Friday, 31 May 2013 22:57

How PPACA will impact small employers

Most news surrounding the implementation of the Patient Protection and Affordable Care Act (PPACA) pertains to the employer penalties for noncompliance with the large employers’ shared responsibility provision that begins with the 2014 plan year. However, how does PPACA apply if an employer has fewer than 50 full-time equivalent employees?

“This has been a subject of great confusion among business owners,” says Chuck Whitford, client advisor, JRG Advisors, the management arm of ChamberChoice.

Smart Business spoke with Whitford about how smaller business owners need to be counting employees carefully and preparing for PPACA provisions.

How is employer size defined?

A large employer is defined as having 50 or more full-time equivalent employees during a testing period that can be from six to 12 months. Full time is defined by the government as 30 hours per week.

The term equivalent is used to account for those who work less than 30 hours per week. For example, if an employer has 30 full-time employees working 30 hours each week and three part-time employees working 20 hours each week, it has 32 full-time equivalent employees. The part-time hours per month are added, then divided by 130 to determine additional full-time equivalent employees.

There is some relief for seasonal workers.

How does PPACA apply to small employers?

The employer penalties are just one piece. All employers are subject to certain rules if providing a health insurance plan, such as:

  • Waiting periods for eligibility cannot exceed 90 days, beginning in 2014.

  • Continuing to cover dependents of employees until age 26, in most cases.

  • Providing a Summary of Benefits and Coverage to each employee at specific events, such as open enrollment.

  • Supplying 60-day notification for any plan changes, except at renewal.

What are some other considerations?

If a plan is not grandfathered — hasn’t changed since the law went into effect in 2010 — then it must continue to waive all cost sharing for preventive care services, which includes women’s preventive care for plans renewing on or after Aug. 1, 2012.

Employers also must offer employees information on the public insurance exchange whether providing health coverage or not. The law requires this notice be distributed each March; however, it has been delayed in 2013, pending Department of Labor guidance.

In 2014, all non-grandfathered small group plans will have limits on the deductibles charged in-network. The maximum deductible will be $2,000 per individual and $4,000 per family. There also will be out-of-pocket limits that apply to all non-grandfathered plans. These limits are the same as those for high deductible health plans, which this year is $6,250 for an individual and $12,500 for a family.

How will the pricing methodology change?

The biggest change for small employers will be the pricing methodology applied to group insurance plans. Insurance companies will be unable to use gender, industry, group size or medical history, and therefore are limited to family size, geography, tobacco use and age. The companies can charge the oldest ages no more than three times what they charge the youngest ages. Many insurance companies use a ratio of 7:1 or higher, so this should result in higher rates for younger, healthier groups and better rates for older, less healthy groups. In addition, there will be new taxes and fees passed through to the employer in 2014.

Where do small employers have flexibility?

A small employer, with fewer than 50 full-time employees, has more flexibility in determining how many hours an employee must work to be benefits-eligible. For example, a small employer can establish 37.5 hours as the minimum to be eligible for the company health plan, so employees regularly working less than 37.5 hours aren’t eligible. Those employees most likely are eligible for a subsidy to purchase coverage in the public insurance exchange. But, as a small employer not subject to the employer penalties, there are no financial consequences.

Because of the complexities, employers are encouraged to review their employee count and other pending health care reform legislation with a qualified advisor.

Chuck Whitford is a client advisor at JRG Advisors, the management arm of ChamberChoice. Reach him at (412) 456-7257 or

Insights Employee Benefits is brought to you by ChamberChoice

Published in National

Companies looking to grow and needing an infusion of capital have several options, which come with various costs and requirements.

“We look at capital on a sort of continuum, with equity perhaps being the most expensive form primarily because of its diluting impact on ownership of the company. At the other end, there’s self-generated working capital derived from profitable operations,” says Paul Gibson, senior vice president and Eastern Region market manager at Bridge Bank. “In between there are a variety of financing options to assist a growing company.”

Smart Business spoke with Gibson about where small businesses fit along the continuum and options they have available to secure working capital.

What is the least expensive option to get working capital?

There is no cheaper form of capital than self-generated profits. Apple, Inc. is an example of a company that continues to be profitable and has a huge war chest of cash available for any need. But most small and growing businesses are not capitalized like Apple and look to banks to assist in the form of senior debt. This financing is usually based on a bank’s prime lending rate as its index and has a modest margin over, or under, this index. These loans are structured, including a senior secured lien on all assets through a Uniform Commercial Code filing and frequently have financial and/or performance loan covenants. There may be a borrowing formula and an advance rate against receivables as well. There is a direct relationship between pricing and structure, as all pricing is ultimately dictated by risk. When a business can’t adhere to a traditional covenant structure, the looser structure usually translates to increased pricing.

It’s best to determine working capital and growth capital needs first when exploring financing solutions. Next, identify the various capital sources starting at the least expensive and work down until sufficient working capital is obtained. Many times it’s possible to meet all needs with senior debt, but there is a limit to how much is available and that is largely determined by the profile and complexion of the company — overall assets, liabilities, cash flow, liquidity. All of these factors help identify risk.

Many growing businesses find it difficult to obtain traditional senior debt financing because they’re focused on growth at the expense of profitability. Some banks specialize in assisting companies in this dilemma, forging strong relationships long before the mega-banks will.

What’s next if companies can’t obtain sufficient senior debt?

Another potential source of working capital is subordinated debt, also known as mezzanine debt or venture debt. Subordinated lenders do not recover their first dollar in a liquidation scenario until the senior lender has collected its last dollar. This type of financing can take many forms.

With subordinated debt there is generally less structure than with senior debt. The reduced or even lack of covenants and junior lien position contribute to increased risk. Because there’s greater risk, subordinated debt also has a higher price.

Some banks offer these instruments, but more often commercial finance companies, hedge funds and other non-bank lenders offer them. The higher rates they charge are reflective of the higher cost of their capital, usually in investor funds or a bank line.

Why is cheaper not always better?

The true cost of capital shouldn’t only be measured in simple dollars or as the spread of basis points in an interest rate. The least expensive capital isn’t always the best capital because there are more factors than just price, such as opportunity costs, ease of use, flexibility of structure and other intangible benefits. For example, a low-interest loan with a covenant package that’s too restrictive can potentially result in a business disruption when a covenant violation occurs. Balancing pricing and structure relative to individual needs is critical when evaluating multiple loan options.

Most people assume that competition is the primary driver of pricing, but it’s not. Risk determines pricing — whether it’s equity or debt — and competition further refines it. Companies should understand their risk profile. It’s a powerful tool in helping to achieve the best outcome for a business’s financing needs.

Paul Gibson is a senior vice president, Eastern Region market manager, at Bridge Bank. Reach him at (703) 481-1705 or

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Published in National

Earlier this year, Steve Carter, president and CEO of ii2P, challenged small and medium-sized businesses (SMB) to take a look at investment decisions around their current support models. This month, he stresses the importance of adopting a strong sense of urgency to avoid upcoming challenges.

“SMBs worldwide are projected to spend $1 trillion on IT by 2014. But unless something drastically changes, that spending could be like a heavy weight on a vessel headed into a perfect storm,” says Carter. “We want to stop, take a pause and not repeat history by spending money on technologies without really looking for a composite solution.”

Smart Business spoke with Carter about the challenges SMBs face, how to avoid common traps and the importance of managing cost pressure while strengthening customer intimacy.

Why do you feel there needs to be a heightened sense of urgency around creating change right now?

There are two fundamental problems facing the SMB market space: 1) cost pressures to stay competitive; 2) customer intimacy is in jeopardy. All companies with products and services wrestle with relieving cost pressures to maintain competitiveness. However, the most significant challenge I see is declining customer intimacy. This is an aspect that has been ignored. In order to sustain and grow market share, maintaining customer intimacy is paramount. Overall, a quality customer experience is missing, which shows up in lost market share.

What factors do you feel are causing these challenges?

A perfect storm is described as having multiple conditions that are colliding at the same time. There is a perfect storm in the SMB market today. First, all too often, we see both cost and customer intimacy elements are chained to an archaic standard support model. Such a model is actually designed to cost more to interact with the customer.

Historically, this has been why companies scrambled to find ways to cut back on support costs. This standard model is also designed to drive customer interactions out because it costs so much and reflects pure overhead. What this does is create an environment for the SMB that says, ‘Use it less, find a way to reduce calls for support.’ Sounds like a good thing, but it is deceiving. It’s a death trap for the SMB.

At the same time, the demographics of the end user have changed considerably and it is imperative that you respond to their wishes. Our clients have grown up in the technology world and favor what I call the ‘preferred end user support model’ — they prefer to satisfy the needs themselves rather than call a support center for help.

Lastly, by not considering and committing to a holistic approach when installing new technologies into your business, you are actually burdening your organization with incomplete and ineffective solutions.

How can the SMB know if it is facing the perfect storm?

There are some clear, obvious indicators that every SMB should use as beacons.

  • Check your specific market growth. Has your business grown at a healthy rate? If you are not growing at a healthy rate, the storm will ultimately catch you.

  • Check your client retention. This one is big. You can’t glaze over client loss as being a result of some external factor. Truth is, if you are losing clients, your model is working against you. The two key components are your cost competitiveness and your ability to be intimate with your end users.

  • Check your profitability. This one should be obvious but can be deceiving. If your margins are falling, for example, don’t automatically blame costs of raw materials. The cost of your support model is a more obvious culprit.

What options does an SMB have if it determines it is facing a perfect storm?

There are three options that always apply, and the first two are the most common traps that sink businesses. The first option is to do nothing. Keep steaming straight ahead, believing the situation will improve. The second option is planning to do something in the future. While this one doesn’t sound quite as bad as doing nothing, it has the same result: the longer you wait, the more you lose ground.

There is a third option: Do something new. Now is the time to face the perfect storm.

How should an SMB go about implementing a new approach in order to avoid the perfect storm?

The thing to remember is that surviving the storm requires a balance between the two elements I spoke of earlier: managing cost pressure while strengthening customer intimacy. The first step to bailing water out of your boat is to analyze and optimize your current support model. Then establish a clear strategy and create self-improving client intimacy through customer-facing self-service.

We’ve all made the mistake thinking that just purchasing technology is the answer. Take a new holistic approach that will bring technology, process and management disciplines as a complete and total solution. Examine the investment in current IT expenditures and make the hard assessment: ‘Am I getting real return on investment?’ If not, make a change.

Finally, establish committed continuous improvement processes that focus on balancing the customer intimacy mandate with prudent cost management. With these approaches in place, clearing the perfect storm is simply a matter of having your clients use your new model more.

Steve Carter is president and CEO of ii2P. Reach him at (817) 442-9292 or

Insights Technology is brought to you by ii2P

Published in Dallas

Most companies want to grow, the issue is just how and when. And determining an advantageous growth strategy can be challenging for executives. Less than 1 percent of companies ever reach $250 million in annual revenue and fewer still eclipse $1 billion. Unless you judiciously evaluate your options and select the right growth strategy, your small business may stay that way.

“Some companies boost revenue through organic growth while others diversify their products/services or build strategic alliances,” says Yi Jiang, assistant professor and associate director of MBA for Global Innovators for the College of Business and Economics at California State University, East Bay. “The key is understanding your options and selecting a growth strategy that fits your situation.”

Smart Business spoke with Jiang about growth strategies and what executives should consider when making a selection.

How have growth strategies evolved over time?

History and experience have altered our thinking about growth strategies. For example, vertical integration was a popular diversification strategy in the 1960s and 1970s. Companies decided to boost profits by expanding into upstream or downstream activities, thereby seizing control of the entire supply chain.

Oil companies were among the first to embrace vertical integration. They ventured beyond traditional petroleum exploration activities by purchasing refineries and distributors. However, the strategy’s popularity waned when several large, multinational companies were accused of monopolistic practices and their diversification efforts were thwarted by U.S. and European anti-trust regulations. In addition, many companies struggled to manage a slate of unfamiliar entities.

As a result, smart companies turned to building a network of complementary offerings to create synergistic expansion opportunities and economies of scope. For example, Amazon boosted e-book sales by introducing Kindle, and Sony grew from a tape-recorder company to an entertainment provider with a wide range of movie and music products, which helped it to edge out Toshiba in the format war.

What kinds of companies should focus on organic growth?

Niche companies with limited market penetration should focus on building brand equity before incurring additional risk by venturing beyond their core competencies. Organic growth maximizes existing resources and helps companies gain market recognition without diluting their brand. Organic growth is a good way to show the strength of innovation to investors who are interested in paying more for a strong brand with a loyal customer following and continuous growth potential.

The downside to organic growth is time. Executives have to be patient, committed to the company culture and willing to make additional investments without succumbing to the instant revenue gratification that accompanies cultural divergence.

When should executives consider strategic alliances?

Strategic alliance is a viable expansion strategy when the joined forces in technology development and market dominance benefit all players in the coalition. Google TV is an example of a collaborative effort in which a few strong players have united to make an even stronger team. Google, LG, Sony and Samsung are contributing technology and resources and joining market power in an effort to develop a smart television platform that may revolutionize the home entertainment industry.

The bottom line is: Why risk being left behind when you can be part of a winning team?

Are companies changing the way they view and integrate acquisitions?

We used to believe that fully integrating acquisitions was the best way to lower operating costs and reap the union’s financial rewards. But assimilation is tricky and executives often failed to meld disparate cultures and people.

Instead of making integration mandatory, companies should selectively and strategically integrate parts of an acquired organization. They may combine rudimentary functions such as distribution and accounting, while allowing areas of strength to flourish autonomously.

For example, Disney wanted to strengthen its market position with young boys by acquiring Marvel Comics’ cast of super heroes such as Iron Man, Thor, Captain America and the X-Men. However, if Disney execs were to force the influence of Disney’s culture on Marvel, Marvel’s brazen creativity would be stifled.

What should executives consider when selecting a growth strategy?

Time and timing are key considerations because organic growth and synergistic expansion tend to be slow and safe, while an acquisition or merger is risky but jumpstarts new growth. History shows that growth is rarely sustained when it results from knee-jerk reactions to unanticipated competitor moves or industry changes. Executives need time to build consensus and socialize their ideas, and half-hearted alliances or acquisitions often fail because it takes commitment and tenacity to work through the inevitable challenges.

CafePress, a San Mateo company that debuted on Nasdaq last month, has been growing slowly and steadily through both organic growth and acquisition. CafePress committed many years in organic growth and developed the strength in print-on-demand services. The acquisitions helped it to diversify the portfolio and establish a network of partners and customers. Without clear positioning and dedication, CafePress may have jumped into other services and diverted from its competence.

Lastly, even the best marriages sometimes fail. So with alliance or acquisition, executives should hope for the best but plan for the worst by developing an exit strategy to end the relationship and still be friends.

Yi Jiang is an assistant professor and associate director of MBA for Global Innovators for the College of Business and Economics at California State University, East Bay. Reach her at (510) 885-2932 or

Insights Executive Education is brought to you by California State University, East Bay

Published in Northern California

You need operating cash to grow your business, but securing a traditional commercial loan hasn’t been easy, especially for small business owners. Bank loans to businesses grew 10 percent in 2011; however, commercial lending has not returned to pre-recession levels, largely because companies that experienced a decline in sales or profitability can’t meet today’s strict underwriting standards.

Fortunately, Small Business Administration (SBA) loans are a worthwhile financing option for small to mid-sized companies. An SBA loan typically offers longer terms and more competitive interest rates than other commercial loans and, best of all, bankers can be more lenient when considering your request because the government guarantees up to 75 percent of the loan amount.

“An SBA loan is a sensible option for businesses that experienced a decline in sales and profits during the recession,” says Santiago “Chico” Perez, SBA sales manager for California Bank & Trust. “Bankers can consider your financial projections, along with historical data, when evaluating your loan application.”

Smart Business spoke with Perez about the growth opportunities for small to mid-sized business through an SBA loan.

When should small business owners consider an SBA loan?

New ventures traditionally have a hard time securing working capital, but you may get $100,000 to $5 million through a government-backed SBA loan, as long as you’ve run a similar enterprise in the past and propose a viable business strategy. You can also use SBA funding to expand by purchasing another company or using the proceeds to procure equipment or inventory to fulfill a new contract. Businesses that use an SBA loan to pay off or restructure an existing mortgage or other business debt can free up cash for other investments, such as hiring or purchasing supplies.

How do SBA loans differ from traditional commercial loans?

Generally speaking, SBA loans can offer more favorable terms than traditional commercial loans. For example, you only need 10 percent down to purchase real estate and you don’t need to come up with a lot of cash because the SBA lets you roll the fees into the loan balance. SBA loans feature higher loan-to-value ratios, longer repayment periods and no balloon payments; consequently, companies often qualify for higher loan amounts because they can amortize the purchase of buildings over 25 years or equipment over the remaining economic life, and therefore need less cash flow to service the debt. In addition, owners can use the funds to buy raw materials, as well as finished goods or equipment, which gives manufacturers the flexibility to expand into new markets.

How does the SBA’s underwriting criteria differ from traditional commercial loans?

Bankers will review standard requirements such as financial statements and credit reports, but some criteria differ from traditional commercial loans.

*Projections. Bankers can consider future sales as well as historical data when evaluating your loan application, but be sure your projections are realistic and correlate with your current financials and forecasts. For example, earnings won’t automatically double if you purchase a larger facility or new equipment. Instead, explain how the equipment will boost the bottom line by lowering operating costs or how you’ll use the extra space to increase revenue by adding a new production line. Finally, substantiate your claims by furnishing copies of customer agreements and contracts.

* Resumes. Tout your management team’s industry experience and track record, particularly if you plan to start a new business.

* Ownership. Owners with more than a 20 percent stake in the business must submit signed personal financial statements and tax returns.

* Down payment. Lenders must determine the source of a borrower’s down payment, even if the funds have been deposited into an escrow account.

* Collateral. The need for collateral hinges on the loan purpose and program, so be sure to review the underwriting criteria at and specifically state the need and purpose for the funds in your proposal.

* Tax returns. Owners must supply three years of tax returns, financial statements and balance sheets instead of two to qualify for an SBA loan.

Does the SBA offer other support to small business owners?

The SBA provides myriad tools and support to help business owners create a loan proposal and navigate the underwriting process. Small Business Development Centers offer free assistance with financial, marketing, production and feasibility studies, and many centers engage local CPAs, retired executives and consultants to advise small business owners.

The SBA also provides mentorships, free counseling and business plan expertise through a nonprofit organization called SCORE, which helps business owners across the country with various aspects of their business.

What else can owners do to successfully navigate the SBA lending process?

Loan approval hinges on an accurate, thorough proposal, so it behooves you to take your time and seek expert advice because you only get one chance to make a great impression. Bankers want to hear the story behind your numbers, so be ready to explain how you overcame adversity during the recession and how you’ll use an SBA loan to take your business to the next level. Help your banker understand your customers and add value  to your proposal by including links to your company’s website, LinkedIn page or Facebook page in your loan proposal. Finally, it may be possible to accelerate the process by selecting an approved Preferred Lender’s Program lender because they have the authority to approve your loan without submitting the entire package to the SBA.

Santiago “Chico” Perez is the SBA sales manager for California Bank & Trust. Reach him at

Insights Banking & Finance is brought to you by California Bank & Trust

Published in Los Angeles

Under the InvestOhio program, a new resource for Ohio small businesses, those who invest in a small business enterprise  located in the state can receive a 10 percent income tax credit if the investment is held for two years. The small business enterprise must meet certain qualifications to be a qualified business for the credit.

And that credit applies even if the investor is the owner of the business,  says Mary Jo Dolson, CPA, director in tax at SS&G.

“It doesn’t have to be a new investor,” says Dolson. “You can invest in a company that you own, then get the credit on your individual income taxes. More and more businesses are buying equipment or expanding their buildings, both activities that would qualify. So why not invest as an individual and get the credit for dollars the business is going to be spending anyway?”

Smart Business spoke with Dolson about how to take advantage of the InvestOhio program by investing in your own business, or in someone else’s.

What is InvestOhio, and how does it work?

InvestOhio is part of the budget bill passed in June 2011 that took effect July 1 and runs through June 30, 2013.

To participate, an individual or a pass-through entity that wants to invest in a small business must register themselves as an  investor. The small business enterprise must also register itself as a small business entity. Then the two parties, the investor and the small business enterprise, decide how much to invest and when. The investor must receive an ownership interest in the small business enterprise.

For example, if someone decides to invest $1 million in a company, both sides register, and they each get an ID number. Together they would create one application that indicates that, for example, on May 1, that taxpayer is going to invest in that company. That investment then has to be made within 30 days before or after that date. The business entity then has to spend the  money invested on qualified items within six months of the investment, or that credit would potentially be  lost.

Finally, there is a two-year holding period. If a taxpayer invests on May 1, 2012, that investment and the assets acquired have to stay in place for two years, until May 1, 2014. As long as that condition is met, the taxpayer who invested $1 million then gets a 10 percent non-refundable tax credit, with $100,000 coming right off that individual 1040 return. And if you can’t take the whole credit amount in one year, it can be carried forward for seven years.

Individuals can invest up to $10 million, and the $100 million tax credit program is expected to generate at least $1 billion in new private investment in Ohio small businesses by 2013.

What kinds of companies are eligible to participate?

Qualifying entities need to have less than $50 million in assets, or less than $10 million in sales. Companies must also have employees who are located in the state. All registrations and applications for the credit are completed through the Ohio Business Gateway. The individual investors might have to set up an Ohio Business Gateway account but probably most small business enterprises will already have a gateway account.

How complex is the application process?

Even though investors and small businesses have to register, it is not a voluminous application. It is about 10 questions, and they are simple, such as your Social Security number, whether you are a pass through entity investing in another entity and your federal ID number. There are also a lot of links for small businesses to secure the information they need quickly from the state website.

Are there drawbacks?

As long as you follow through with the requirements of the application, there really are not any drawbacks for the credit. If you complete the application and say you’re going to invest $1 million, and then you only invest $250,000, the state has indicated they will deny the credit — at least 50 percent of what you indicated you were going to invest must be invested to secure the credit. Also, if you just own rental real estate and have no employees, you can’t participate. There is an employee requirement for the small business enterprise to qualify for the credit.

Finally, it has to be an individual or another pass-through entity investing. The small business enterprise cannot secure a loan and have the investors pay it off. This will not qualify.  The actual individual and/or entity investing must actually put the funds into the business. The individual and/or entity investing can borrow the investment money from a bank .

What can a business use the money to invest in?

Fixed assets, tangible personal property and real estate are included, among other items. A business can also spend the investment on wages, but it cannot be for wages for owners or officers of the company. Motor vehicles also qualify, as long as they are titled in Ohio. The key is the assets being purchased must be utilized and located in the state of Ohio.

How will businesses account for the money?

Reporting will be required after a company spends the investment through the Ohio Business Gateway. The state does not currently have those forms available, but they are anticipating they will be available by April 1.

Will the program continue after 2013?

As part of the budget bill, the program exists in the next biennium, as well, from July 1, 2013, to June 30, 2015. However, there is one major change: the holding period for assets goes from two years to five years. There is also supposed to be another round of funding in the next biennium, from July 1, 2015, to June 30, 2017, with the holding period increasing to seven years. Right now is the shortest holding period investors are going to get, so investing sooner rather than later will provide a bigger bang for your buck more quickly.

Mary Jo Dolson, CPA, is a director in tax at SS&G. Reach her at (330) 668-9696, (800) 869-1835 or

Published in Akron/Canton
Sunday, 31 July 2011 20:01

Creating a B2B social media strategy

Paul Furiga can get the attention of a business-to-business company’s CEO with a pretty alluring deal.

“I can get you to your 100 customers more often, more efficiently and with more fresh dialogue using social media than using any tool you can possibly imagine,” says the president and CEO of WordWrite Communications LLC, a Pittsburgh public relations agency. “How could they say no?”

Surprisingly, they do; the B2B market seems slow to embrace social media. Sure, business is moving online, acquainting corporate America with platforms from Facebook and Twitter to Yelp! and Foursquare. But when the best social media strategies and case studies seem to come from big consumer companies (ahem, Zappos), where do smaller B2B companies look for their social media guideposts?

Of course, some strategies are successful despite your structure, so mimicking some proven approaches from the big boys is a start. But the inherent differences between B2B and business-to-consumer companies necessitate that you tailor your strategy for your customers and goals.

“A $10 million B2C company, the average transaction size might be $100, so they are going to have 10,000 customers,” Furiga says. “The average $10 million B2B company might have 10 to 50 customers who are spending a heck of a lot more money on their average sale. For a B2C company, it’s all about how many followers you have and how much activity you get. For a B2B company, it’s not about quantity; it’s about quality — does your social media directly drive business results?”

Social media equips you with practically free tools to connect with each customer — and when you have 50 customers to their 10,000 consumers, that’s a definite advantage.

“B2B companies should be — and actually are, although you don’t see the trend yet — having much more success in social media,” Furiga says.

And here’s how.

Start with a hypothesis

Your first concern is probably something like, “Are business customers even using social media?”

It’s a valid question, and it’s the launch pad to creating your social media strategy.

“The first step is understanding: Are your customers there? Are they participating in those channels?” says Jennifer Horton, best practice consultant in the customer success and strategy group at Eloqua.

Eloqua, based in Vienna, Va., develops marketing automation and demand generation software to help companies “measure the digital body language of their buyer,” Horton says. The first step in that process is the same as any campaign.

“If you’re just getting started and you’re trying to understand, then let’s pick a hypothesis, i.e., ‘I think our customers are on Facebook,’” Horton says. “Then let’s prove that out or disprove it. We’ll get our Facebook page created, start to develop our fan base and use it to promote thought leadership content or upcoming events.”

To build that hypothesis, some of Eloqua’s clients use website analytics to identify which sources drive traffic to them. If they see significant volume through Facebook — which Eloqua found to be the top-referring social source of website traffic in a study of their entire client base — they dig deeper.

To prove a hypothesis, just like in a science experiment, you need research. Here, that comes from tracking what’s happening. Start with baby steps: Look at quantity before delving into quality.

“One of the places that a lot of people start is just understanding the total number of fans that they have or the total number of followers on a Twitter handle or the number of members that have signed up to receive e-mail updates,” Horton says. “Understanding your reach is definitely first and foremost. It gives you a good understanding of your potential to drive opportunities out of this group of people.”

Maybe people are already buzzing about your company, giving you a head start in building a fan base. But don’t forget about current customers on other platforms. Bring them with you, from newsletter subscriptions, e-mail opt-in lists and direct mail databases to the social space.

Then find ways to inject yourself into conversations, positioning your product or service as the answer to a question.

“Listening would be the first part of that, listening and understanding the topics that are being discussed, who’s participating in those conversations, and then identifying the appropriate response,” Horton says.

If they’re not talking about your specific company yet, back up and see what they’re saying about your industry or service. For example, Horton was on a user group one morning when someone asked for a recommendation of an e-mail tool. Knowing Eloqua’s software would be a good fit, Horton alerted a sales rep for follow up.

“The companies that are doing (social media) well are … looking at ways of identifying where in the conversation in those social channels it makes sense for them to insert themselves and … providing a relevant and compelling offer to get them to continue the conversation that maybe started in a social community,” she says.

Continuing the conversation

When it comes to executing your social media strategy, forget what you know about marketing.

“For a lot of marketing conversations, there’s only one appropriate answer to the communication — and that is, ‘Buy,’” Furiga says. “The difference with social media is that it’s more about the conversations and the community. That’s why it’s cool for social media managers of consumer companies to just create an environment for people to hang out in. They are trying to keep people in the conversation, knowing that if they stay in the conversation, sooner or later they’ll buy.”

B2B companies, especially, have to strike a balance of building a community and directing it toward a sale. These goals go hand in hand, but different types of content point toward different ends.

Horton can’t jump in trying to sell Eloqua if people aren’t familiar with it. First, she must make Eloqua relevant to the conversation.

“If you think of ‘top of the funnel’ or brand awareness, we create content like infographics that are quick and interesting,” she says. “An infographic on the history of social media is enough to bring you into that Eloqua conversation.

“Now, for us to actually convince you why marketing automation software is a really powerful part of that story, it requires a different set of content: Why marketing automation? Why Eloqua versus our competition? A different type of content is used when the buyer is closer to purchase.”

Furiga goes even further to break down an effective content strategy encompassing industry generalities and company specifics alike. He calls it the rule of thirds.

“There’s a general guideline in social media, and that is: To have success in just about any channel, one-third — and no more than one-third — of your content is promotional,” he says. “One-third is news information (from your industry). Then the last third is the conversation — having a real dialogue with prospects and clients who have chosen to participate in your community.”

Generally, the overall social conversation leans toward sales and marketing. But you can’t just push yourself in front of prospects like an advertisement. Most B2B prospects are looking to social media for a demonstration of your expertise.

“B2B companies most often use social media to give potential customers a peek into what it’s like to work with them,” he says. “What do you know? What do you have to teach me? How can you help me? That’s where the whitepapers and the blogs and the free tools come from. More often than not, B2B companies are selling solutions, and the way you demonstrate your problem-solving capabilities is by having great supporting social media content.”

Educational tools like whitepapers, blogs, webinars and LinkedIn subject matter groups are effective for B2B prospecting. But those can be just as fun and engaging as consumer campaigns focused on games and viral videos.

Just look at Isilon Systems, an enterprise data storage company in Seattle. It brought in a magician to prank the IT department and created a video of him cutting a live Ethernet cord in the data center. Then, the company drove traffic back to their website by revealing there how the magician performed the trick.

“For both B2C and B2B companies, the ultimate goal is to have a continuing conversation,” Furiga says. “The difference is B2C social media can be all about hanging out online playing games, and that would be an OK ROI. For a B2B company, the fun is much more often directly connected to the business purpose. So a B2B social media strategy is going to focus on sharing intellectual capital, engaging prospects and pulling them deeper into a conversation that most often results in big dollar sales.”

Isilon’s videos engaged audiences with a magician’s secrets, but they also pointed to the business by urging viewers to safeguard their IT departments with the company’s solutions.

Content should be fun and creative if you want to grab attention in the fast-paced, sound bite based social environment. But for an offer to have any staying power, the content should also be relevant. You achieve this by taking the position of the problem solver.

“Social magnifies the basic rules of Marketing 101,” Horton says. “The No. 1 ‘do’ is to be helpful. So if someone’s asking a question, provide a relevant answer. Connect them with another person that might be able to answer their question. Social is online, but it’s definitely a human-to-human sort of relationship experience. Building relationships and developing conversations is what really, I think, drives the highest level of engagement in different social channels.”

[See more social media tips from Furiga's presentation, "Beyond Your Zappos Case Study: B2B Social Media for the Rest of Us," featured at the 2011 Public Relations Society of America Digital Impact Conference.]

Focus on conversions

To pinpoint what separates top social performers from the pack, Eloqua recently benchmarked its entire client base.

“Clients that are in the top-performing category are doing a very good job of tracking those things they put out in their social communities so they can understand which social sources are driving interested buyers back to their website,” Horton says.

Still, people have trouble uttering “social media” and “metrics” in the same sentence. How can you turn conversations into measurable conversions? It gets a little “squishy,” to use Furiga’s words.

“ROI in social media is like Jell-O for some people,” he says. “They can pick it up but they can’t really hold it. If that’s happening, then you’re not measuring the right things in your social media.

“It’s not just the number of followers or likes that you have; it’s the quality of the relationships that you create. Each company needs to determine its own metrics to define quality. It’s almost never how many followers you have; it’s almost always about driving toward something that you can count that affects the success of your business — it could be number of sales, number of whitepaper downloads, how many people comment on your Facebook page.”

Sure, you start with basics like number of followers. But now that you’ve given them content as bait, it’s time to find out who’s biting and why.

Start by identifying correlations. As your overall number of social followers increases, look for other trends on the upswing: How many visitors came to your website? How many of them opted in to your e-mail database or registered for your webinar?

“It may not necessarily be cause and effect — if we get 100,000 fans, we’re going to have X amount of leads,” Horton says. “But a lot of companies are starting to see that positive correlation: When we see an increase in the volume and the reach of our social channels, we have a correlating increase in how many Web form submissions we’re getting or how many qualified leads we’re passing over to sales.”

Once you understand general trends and how they’re related, take a closer look at conversions or who took the next step in your sales cycle — whether that’s downloading a whitepaper or contacting a sales rep.

“Of those opportunities where I placed a link back to my website, how many of those people took that next level of action?” she says. “Look at which social sources are driving the highest level of conversion, because that can give you a good indicator of how qualified those audience members are. You can have a very active social group with people that are highly interested but with no intent to purchase. If you can track it down to that point of conversion, you’ll get a better understanding of how close these people are to purchasing.”

For example, Horton helped a client track pay-per-click advertising across several keyword categories by setting up unique landing pages for each. By tracking form submissions, they identified two categories with the highest conversion rates. Then they realized that prospects searching one category converted to qualified sales opportunities within two weeks; the other took two months.

“That helped them inform how they should engage with those buyers,” Horton says. “People that were searching on that term actually had a line item in their budget, so they were a lot closer to purchase. Those were low-hanging fruit.

“The other category was taking a lot longer to convert. That allowed them to say, ‘Maybe we need a nurturing strategy with these individuals. Maybe we need to give them some more content to help them go through that evaluation process.’ Tracking that beyond the point of conversion starts to influence how you can communicate and engage with those buyers, based on where they are in their purchase process.”

Pinpointing buyers’ positions in the sales cycle can tell you when to leverage which social tools to lead them to a decision.

Maybe you’re still wary, convinced that the risks of social media outweigh the benefits. You think your customers aren’t on Twitter or worry that employees will post something inflammatory. Whatever your excuse, Furiga will tell you you’re wrong.

“Companies that don’t participate in the conversation are not stopping the conversation,” he says. “The conversation is out there. All you’re doing by not being part of it is making sure that your viewpoint is not represented. If you’re not part of the conversation, you can’t protect your reputation.

“I’m not going to say that every B2B company needs to be on every social media channel, but you shouldn’t reject it out of hand. You have to know what’s being said about your industry and your company. And if you’re willing to try one social media channel at a time, I believe you’ll be surprised at the success you can have.”

How to reach:WordWrite Communications LLC, (724) 935-7580 or Follow @wordwritepr and @paulfuriga on Twitter.

How to reach: Eloqua, (866) 327-8764 or Follow @eloqua and @jenhorton on Twitter, and read her blog posts here.

But wait — there's more. Read on for the sidebar section: How B2B customers use social media.

SIDEBAR: How B2B customers use social media

Before you purchase a new cell phone, you probably head online to inform your decision with reviews from fellow consumers. Business buyers are now doing the same; but with purchases of $100,000 instead of $100, the research is more thorough. Everyone involved in committee decisions is digging — many outside the sandbox of traditional information.

“If I work for a B2B industrial company and somebody approaches me about a new way to machine metal, and I try to explain to my boss how cool this is, eh, whatever. Maybe it works, maybe it doesn’t,” says Paul Furiga, president and CEO of WordWrite Communications LLC. “But if this company has a YouTube channel and they can literally show the difference, and I send my boss and all the other decision-makers the video, wow, is that powerful.”

James Rogers, vice president of marketing at Hoover’s Inc. in Austin, Texas, realized buyers were starting to layer social media with the business data they gathered from Hoover’s Dun & Bradstreet-powered website.

“We had a number of customers that were telling us they go to Hoover’s for the traditional business information like company, industry, people, size of the company, financials, news alerts, all those things,” he says. “Oftentimes, what they would do is alt-tab over to LinkedIn and then … try to identify the contacts and look up some of the information that we traditionally don’t capture within Hoover’s, such as their history and their subject matter expertise and areas of interest.”

After LinkedIn started hearing the same thing from its customers, the two companies entered a partnership in March to integrate their functionalities. Now, below Hoover’s traditional business information, you’ll find social media panes — attributed as such — offering more information on people and companies.

“Whether it’s (preparing for) a sales call, identifying leads, doing industry research, … customers are looking to purpose that information within their daily work streams,” Rogers says. “People want to view the social information in context with the more traditional business information.”

This partnership showcases the trend that, even in strictly business settings, social media is proving to be an important tool in purchasing decisions. In Rogers’ words, it’s gone mainstream.

“A lot of sales professionals are now recognizing that social media is not just about your family community or your personal interests,” he says. “Social media has information that’s relevant to business information, and there is value in correlating the social media content to business information. This social content has different context, so you have to give it the appropriate attribution.”

That context varies by buyer — social content can be more timely and relevant, but it’s also subjective because it’s not validated.

Furiga looks at the broad differences between traditional and social media information:

  • Speed: “Thanks to social media, I can get nearly instantaneous information on any person or any company in the world.”
  • Scope: “I just said ‘in the world’ — The Internet breaks barriers in terms of geography. In the old days, if I was a B2B company, I could only see as far as my geography would take me — meaning as far as a salesperson was willing to drive or as often as I was willing to go to a trade show. Now, I can literally search the world to make decisions.”
  • Transparency: “Most of us use a consumer ratings site to make restaurant or movie decisions. Now, I can get all kinds of great, transparent information about companies I might want to do business with, including testimonials.”

How to reach: Hoover’s Inc., (512) 374-4500 or Follow @hoovers and @jamesc_rogers on Twitter.

How to reach:WordWrite Communications LLC, (724) 935-7580 or Follow @wordwritepr and @paulfuriga on Twitter.

Published in Akron/Canton

When one thinks of a boutique, a hospital is not usually the first thing that comes to mind; however, it’s a trend that makes sense.

A boutique hospital is small, specialized and dedicated to delivering highly personalized health care services. And, this is exactly what you will find at Coral Gables Hospital.

“A boutique-like influence is imbedded in the culture and mission of an organization and its employees,” says Jay Miranda, the CEO of Coral Gables Hospital, which is a part of Tenet Healthcare Corporation. “It’s integral for a small hospital to advance with top-notch technologies yet remain small in size, which allows it to focus on what’s most important: patients and their families.”

Smart Business spoke to Miranda about the small hospital trend, and how to maintain the culture of a family-centered service while advancing into the future.

Describe the boutique or smaller hospital trend.

Many South Florida communities, and Coral Gables in particular, have been recognized for exemplifying a particular type of style and living by creating a small town feel within a larger city. This feeling of community and identification with it creates a pleasing environment. As part of the local community, a smaller hospital strives to emulate this theme and bring this same feeling of comfort and familiarity into the health care environment.

The boutique hospital trend is growing because communities are becoming more educated and selective when it comes to their health care; they want very high quality care delivered with service excellence. It is generally smaller in size, distinguished by specialized service lines, and can offer high-quality health care within a more intimate, family-centered setting.

What are the advantages of maintaining a smaller, more family-centered health care delivery organization?

A smaller hospital often strives to put the patient first. It often has the resources to treat each patient and his or her family with respect and understanding in a family atmosphere. In a larger facility, patients and their families can get lost in a mass of ‘bricks and mortar,’ and because of the larger number of employees and organizational loopholes, it can be difficult for patients to get the special attention that they may need. With strategic planning, smaller hospitals can deliver a high degree of attention to patients, yet still maintain the same level of clinical equipment and diagnostics as a larger facility.

A smaller organization may also have more control over selecting employees that have a passion for quality service and who reflect the cultures of the community they serve. For example, at Coral Gables Hospital the majority of our staff is bilingual in English and Spanish. Our employees can relate to our diverse patients and cater to their needs. We look only for employees that exemplify the same feeling of compassion, warmth and service that our hospital is known to provide.

How can a company maintain the influence of a small, specialized company while continuing to develop and expand into the future?

Just because a hospital or ‘boutique’ organization is small in size, it is not necessarily short on resources. From a service line perspective, many smaller hospitals advance technologically and expand specialized services based on community needs. One example of this at Coral Gables Hospital is our stroke program. Many of our patients were coming to our emergency room experiencing signs and symptoms of a stroke. We knew we had to expand this level of service to meet the needs of our patients so we went through the proper processes and recruited neurologists to establish our hospital’s stroke program.

Every hospital — despite its size — must continue to upgrade its facility; continue to seek the most qualified employees that fit the organization’s cultural environment; and continue to recruit experienced physicians that can appreciate practicing family-centered medicine.

What are the challenges of running a specialized health care delivery organization and how have you overcome these challenges?

The challenges one faces today are challenges within the complex health care industry as a whole. A hospital is merely one piece of a much larger structure that is constantly evolving and changing. We have to adapt with the ever-changing industry, but as a small hospital, our No. 1 priority will always be maintaining our family atmosphere and patient-centered culture. Every day, it’s the patients who experience health care and it’s a hospital’s job to simplify the process for them and make it as comfortable as possible.

While the challenges are great, there are also many rewards, such as helping people and being a positive influence in the local community. When each staff member walks out of a hospital, he or she feels an intrinsic reward knowing that he or she has had a positive impact on a human being’s life. In patients’ most important critical, vulnerable and often anxiety-driven moments, they are helping them to feel secure that they are receiving the best care possible. This motivates them to achieve the most positive outcomes possible with each patient.

What strategic advice would you give other smaller, boutique-like companies on advancing into the future while staying true to their very consumer-oriented environment?

In a small hospital, building a family-like culture starts from the top, down through interactions between administration and management, physicians and nurses, and, most importantly, patients. This is the true challenge. Machines don’t talk to or touch people; people touch people. Purchasing equipment is something you to do to advance and support the medical professionals in their ability to deliver the best patient care, but the culture is created through the relationships fostered each day. For any boutique business, building relationships is key.

Jay Miranda is the CEO of Coral Gables Hospital, which is a part of Tenet Healthcare Corporation.

Published in Florida

After some challenging years in a recessionary economy, businesses aren’t the only ones feeling the crunch.

States — including Illinois — are hurting, and to regain strength, they are more closely enforcing tax law and, in some cases, increasing taxes.

According to Pam Huelsman and Susan Nunez from Brown Smith Wallace LLC’s Tax Services Practice, the state of Illinois is in a difficult financial position. The state currently imposes a multitude of taxes, and recent legislation increased the personal income tax rate by 67 percent, increased the corporate income tax rate by 46 percent and suspended the net operating loss carryover deduction for taxable years ending after Dec. 31, 2010, and prior to Dec. 31, 2014.

Senate Bill 2505 was signed into law by Gov. Pat Quinn on Jan. 13, 2011. The tax rate for individuals, trusts and estates will increase from 3 percent to 5 percent for taxable years beginning on or after Jan. 1, 2011, and prior to Jan. 1, 2015, with reductions thereafter. The corporate income tax rate will increase from 4.8 percent to 7 percent for taxable years beginning on or after Jan. 1, 2011, and prior to Jan. 1, 2015, with reductions occurring thereafter. The personal property replacement tax remains unchanged.

In addition to the income taxes on both personal and corporate income, the state imposes a Retailers’ Occupation Tax on sales of tangible personal property and a Service Occupation Tax on transfers of tangible personal property incidental to a sale of a service. Retailers and servicemen collect these taxes at rates which range from 6.25 percent to 9.75 percent, including both state and local taxes.

Both the Retailers’ Occupation Tax and Service Occupation Tax have a compensating use tax applied to tangible personal property acquired from out-of-state vendors. Certain exemptions from these taxes are available to qualifying taxpayers. But despite this foreboding tax climate, there are still opportunities for businesses to earn tax credits.

Smart Business spoke with Huelsman and Nunez about Illinois taxes and how your business can benefit from sound tax planning.

What is the current business tax climate in Illinois?

The financial situation in the state is serious. Illinois isn’t paying bills, and everyone is feeling the pain. The state imposes many taxes and, as shown by the rate increase for both personal and corporate income taxes, it will likely continue to look for ways to raise revenue through taxes.

What tax credit opportunities are available for businesses in Illinois?

The good news is that, despite heightened audit activity and increased taxes, there are tax breaks for businesses that qualify. An example is the Manufacturer’s Purchase Credit. Qualifying manufacturers earn a state sales tax credit of 50 percent of the state sales tax that would be paid on purchases of exempt manufacturing equipment. This credit can be applied toward the sales/use tax imposed on production-related purchases that do not qualify for the exemption.

Let’s say a manufacturing company purchases a $100,000 piece of manufacturing equipment, which would incur a state sales tax of $6,250 if not for the exemption. The company would earn a credit of half that amount, which is $3,125. It’s a win-win for companies: They are able to utilize the exemption and earn a credit to apply to tax owed on purchases of production-related equipment.

What opportunities are available for businesses to help them create jobs?

Effective June 30, 2010, businesses with 50 or fewer employees can take advantage of Small Business Job Creation Tax Credits. Every new job created and retained for one year earns credits against the state withholding tax.

The maximum credit is $2,500 per employee, and businesses must meet certain salary thresholds to qualify. The credit will be available beginning July 1, 2011, for those qualifying companies that have, since June 30, 2010, hired and retained new employees.

What are enterprise zones, and what benefits do those in Illinois provide?

The Illinois Enterprise Zone Program is designed to stimulate economic growth and neighborhood revitalization in economically depressed areas of the state. Illinois’ enterprise zones offer a multitude of tax benefits for businesses located in the zones, including sales and use tax exemptions for building materials, property tax abatements and investment tax credits for business income taxes.

To illustrate, Madison County has three enterprise zones and St. Clair County has four. You should consult your tax professional regarding these zone benefits.

What are some tax compliance issues that businesses should be aware of?

Many businesses understand and collect sales tax but are unaware of a compensating use tax due on purchases made from out-of-state vendors.

Given the current environment, it’s a particularly good idea to consult with a knowledgeable tax accountant to determine your potential use tax liability and avoid costly state audit liabilities.

Also, businesses should keep current with the applicable sales tax rates in their local jurisdictions. Businesses that do not collect the proper rate will be required to furnish additional taxes not collected from customers.

It’s definitely a case of pay now, or you’ll really pay later.

Pam Huelsman is manager, State and Local Tax, at Brown Smith Wallace in St. Louis, Mo. Reach her at (314) 983-1392 or Susan Nunez is principal, State and Local Tax, at Brown Smith Wallace in St. Louis, Mo. Reach her at (314) 983-1215 or

Published in St. Louis

The idea of funding your own company’s health insurance plan may seem riskier, but this alternative funding method is actually no riskier than participating in a fully funded plan. With alternative funding, your company — not the insurance company — benefits when the plan shows a profit, says Steve Freeman, president of USI San Francisco.

“The benefits are twofold,” says Freeman. “If you implement any type of claims savings strategies, you, as the employer, get to participate in those savings. And second, you get the underlying claims data that you don’t typically get under a fully insured plan, which can allow you to better manage the plan to meet your employees’ needs.”

Claims data includes the number and length of hospitalizations, frequency of emergency room visits, outpatients visits, pharmacy usage and any other useful information.

Smart Business spoke with Freeman about why self-funding an insurance plan can be a smart move for companies with as few as 50 employees.

Isn’t it risky for a company, especially a smaller company, to use alternative funding for its health plan?

The available products have taken those risk elements out as far as monthly claims fluctuations, large claims and termination of the program. The insurance company provides cost limits insurance for any large catastrophic claims to cover that liability, and if you want to get out of the program, it also provides insurance for that. Liability under a self-funded program is no more risky than that of a fully insured program.

What are the cost benefits of alternative funding?

The alternative funding programs that are available allow smaller employers to self-fund while providing safeguards that the overall premium will be no more expensive than in a fully funded plan. And if an employer has good demographics, encourages wellness and for its employees to be smart consumers of health care with consumer-driven health care solutions, the resulting claims savings have a direct impact in reduced premiums. You don’t have to wait until the end of the year to see what the entire pool has done and how it will impact premiums.

If you have a group that’s fairly healthy and your employees are taking care of themselves, but they’re in a fully funded insurance pool, they are supporting groups that aren’t healthy and are paying the same rate as those groups. But being healthy drives the cost down, and in a self-funded program, the employer pays less immediately in reduced premium.

It also eliminates the surprise of large rate increases, because the employer is aware of exactly what is going on in the plan. With fully funded, you wait until 60 days before renewal and your insurance company delivers the rate increases. With alternative funding, there are no surprises because you know how the plan is running during the year, so there’s more predictability as to what your pricing is going to be year to year.

What are the other benefits of alternative funding?

Employers have access to underlying claims data, which provides information on how employees are using the health plan without disclosing specific employees’ or dependents’ information as protected under HIPAA.

Having access to that data allows employers to really understand the underlying costs. And based on that information, an employer may decide to install a wellness program, or laser in on the conditions that affect employees, allowing it to customize the health plan for its population. Another benefit is the elimination of state mandates, which can account for 5 to 10 percent of premium costs. If a state mandates coverage of bariatric surgery and you have a young, healthy population, the flexibility of plan design can help you avoid that mandate. You can also reduce your premium tax, as the tax will only be based on about 25 percent of the premium, versus the 100 percent in the case of fully insured premium, allowing that savings to come directly back to the employer.

Finally, because you’ve unbundled the components of the plan, the insurance company is showing you the actual cost of each component instead of having it all rolled up into one rate.

Why are more smaller businesses choosing alternative funding?

Employer groups are spending a lot of money per employee for health care, and a lot of them are facing large increases and asking why. Employers are saying, ‘I don’t understand it. My employees don’t go to the doctor, no one’s been hospitalized. I want to see the data that shows actual utilization, and I want to see the underlying cost of what is driving the rate increase.’

It’s like the difference between your electric bill and your cable bill. With the cable bill, you pay the same amount regardless of usage. But with utilities, you can control your usage and you only pay for what you use.

What should a company consider when deciding whether to self-fund?

Regardless of industry, a company should look at its underlying claims cost, whether it has a high-risk business or low-risk business, whether its employees are older or younger.

If you’re fully insured, the insurance company will apply a certain creditability to your claims experience, so if you have had bad claims, the pricing in the next year will be higher than normal. If your claims have run favorably, they may be less than the average.

Self-funding works the same way, except you don’t pay the average rate. Once CEOs understand how this works, the usual reaction is, ‘This makes all kinds of sense. Why would we not do this?’

Steve Freeman is the president of USI San Francisco. Reach him at (925) 472-6772 or

Published in Northern California
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