of debt agreement, the covenants that regulate the agreement — so they’re positioned as well as they can be and they can have the right access to the credit they need so that when the recession goes away, they can take advantage of what should be a big upturn.”

When was the last time you took a look at your cost structure? Two years ago when the economy fell apart? It’s time to look at it again. A good firm can also help you create a more cost-efficient supply chain and identify costs that are not critical or essential to your core mission.

“The best way to advise the business is to understand the business,” says Randy Myeroff, president and CEO of Cleveland-based Cohen & Co. “You have to know what makes it tick; you have to know what the owners are trying to accomplish. You have to have some kind of base where people are trying to get to in order to be helpful.”

Moving forward

You might be happy sitting in the status quo, standing pat until it looks safe to come out again. But your competition is already on the move, so you better start talking to your accounting firm to find out what your options are for the future.

“Looking forward, based on the last 90 days, our business has really been ramping up, and I see it a lot more over the next 18 months and part of it is tax-related,” Hendren says. “There’s kind of a pent-up demand for acquisitions, which will require us to be more hands-on and active.”

CEOs are sensing the worst is over and are looking to make some strategic moves while prices are at historic lows.

“We’re hearing from many of our clients the desire to reposition their companies through varying merger and acquisition transactions,” Howe says. “This includes everything from carving out noncore businesses to growing through transactions. Many are looking for ways to leverage opportunities to expand their product lines and markets as well as their geographic reach.”

When you have a solid relationship with your accounting firm, it understands your business and you get a better idea of how it can help you with something other than your tax return. In fact, many firms have seen growth in areas that in years past, weren’t associated with accounting firms at all.

“Our experience has been that in some of our competency areas — specifically strategy and operations, technology integration and human capital consulting — our clients are using us more,” says Blaine Nelson, managing partner for North Texas, Arkansas and Oklahoma for Deloitte LLP. “In fact, those practices have been growing even during these tough economic times. In some areas of tax services — mostly in the international, multistate or transfer pricing arenas — we’re finding an increase in demand for our competencies, and many companies have been looking for more consulting around enterprise risk management, as well.”

Finding a new partner

If you ask your current accounting partner about something other than taxes and his or her eyes glaze over or if he or she doesn’t bother to return your calls in a timely manner, it may be time to start a new relationship.

“You should change any time you think there’s a mismatch,” Myeroff says. “Even though there is overlap, firms are in business to do different things. There’s a market that doesn’t need an advocate but just needs us to get stuff done for them at an affordable price. There are larger firms that talk about being advocates and advisers, but if you dig deeper, there are people in those firms who are good, but the firm’s strategy or overall model might be based on something else.”

Just like you might always be looking to find a better deal on office supplies, you need to be open to the idea of upgrading your accounting firm. But be careful about how you go about it.

“Since business itself is a dynamic activity and change is constant, companies should always be open to either improving or upgrading their relationships,” Nelson says. “Whether they’re considering upgrading, changing or improving the relationships they have either with a new accounting firm that can offer a greater depth and breadth of services or a new law firm, banker or insurance provider, companies should always be examining the benefits of increasing the variety of competencies that new providers can bring them.”

The other thing to take into consideration is the timing of any move you make.

“The real strong advice to anybody who is thinking about switching: Do it early in your year,” Hendren says. “You don’t want to wait until November or December, because you need to make sure the firm has enough time to get up to speed, get your work scheduled, understand your needs, and you don’t want to rush into all of that between Thanksgiving and Christmas.”

Make sure all fee arrangements are clear and understood by both parties at the beginning of the relationship, and decide how much contact you are comfortable with. Do you prefer a formal quarterly meeting or informal contact several times a week? Work out the details in advance and don’t base your decision on price alone.

“I would caution companies to look out for the ‘too good to be true’ deal of low fees that is tempting short term but is not based on an in-depth knowledge of the company and its true risks and value drivers,” Howe says.

Published in Atlanta
Thursday, 25 November 2010 19:00

3 Questions

Chad Brandenburg is a vice president and business banker for PNC Bank. He has more than 10 years of experience in the financial services industry and a Doctorate of Jurisprudence from the Indiana University School of Law. PNC Bank’s business banking group provides cash flow options and other comprehensive solutions to attorneys to make everyday business money management as efficient and effective as possible.

Q. What banking challenges and differences do those in the legal industry face that those in other industries might not?

Law firms have fewer assets than capital-intensive industries, such as manufacturing. Firms also have high fixed costs associated with salaries, rent or mortgage, and utilities. The bank must place more emphasis on other performance indicators, such as cash flow, clientele, business tenure, character, personal wealth and the business development plan.

The other major concern of attorneys is managing an Interest [on] Lawyers Trust Account (IOLTA) for their clients. The attorney has a high degree of fiduciary duty to manage this account with accuracy and legal compliance.

Q. What should those in the legal industry be doing from a banking perspective to ensure that they’re running their firm as efficiently as possible?

Attorneys must have an in-depth understanding of their business’s cash flow. Meet regularly with your banker and accountant, and find out how you’re performing relative to the industry. Be aware of the numerous banking products available to help firms operate more efficiently. Accept credit card and ACH transactions as an inexpensive and convenient means to collect customer payment. Scan checks remotely to save time. Ensure you have a sweep feature on your checking account to earn interest on idle balances. View and manage your (IOLTA) and business accounts online.

Q. What are some of the most important factors an attorney should consider when recommending a bank to his or her client?

Important factors to consider include trust, responsiveness, customer service, consultative approach, scalability, financial soundness and industry-specific banking programs. Industry-specific banking programs are difficult to find but may be extremely beneficial to your clients. These programs often consist of specialized or highly trained bankers, in addition to discounted rates and fees.

Published in National
Tuesday, 26 October 2010 20:00

Center of attention

There are so many stereotypes about attorneys. Some of them are true, of course, but most of them are not.

Some attorneys are, for instance, sharp dressers, every bit the models for the top designers that you might expect, with perfect hair and a packed brain to match, but not all attorneys look like they belong on the cast of some courtroom drama that moves through its story arc each week in 44 minutes flat.

Some attorneys are fast and slick and out to make a quick dollar — or a quick couple of thousand dollars — but not many.

And, yes, some attorneys are blindingly intelligent and able to rattle off laws, statutes, regulations and court cases long since decided as if it was their job because, well, it is.

Your attorney is not a heart surgeon, a rocket scientist or a neurophysicist. They might as well be, though, to handle the level of work and degree of difficulty required during the last couple of years. After all, you have probably rarely called your attorney for something casual during these strapped economic times. Calls always seem to be reserved for something expensive and stressful that has to be handled correctly.

“We have seen a lot of companies that have tried to not use their lawyers as much because they don’t want to incur the fee,” says Susan Zaunbrecher, partner, chair of the corporate department and chair of the financial institutions practice group, Dinsmore & Shohl LLP. “Now, for some businesses, that will be an issue, because at some point, it builds up.

“At some point, it would have been less of a problem than it is now.”

You might be in the midst of one of those swelling problems at the moment. A majority of attorneys say this is an opportune time to think, then think again, about your business strategy and to examine the economic landscape, because there are opportunities available right now, even in slower industries, that will not be available for long. If you can afford to, this is the time to move. And if you have a good attorney on your team of advisers — no stereotypes here — you already have about as good an ally as possible to help steer you forward.

Remember the past

The last couple of years have provided you with a new set of challenges. Perhaps you needed to lay off a percentage of your employees, close a branch of your business or just do more every day with an already overworked, if not smaller, staff. Odds are your attorney was with you during many of those moments — because even if you didn’t work more with your attorney in order to save legal fees, you probably called and talked more often.

That is, at least, what many attorneys are saying.

“I think businesses have used law firms less, and that is partly because of a desire on the part of the clients to conserve money and resources,” says David DeNinno, partner, Reed Smith. “But I think the business usage or client usage of law firms is on the increase as the economy improves, which is a bit of a natural cycle. It’s not because clients are more appreciative or the value that lawyers can add; it’s just that there’s more of a need.”

The amount of work and communication required of some attorneys will also likely increase through the rest of 2010 and during the early months of 2011. The type of work might change, too, returning more to what was more prevalent three or four years ago than what has seeped in the last couple of years.

“We’re very much a business law firm, but the big growth areas for us have been family law — primarily custody and divorce — criminal law and corporate bankruptcy,” says Eric Davis, managing partner, Elliott & Davis PC. “All of those are products of a down economy. More people get in trouble, because financial difficulty causes family stress and divorce. We’ve had to be adaptive for our clients.”

But until outliers like that start to fade away, the existing bump in bankruptcy, commercial litigation and corporate reorganization — sure signs of an economy that has seen better days, months and years — will likely continue.

And valuations are still historically low — though not as far in the cellar as they were during much of 2009 — which means now is still a good time to examine and consider estate and succession planning. What will your business do after you’re out of the top spot? Who will own the business? Who will be in charge? And were you able to take advantage of a down market to pass it along at a better rate?

There are plenty of other things you should consider with your attorney before the economy starts to bump up a little more.

“I think the best thing lawyers can do now for clients is help them assess the current risks facing the business and any potential liability issues and cash needs of the business,” DeNinno says. “That includes opportunities to improve the efficiency of their operations, either through better legal management or risk assessment.”

Look ahead and plan

Did you manage to obtain any sort of credit during the last two years? If so, congratulations. That is quite an accomplishment. If not, no worries, because not many other companies did either. That said, some good news for the coming year is that credit is expected to be more available in 2011 than it has been in several years.

More credit is just one of the major points of interest for attorneys during the next six to 12 months. Because of those increased lines of credit, much of the next year will likely include a focus on mergers and acquisitions. Some attorneys say that M&A activity increased during the first half of 2010 before slowing some during the last four months, but no matter your city or region — and Pittsburgh and Western Pennsylvania are expected to be no different — M&A activity will likely be prevalent by the time the calendar turns.

“We look at it like we’re in this awesome market of Pittsburgh, where I still see this economic renaissance going on, and I still see dramatic growth in 2011,” Davis says. Granted, after the dearth of mergers and acquisitions during the last couple of years, it might not be all that difficult to mark an improvement, but an improvement is still a step in the right direction.”

Alternative fee structures and arrangements — or at least discussions about them — are also expected to increase in 2011. Some firms have provided them for years as an option, others have added them only during the last couple of years as clients asked for them, but there does seem to be a split between clients who are more open to alternative fee structures and those who hold tight to the hourly rate.

Even if you have no interest in alternative fee structures and will renew your proverbial subscription to the hourly rate, at least starting a conversation with your attorney or legal team about some other option might not be a bad idea, especially with the economy and cash flow still in flux.

Ensure your value

How can you be certain that you will receive as much value as possible from your partnership with your attorney? Communication, of course — the seemingly simple center of every conversation and great relationship remains the top priority. If you do not talk regularly with your attorney or if you rarely, if ever, ask questions or send recent documents and forms, you need to communicate more.

Most attorneys say they like to talk with clients at least once per month, just a casual meeting for breakfast, lunch or coffee to sit down and talk about you and your company, especially if they work with you more as an adviser than as an auditor — though every relationship is different.

“Business clients should look for a one-stop shop if they can get it,” Davis says. “We actually want our clients to call us, and we want our clients to e-mail us with questions. If it can be answered it 15 minutes or less, we’ll answer it for free, because we want them to look at us as their strategic partner.”

If you don’t have a relationship like that, though, or if you’re just not pleased with the quality or the nature of the relationship you have with your attorney, for any of a number of reasons, the time to consider a move might be now.

“If you don’t trust that your attorney is with you and working with you for the future, then you should absolutely be looking for new counsel,” Zaunbrecher says.

Rates are historically low, and this is perhaps the best buyer’s market of any of our lifetimes.

“There would be a whole litany of reasons a business might want to change its attorney now, and the first might be because of performance — they’re not quick enough to get with you and they’re notoriously old-school with billable hours and so on,” Davis says. “Clients can be sensitive about things like that. In a simple sense, it might be a good time to re-evaluate whether their attorney is someone who is suited to the company’s capabilities and needs and is someone who can deliver results.”

You might want to consider a change if you have just outgrown your firm and need a firm with a larger regional, national or international footprint.

You might also consider asking your attorney about any changes in rules and regulations for 2011 and beyond. Asking whether the firm offers any corporate education that you and your employees might be able to put to use would also be a good idea. And asking for a review of your corporate structure, especially for possible inefficiencies, would not be a bad use of time or money. What are your employees earning? What are your executives earning? What else are you paying for? And is it really worth the cost?

“Recessions create opportunities in many ways, particularly in the knowledge-based model that we have,” Davis says. “Many business models are only secure if they’re intellectual property, and so this is sort of also the time you don’t want to stop making those investments and protecting your ideas and brands with trademarks.

“When things are a little slower from a business perspective, it’s a good time to look back and re-evaluate. It takes a little bit of effort to get all that secure.”

But it’s almost always worth it, because in a world and an industry filled with so much change during the last couple of years, something needs to hold steady.

Published in Pittsburgh
Tuesday, 26 October 2010 20:00

3 Questions

Carl J. Grassi is president of McDonald Hopkins LLC. His professional experience includes being corporate counsel and business adviser to a number of middle-market and growth companies. He frequently speaks on business planning and related topics for business owners, accountants and lawyers.

Q. What can a law firm do to help its business clients come out of the recession on sound financial footing?

The relationship between a law firm and a client should be more than just providing legal services. It should really be almost a partnering relationship, where a law firm will not only assist and better understand the client’s business but be able to help it during these difficult times.

The other thing that law firms should be considering today is continuing to provide value-added services. In our case, some of the things that we do are regular webcasts — we invite our clients to listen on the latest topics affecting their business — various client alerts and regular meetings with our clients to discuss the issues that they’re facing in these challenging economic times.

Q. What services besides legal can law firms provide?

A law firm, under services, can provide counseling, advisory work, various planning from multistate tax planning to regular tax planning. Any of the above, really go beyond the legal services. What’s really key, again, is the law firm and its client has a very close relationship in terms of being able to provide those other advisory services that you might not typically think of a law firm as capable of providing.

Q. How do you build that relationship?

The issue that makes it important is that the client has to be willing to share information that is affecting their business, be it their financial information, what issues that keep them up at night or what challenges they face. In turn, the law firm should be looking out for opportunities for that client besides legal services. They may be able to help them network, find opportunities with new unique customers and avenues of business. To do that, a client really needs to share information they might not otherwise share with their law firm.

Published in Cleveland
Tuesday, 26 October 2010 20:00

3 Questions

Chad Brandenburg is a vice president and business banker for PNC Bank. He has more than 10 years of experience in the financial services industry and a Doctorate of Jurisprudence from the Indiana University School of Law. PNC Bank’s business banking group provides cash flow options and other comprehensive solutions to attorneys to make everyday business money management as efficient and effective as possible.

Q. What banking challenges and differences do those in the legal industry face that those in other industries might not?

Law firms have fewer assets than capital-intensive industries, such as manufacturing. Firms also have high fixed costs associated with salaries, rent or mortgage, and utilities. The bank must place more emphasis on other performance indicators, such as cash flow, clientele, business tenure, character, personal wealth and the business development plan.

The other major concern of attorneys is managing an Interest [on] Lawyers Trust Account (IOLTA) for their clients. The attorney has a high degree of fiduciary duty to manage this account with accuracy and legal compliance.

Q. What should those in the legal industry be doing from a banking perspective to ensure that they’re running their firm as efficiently as possible?

Attorneys must have an in-depth understanding of their business’s cash flow. Meet regularly with your banker and accountant, and find out how you’re performing relative to the industry. Be aware of the numerous banking products available to help firms operate more efficiently. Accept credit card and ACH transactions as an inexpensive and convenient means to collect customer payment. Scan checks remotely to save time. Ensure you have a sweep feature on your checking account to earn interest on idle balances. View and manage your (IOLTA) and business accounts online.

Q. What are some of the most important factors an attorney should consider when recommending a bank to his or her client?

Important factors to consider include trust, responsiveness, customer service, consultative approach, scalability, financial soundness and industry-specific banking programs. Industry-specific banking programs are difficult to find but may be extremely beneficial to your clients. These programs often consist of specialized or highly trained bankers, in addition to discounted rates and fees.

Published in National
Tuesday, 26 October 2010 20:00

3 Questions

John Krajewski is the managing partner of Stark & Knoll and a member of its business services group. With more than 25 years of industry experience, his practice areas include general corporate, business succession, taxation and nonprofit organizations. He is a member of the Akron and Ohio State bar associations.

Q. What can a law firm do to help a business in the current economic state?

We try to go in at least annually and have what I like to call a legal audit with each of our clients. For instance, regarding their insurance coverage, we make sure they have the proper coverage of what they need and go through a check and balance of all the various areas. Another instance is that a lot of companies have gone to electronic ordering, which is fine, but what some of them have failed to do is make sure the terms and conditions of an order with respect to liability — the fine print, the warranty — is right on the purchase order. When that’s only on the Internet, that often doesn’t happen. So we try to take a look at the business as a whole, assist them and make sure they’re doing what they need to do in order to prevent litigation.

Q. What other things are important right now?

We can help them with contract preparation, employee relations and succession planning. We can help them not just in a narrow term of the next three or five months but of the next three or five years. Are you going to sell to a competitor? Are you going to turn it over to a family member? Is a key employee going to buy it? None of that can happen in a short time frame. You have to plan ahead and structure it to make it happen.

Q. What should a business do if it isn’t receiving the level or quality of legal service it wants?

Even if times are tough for a business, they shouldn’t be dealing with a law firm they’re afraid to call because they’re going to immediately get a bill. They need to have a relationship where they can call regularly. If they’re afraid to do that, that’s a sure sign they need to switch and make a move.

Published in Akron/Canton
Thursday, 26 August 2010 20:00

3 Questions

Jim Gloriod has 19 years of experience working in insurance, 12 of which have been with Aon. He currently serves as the resident managing director of the St. Louis office of Aon Risk Services. Gloriod specializes in helping companies in the energy and construction industries manage their risks.

Q. How can a company analyze the risks it faces?

As far as analyzing the risks that a business faces, risk identification is a really important thing. Companies have to look at not just the frequency of events but also the severity of events. What are some things that could reasonably happen to a business that could (cause) some kind of catastrophic loss? You really have to use a blue-sky approach. You really need to take a step back and take a fresh look at the risks an organization faces.

Q. How can a company create a risk management plan?

I think most organizations probably have at least the basic framework in place right now. If they don’t, they should talk to a risk management adviser to put a plan in place. I think there are two things that relate to the plan. One is making sure the plan is refreshed on at least an annual basis. The other thing is to run a drill or a simulation where you have to utilize the plan. So if you have a business continuity plan that envisions one of your plants going down and operations flipping to another plant on a temporary basis, you run a simulation to find out what scenarios work well, what doesn’t work well. By doing that, you can learn a lot about your plans and how effective they can be.

Q. How can risk management help the bottom line?

When you’re looking at the risks that your organization faces, the real question is whether you want to retain that risk or transfer it to a third party, either contractually or through purchasing insurance. If you look at where the insurance marketplace is today, with prices really at historic lows, more and more organizations are making the decision to transfer risk in order to help their bottom line.

Published in St. Louis
Thursday, 26 August 2010 20:00

3 Questions

John DeFazio has nearly 30 years of experience in the insurance industry, including the last two as senior vice president and branch manager of the Los Angeles office of Heffernan Insurance Brokers. He has worked previously for Liberty Mutual Insurance Co., Arthur J. Gallagher & Co. and Frenkel & Co., and he also owned his own firm for nine years.

Q. How can a company analyze the risks it faces?

The best way they can analyze the risk that they face is to really look outside of their own organization to professionals that deal with other like companies. So, say, for example, they’re looking to analyze all their risk. Maybe a good step is to talk to a banker or a Realtor or a professional insurance broker who also is involved in that field and then we can go through experiences, a whole litany of potential risks out there. I would recommend doing both, looking inward but also with an emphasis outside.

Q. How can a company create a risk management plan?

They should do a risk management plan because they should take each one of those risks or exposures to risks and they should develop a risk management plan, really break it down to each one of the risks. That would be using just your classic risk management: You identify the risk, you analyze the risk to see what would happen or how you would deal with that exposure to risk, whether it’s wind or earthquakes or whatever, and, after that, you select a way of dealing with it, a risk management method. You can transfer the risk through an insurance policy, you could avoid the risk totally, you could contractually transfer it or make someone else responsible for it.

Q. How can risk management help the proverbial bottom line?

A well-thought-out risk management program can reduce costs, it can reduce the number of claims and the severity of claims, and it can make a company an attractive risk to insure by the insurance companies, thereby saving them both short-term and long-term premiums.

Published in Dallas

In September 2008, the global economy was on the brink of its historic collapse, about to slip from the precipice to the abyss. In September 2009, the financial challenges posed by that collapse ranked as the overwhelming top risk for businesses, according to several national surveys. And now, in September 2010, well, the inevitable recovery appears to have started and some sense of optimism has seeped back, but the risk that swirled just last year remains — heavy, ominous — for businesses large and small, for businesses like yours.

If you do not have a thorough risk management and business insurance plan in place now, you should start to develop one as soon as possible. After all, recovery or not, there remains a great deal of uncertainty about the economy, and you should pay attention to and manage your risk. If you do not have a relationship with a risk management firm — or at least have an internal executive in charge of that department and those decisions — you need to pick up the phone now.

Because just as the economy has changed, so, too, has risk management.

“Over the last decade, risk management has really been maturing toward an enterprise or strategic approach to identifying, analyzing and managing risks,” says Deborah Luthi, vice president of the board of directors, Risk and Insurance Management Society Inc. “This approach really targets key risks, both insurable and uninsurable business risks, that most directly affect organizational performance.”

Those risks can include things like workers’ compensation, property insurance and general liability.

“The financial meltdown and the economic slowdown have really brought a heightened duty of care, disclosure and discussion regarding risk to the board level of organizations,” Luthi says. “So I think putting a strategic risk management process in place provides a framework for the board to consider risk and reward for balancing profit and risk against accomplishing the organizational mission.”

Plan and move forward

If you do not work with a risk management firm now, the first question is, of course, “Why not?” The second question is something along the lines of, “Do you really need to work with an external firm?”

Especially today, with revenue and profits just inching up — if they are increasing at all — and every dollar a precious commodity, would you really benefit more from bringing in more experts from the outside rather than turning to your own internal experts?

“There is a benefit to that partnership,” says Regina Spratt, U.S. national brokerage leader, Marsh Inc. “The tangible benefits include a broker who deeply understands a company’s business — how it’s measuring itself, what its risks are — and who is just going to be able to do a better job of presenting that risk to the insurance marketplace. The more comfortable and better informed the underwriters are, the better the program design and pricing the company will get. There’s a direct translation in terms of being able to be a terrific advocate in the insurance marketplace.”

You might delegate the responsibilities to a team of executive leaders, with your chief financial officer or chief risk officer at the helm. As always, keep in mind that so many of your employees are already strapped for time each day and might be overwhelmed by additional tasks — especially one so important and intrinsic to the future of your business.

If you do work with an external firm, build a relationship with it as you would with any other business adviser. The firm is on or near the same level as your accountant, your attorney and your banker. The longer and more closely you work with the firm, the more your risk management will actually take effect in your business plans.

“Insurance relationships are like all other professional relationships,” says Phillip J. Luecht Jr., executive vice president, Aon Risk Solutions Inc. “If you invest in building solid long-term relationships, those relationships will pay dividends when a major claim or coverage dispute arises. Embrace your broker and insurer as partners; they have tremendous insight gained from working with a variety of clients that will help ensure your business prospers.

“Assemble an internal team including the CFO, treasurer, risk manager and general counsel. Then, in combination with your risk adviser or insurance agent, begin an in-depth identification, assessment and prioritization of the risks inherent in the business today.”

No matter which route you choose, you will likely want to listen to experts who recommend you chart and graph — yes, graph, just like back in geometry and physics — a framework to use in order to reach your decisions. Chart both insurable and uninsurable risks — your uninsurable is your brand and your reputation — in order to be able to make decisions and define your risks.

“Most firms only think in terms of traditional hazard risks, including fire, employee and professional liability,” Luecht says. “However, a comprehensive risk inventory includes financial, operational and strategic risks, as well, so it is essential to inventory all organizational risks. With an inventory complete, assess the likelihood and severity of each risk, and map/graph the results. This is an interesting way to view the holistic risks your organization faces and helps to prioritize which risk to work on immediately. Then, review your past loss history and have your risk adviser compare your results to those of peer companies. Determine if your performance is better/worse than your peer group.”

Invest and remain active

At many businesses, risk management and business insurance were in that first batch of budget cuts back in late 2008 or early 2009. Everyone needed to cut costs, and a good chunk scaled back on insurance. But the commercial insurance market was soft in 2009 and has become even softer in 2010, making this an ideal time to either jump back in or invest even more.

“Most companies purchase property, workers’ compensation, general liability, automobile liability, excess or umbrella liability for catastrophic multimillion-dollar claims and employee benefit coverage,” Luecht says. “[But right now, companies might also want to keep an eye on] many professional liability coverages like directors and officers liability, errors and omissions coverage for professional breaches, crime, fiduciary and employment practices liability.” 

But money is only one part of the plan to take advantage of your risk management and insurance. Talk with either your internal leader or your external firm and determine where you are and aren’t covered. Many businesses have invested heavily in product recall, privacy coverages, and employee health and benefits during recent months. The only way to keep track of all that is to remain involved on a regular basis.

You need to pay more attention to your risks and insurance now than during the best of times, and with the soft market still very much in play, you should probably continue to invest as much, if not more, in protecting your business for the future.

“The clients that any broker can help the most are the ones where that senior leadership is actively and consistently involved in risk management — and I don’t just mean in the concept but in building the principles in the organization,” Spratt says. “You end up working as a provider with both kinds of companies, but the benefits and the returns for those companies are very clear when the leadership is actively engaged and at the tip of t he spear in the process.”

Published in Cincinnati