In the late 1970s, Congress passed legislation compelling banks and other financial institutions to abandon their formerly general practice of ignoring the financial services needs of low- and moderate-income borrowers and other segments of their market areas. The Community Re-investment Act mandated that banks establish clear policies to become active partners in the redevelopment of declining neighborhoods and in economic development strategies throughout their markets.
During the three decades since the act became law, banks have become significant players in helping communities realize their economic development and redevelopment plans, says Brian Matthews, community development officer for the Western Reserve Region of Sky Bank.
Smart Business spoke with Matthews about how banks are working to strengthen local economies, and why all businesses should adopt community reinvestment policies of their own.
Why was the Community Reinvestment Act instituted?
Prior to 1977, many banks were not lending money or providing services in certain areas of their markets such as low- and moderate-income neighborhoods or in certain ethnic communities. The Community Reinvestment Act states that banks will do business within the entire market area in which they serve.
How do banks comply?
Essentially, banks participate in community reinvestment by lending money for affordable housing developments, or business loans. Banks build partnerships through employee community involvement with nonprofit, for-profit and governmental organizations, which help them identify donation and investment opportunities within the community.
Federal bank examiners evaluate if and how a bank is meeting those community reinvestment requirements.
How do banks identify community reinvestment opportunities?
Through their community development officers, banks develop relationships with local organizations and become involved in opportunities to transform the community.
Community development officers also work with chambers of commerce, executive directors of community development organizations and with community planners to understand where the marketplace is going and what planners have in mind for the community.
What kinds of projects are considered opportunities for community reinvestment?
Projects typically considered are opportunities to create or promote affordable housing, economic development initiatives in both urban and rural areas, small business startups, existing small businesses’ growth, and economic revitalization initiatives in urban neighborhoods and elsewhere that will create new jobs.
What kind of commitment does participating in community development projects require?
It’s a long-term investment in time and resources. Community reinvestment means working with people to create lasting relationships throughout the community. It also means working with them on projects that are two, three or four years down the road. At the same time, it’s working to understand what the new community development trends are and how to invest in those initiatives.
There are rewards. When a person who has been renting for 20 years finally gets their own home, or when a small business that has five or six employees can grow to 25 or 30 employees, it’s well worth it.
What are the practical business benefits to community reinvestment?
If a business is involved in community reinvestment, it’s seen as a responsible corporate citizen. Community development involvement can be touted in a business’s literature and in other publications. Beyond that, community reinvestment provides an opportunity to grow market share in new areas and cultivate new customers throughout the market.
What are the general benefits of reinvestment to the community?
Generally, community reinvestment on the part of banks and other businesses is a development tool for community leaders, including economic development agencies, to draw new businesses into the community. It sends the message that companies are interested in the needs of the community and are trying to capitalize on new opportunities. It sends a positive message that the community wants new business.
Can businesses outside of banking also benefit from community reinvestment?
Community reinvestment is a win-win situation for all businesses and communities. By choosing to be a responsible community partner, businesses will foster an environment that spurs job growth and investment in the community, thus making their business’ success an integral part of a community’s success.
Huntington Bancshares Incorporated’s merger with Sky Financial Group, Inc. was completed on July 1, 2007. Subject to receiving approval by the Office of the Comptroller of the Currency to merge Sky Bank and The Huntington National Bank, bank systems conversions are scheduled for late September. This is also when signs of the Sky Bank offices will be changed to Huntington.
BRIAN MATTHEWS is the community development officer for the Western Reserve Region of Sky Bank, and is based at Sky Bank’s Akron office. Sky Bank serves communities in Ohio, Pennsylvania, Michigan, Indiana and West Virginia. Contact Matthews at (330) 258-2353 or firstname.lastname@example.org. For more information, visit www.skyfi.com.
“Smaller businesses are generally more vulnerable to computer security threats than larger ones, because large companies are more likely to have the best hardware and software systems and computer security specialists on staff to minimize threats,” says Marc Meyer, senior network engineer for SS&G Financial Services, a comprehensive accounting, business consulting and management firm. “Smaller business owners and managers are generally so busy taking care of their core businesses that computer security systems are placed on the backburner.”
Even so, Meyers says, there are measures all companies can take to keep their computer systems’ safe from hackers and other cyber threats. Here’s what he told Smart Business.
How should businesspeople begin to improve computer system security?
Start with programs that protect computers against viruses, spyware and hackers. There is no one magical product that will do it all. Effective computer security takes a layered approach. A security system should include virus and spyware protection programs and some sort of firewall.
Most of the major companies such as Symantec, McAfee and Trend Micro have program packages designed for business and small businesses. These programs are generally reasonably priced. It’s important, however, to update the programs to protect against new threats. Most programs have automatic update features.
How often should computer security programs be reviewed?
Weekly checks are recommended to review the basics including critical updates and to see if automatic updates are turned on and working. Also, it’s important to review programs to renew subscriptions in a timely manner.
Do threats beyond viruses, hackers and spyware exist?
There may also be internal threats to systems. An employee who may be ready to leave the company on less-than-friendly terms may want to do some damage. Also, there is a threat that unauthorized personnel may have access to sensitive information.
You can protect yourself by restricting system administration to an authorized person and creating strong passwords. In some smaller companies, everybody can administer the system. In some, people even share the same passwords. Appointing a person to administer the system and creating strong passwords limit system access and reduce the opportunity for hacking.
What constitutes a ‘strong’ password?
Strong passwords are long, consisting of at least six or eight characters. Those characters should include a combination of letters, numbers and symbols such as question marks. Also, create a policy that passwords be changed regularly such as every six months and that passwords may not be reused until a specific length of time has passed.
How can businesses protect sensitive information on computer disks or on laptops?
Laptops are generally protected by passwords created by the manufacturer that are very difficult to breech. However, a laptop can be lost or stolen. Newer systems have the ability to encrypt files to protect any information that needs to be secured. Also, some laptop users may want to consider using a secure USB drive designed specifically for storing sensitive information.
To protect information stored on computer discs, you should have a policy that all disks containing sensitive data such as client information must be stored in locked desks or file cabinets to prevent unauthorized access.
How can businesses formalize their computer security initiatives?
Create a written computer security policy to establish rules about system administration authorization. Create a system that makes changing passwords at particular intervals mandatory. Establish rules about storing sensitive information. You may also hire an outside consultant who can evaluate your computer security systems and make recommendations and offer advice about protective programs and hardware and how to create computer security policy.
Failing to protect business computer systems is costly. While it is impossible to estimate what the average financial cost is to specific businesses after a security incident, there are real clean-up costs as well as loss of productivity and downtime incurred while the clean-up is taking place. So, whatever you do, it’s critical that you invest in computer security and protection systems. It’s cost effective to be prepared.
MARC MEYER is a senior network engineer for SS&G Financial Services Inc. Reach him at (800) 869-1834 or email@example.com.
“Some people say owners should be thinking about selling their businesses the day they start them,” says Carol McNerney, CPA and director of SS&G Services Inc., a Cleveland/Northeast Ohio-based regional tax, audit, accounting and consulting firm. “That may be unrealistic. However, the truth is that people don’t do enough to position their businesses for an eventual sale. The better a business owner is prepared at any point in time, the better the financial rewards that will be reaped from the sale.”
Smart Business spoke with McNerney about what business owners can do to maximize the financial return when the time comes.
How soon before a prospective sale should acquisition positioning take place?
Owners should begin creating a good financial track record well before the time they want to sell. For example, an owner may be 55 years old and want to be divested of the business by age 62. In many deals, the buyer wants management to remain on board for a year or two after the sale. So the exit strategy may be for owners to be divested two years before they actually want to move on. That could mean strategizing to have the business positioned to sell as early as seven years before the owner wants to retire.
Also, don’t ignore the economy. Many buyers will have to finance the acquisition. If interest rates are high, there may be fewer potential buyers because cash availability may be down. Being well prepared allows sellers to take advantage of favorable conditions in the overall economy.
How should owners begin to position a company for sale?
Many deals are based on EBITDA (earnings before interest, income taxes, depreciation and amortization). So it’s a good idea to present a good financial track record and realistic projections for future growth. Owners can create a good track record by cutting unnecessary costs; making sure a capable and appropriate management group is in place; and cleaning up any pending litigation, pension liabilities or environmental issues before offering the company for sale.
How should sellers price their businesses?
Sellers often value their companies much higher than the market. A seller would be wise to call on a consultant to get a realistic idea of what the company is worth. This needn’t be a detailed assessment such as one used to seek financing, but one that fairly portrays the company’s value in the marketplace.
Also, buyers will base offers on a normalizing process that calculates EBITDA assuming the current owner has left and that reflects “normal” operations recurring. For example, that figure might reflect the absence of relatives who will no longer be drawing a salary, or that income realized from a recent real estate sale represent a one-time source in the revenue stream. Realistic pricing takes into account this normalizing process.
How can sellers anticipate so-called “deal breakers?”
Identify deal breakers before the company becomes available for sale. Review potential financial issues by transitioning defined pension plans to defined contribution plans and making sure growth projections are realistic. Make necessary investments in equipment, technology, staffing and product improvement. Also, be sure to satisfy all tax obligations.
How can sellers get help with the positioning process?
Putting together a group of advisers helps sellers through the process. For instance, a CPA helps a seller understand the tax consequences of the sale and actual cash he will realize from it. Legal counsel makes sure the seller has no legal exposure before, during and after the sale. Brokers help sellers get the company into the marketplace by identifying serious, qualified buyers.
Should sellers inform staff of a possible acquisition?
Most sellers make an effort to keep the fact that the company is available for sale under wraps to avoid loss of key employees or a downturn in productivity. The seller often will explain the presence of buyer representatives or owner advisers as individuals who may be involved in bringing working capital to the company.
How can owners prepare themselves for a sale?
Sellers need to understand that they are really letting go of the business, and consider how they’re going to feel about someone else running the company especially if the buyer wants them to stay with the business for a year or two.
Selling a business is a complex, time-consuming process. In the end, sellers will be able to realize their retirement dreams, or have the opportunity to go on to another business.
CAROL McNERNEY is a CPA and a director (partner) of SS&G Financial Services Inc. Reach her at (800) 869-1835 or firstname.lastname@example.org.
Called due diligence reports, the information compiled therein provides buyers a detailed financial portrait of the potential target and an objective opinion regarding the target’s virtues, drawbacks and potential, says Matthew Reiter, senior manager in the Assurance & Advisory Services Group Practice of the accounting/consulting firm Whitley Penn LLP.
Smart Business spoke with Reiter to learn how business buyers can benefit from due diligence reports before they sign on the dotted line.
What constitutes due diligence relative to a business acquisition?
Due diligence means assessing all key financial aspects of a potential target, including areas such as significant contracts, agreements, concentrations in customers or vendors, potential financial risks related to the target’s assets and liabilities, financial analysis of historical trending, contingencies and exposures, cash flows and significant revenue and expense areas.
Another key component is an evaluation of expected future cash flows. This analysis provides the buyer useful information regarding pro-forma adjustments necessary to portray a realistic estimate of future earnings.
Additionally, any other areas of concern that the buyer may require additional information about can be attained through this process.
How does due diligence accomplish that?
By interviewing the target company’s personnel and reviewing, first hand, its evidential matter. Through this process, an extraordinary amount of verbal and written data is gathered about the company and is then analyzed to extract key information that is beneficial to the buyer. The buyer receives summarized data on all the key information and commentary on potential issues or concerns.
Additionally, the process looks for anomalies in the company’s detailed financial records and forecasts that may indicate issues that should be addressed through the negotiation of the purchase. In many family-owned businesses, a family may receive a salary that is in excess of market rates, or the business may buy product or lease facilities or equipment from a related party vendor. These types of transactions are the types of information that should be brought to the buyer’s attention.
Is the information technology environment encompassed in this report?
In many circumstances, an evaluation of the potential target’s information technology environment determines if it’s going to meet future needs. This includes interviews with key personnel and a physical inspection of hardware and software, as well as obtaining information regarding the overall general information technology environment.
If, during the due diligence process phase, the buyer doesn’t assess the age, scalability and capabilities of the information technology, this can lead to additional hidden costs to the buyer.
Does due diligence examine tax structure?
Depending on the structure of the transaction, taxes can be an integral component of the due diligence process. This includes examining historical tax documents and issues as well as identifying the optimal strategies on a prospective basis; for example, structure and state of incorporation.
How can the resulting due diligence be used by the buyer?
This report is a useful tool to summarize key information in a proposed transaction in an organized manner. The purpose of the report is to provide the buyer with useful analysis and insightful commentary regarding the potential target. It can be used by potential investors of lenders to provide them with sufficient information to assist them in making informed investment decisions.
Additionally, the information will assist with negotiating terms of a transaction.
Who compiles a due diligence report?
Generally, the buyer engages an external professional to conduct the financial due diligence review as an advocate for the buyer. Most companies cannot afford to maintain a full-time due diligence team, so outsourcing this process is a means for a company to obtain quality resources with experience without overburdening the company. The professional brings objectivity and specific skill sets to the process, such as a strong financial background, knowledge of potential areas of concern, and a team of specialized professionals.
Similar to the house-buying example, the optimal time to perform these services is when the buyer has a serious interest in the prospect and has reached a letter of intent with the seller. It is the time that the buyer wishes to confirm the information that has been requested and identify other issues not previously communicated.
MATTHEW REITER is a senior manager in the Assurance and Advisory Services Practice of Whitley Penn, LLP, CPAs and Professional Consultants in Dallas. Reach him at (972) 392-6610 or email@example.com.
Successful businesses thrive on opportunity. But often, the chance to land a lucrative contract, take a product or service to a larger market or expand existing facilities calls for investments in equipment, personnel, inventory and even real estate. Whatever the motivation, expansion takes financial resources that may be beyond a business’s on-hand resources. Banks offer commercial financing options to help owners turn business opportunities into success stories.
To reach their goals, it is key that businesspeople understand which lending options are available, and when to pursue them, says Deborah Bish, a business banker at Sky Bank.
Smart Business spoke with Bish about the commercial lending options available to business owners, and how businesspeople can use lending resources to achieve their growth objectives.
What motivates business owners to seek commercial loans?
Those who own existing businesses generally seek financing in order to take advantage of a new opportunity, such as entry to a new market; to fulfill large, new contracts; or to purchase real estate in order to expand or relocate a business. Businesspeople also turn to commercial loans to start new businesses.
What kind of commercial finance options do banks offer?
Banks offer lines of credit, commercial loans, term loans and loans that are backed by the Small Business Administration (SBA).
How do those options differ?
SBA loans are term loans backed by that federal government agency for between 50 and 85 percent. This means the backed percentage of the money lent by the bank is guaranteed by the SBA, and administered by the bank. Durations of SBA loans vary depending upon the purpose of the loan. Interest rates on SBA loans are based on the Wall Street Journal prime rate, plus a margin based on the size and type of loan as well as the borrower’s credit standing.
Commercial loans are short-term loans generally of three to five years that do not have fixed rates. Commercial loan interest rates are based on the Wall Street Journal prime rate plus a margin. Commercial loans and SBA loans generally provide capital for business startups as well as for equipment or other capital investment purchases.
Term loans are longer-life variable interest rate loans between generally 15 and 20 years. Rates are based on the Federal Home Loan Bank rate and are fixed for three years. So if that interest rate is 4 percent at the beginning of the loan, the rate would be 4 percent for three years and would change every three years thereafter. Term loans generally provide capital for equipment, long-term expansions or real estate purchases.
Lines of credit are interest-only loans designed to provide cash flow so a business can grow or obtain cash quickly for equipment or material needed, for example, to fulfill large or new contracts. Line of credit interest rates generally change as often as changes are initiated by Federal Reserve. Banks prefer that borrowers pay down lines of credit by 30 percent annually.
What collateral is used to secure loans and lines of credit?
Generally, business loans may be secured by the business’s assets, including equipment or contracts negotiated in advance of the loan application.
What documents to banks require of commercial loan applicants?
Lenders will ask applicants for a resume to evaluate the borrower’s experience in the business they want to finance. For example, if a person is seeking financing for a restaurant, the bank wants to know if the borrower has extensive restaurant experience.
Borrowers should also bring a business plan that details their business operation, target market, and profit and loss projections. Lenders also request a copy of the borrower’s personal income tax filings for the previous three years.
If a loan or line of credit is intended to fulfill contracts already negotiated, the lender will probably ask to review the three previous years’ business tax returns for the company representing the contracts.
Should commercial borrowers shop for loans?
They should shop for interest rates, terms and fees connected with loan processing, origination and other fees such as those connected with loans on real estate.
Also, borrowers should begin shopping for loans with the bank with which they’re already doing business and where they have an established relationship. Generally, that bank is going to offer the borrower a better deal, especially if the person seeking the loan has consistently made other payments on time and has good credit.
Deborah Bish is a business banker II at Sky Bank’s downtown Akron, Ohio office. Headquartered in Bowling Green, Ohio, Sky Bank serves communities in Ohio, Pennsylvania, Michigan, Indiana and West Virginia. Reach Bish at (330) 258-2354 or firstname.lastname@example.org. For more information,visit www.skyfi.com.
Whether adding employees, purchasing capital equipment or researching ways to develop new technologies and create new products, businesspeople who invest in their own companies or establish new enterprises drive the economy in ways that extend well beyond their own industries.
According to Amy Lee, tax manager for Tauber & Balser PC, an Atlanta-based accounting and consulting firm whose clients include public and private firms in the construction, hospitality, manufacturing, real estate, professional services, not-for-profit and technology industries, the federal government offers a variety of incentives that encourage business owners to keep their own economic engines humming.
Known as general business tax credits, these incentives are connected to investment and reinvestment activities ranging from work force expansion to the use of alternative power options.
Smart Business spoke with Lee about how general business tax credits help businesspeople grow and improve their own enterprises while playing a part in boosting national and local economies.
What are general business tax credits?
General business tax credits are a series of credits offered by the federal government that are designed to stimulate and encourage certain segments of the economy by directly reducing a business’s tax liability.
Each credit has its own characteristics, requirements, qualifications and tax benefits. They provide tax incentives to business owners who engage in certain activities that benefit the community and serve other useful purposes.
How does a tax credit differ from a tax deduction?
A tax credit is a dollar-for-dollar reduction in the actual tax owed. A tax deduction only reduces the amount of income that is taxable; therefore, the amount of tax reduced is based on the tax rate of the business.
For example, if a business is in a 25 percent tax bracket, a $100 tax deduction will reduce the tax liability by only $25. However, a $100 tax credit will reduce the tax liability by $100.
What are some examples of general business tax credits?
Examples of tax credits that benefit certain disadvantaged groups are the work opportunity credit and the disabled access credit. The work opportunity credit may be available to employers who hire people that have a particularly high unemployment rate or with special employment needs. The disabled access credit may be eligible to small-business owners who incur expenses in providing access to disabled persons.
There are also tax credits that encourage energy conservation and other activities that benefit the environment. In fact, the recently passed Energy Incentives Act of 2005 was designed to promote energy conservation. One of the credits under the energy bill is the alternative motor vehicle credit, which provides a tax credit to business owners who purchase new, dedicated alternative-fuel vehicles after Jan. 1, 2006.
The energy-efficient home credit is available to home construction contractors who build qualified new, energy-efficient homes acquired after Dec. 31, 2005, for principal residence use.
Are there general business tax credits connected to specific industries?
Although most credits encourage certain types of activities, some tax credits tend to be more specific to certain industries. The employer Social Security credit, widely used by the hospitality industry where tipping is customary, is a tax credit generally equal to the employer’s portion of Medicare and Social Security taxes paid on tips received by employees.
How do you claim a general business tax credit?
To claim a current general business tax credit, business owners must file a tax form specific to each individual tax credit. Any unused credit can be carried back for one year, then forward for 20 years.
If a carryback or carryfoward tax credit is available, then a Form 3800 (General Business Credit) must be filed. Form 3800 must also be filed when more than one tax credit is being claimed (with a few exceptions), or if any credits are being claimed from passive activities.
How can business owners identify and pursue general business tax credits most appropriate for their businesses?
The best way is to seek the advice of a consultant such as a CPA. General business tax credits can help all businesses that qualify for them, but particularly small-business owners by providing breaks they need to sustain continuity and growth.
Be aware that some of these credits expired on Dec. 31, 2005. However, there may be an opportunity to amend prior-year tax returns to take advantage of general business tax credits. A complete listing of all the general business tax credits and more detailed information pertaining to them can be found under the Internal Revenue Code Section 38.
Amy Lee, CPA, is a tax manager at Tauber & Balser PC. She has extensive experience involving tax planning issues and compliance for small to medium-sized businesses with an expertise in the restaurant industry. Reach her at (404) 814-4904 or email@example.com.
“Hiring the wrong person can cost an estimated two times the employee’s salary in lost production, morale and training,” says Polly Knox, manager in the HR Placement and Consulting Division of SS&G Financial Services, a Cleveland/Northeast Ohio-based comprehensive accounting, business consulting and management firm.
Smart Business spoke with Knox to learn how employers can recruit prospective new hires, identify appropriate candidates and choose the one best suited to the job and the workplace culture.
How can managers search for employment candidates?
Very little is done with print advertising searches. Instead, professional associations and networking with others in comparable fields can be useful candidate resources. Online job search engines are also a good option. To avoid getting 450 resumes, write ads seeking a person with the specific experience and skill sets required for the job.
Once appropriate resumes are submitted, what are the next steps?
After a resume review, choose those candidates who appear appropriate on paper and contact each for a 10- or 15-minute telephone interview. Ask ‘self-ejecting’ questions such as those about a specific skill set or experience level. Also, ask about current or most recent salary. Above all, listen to the person’s tone of voice and manner of speaking on the phone. Ask yourself, ‘Do I want to meet this person?’ Of the people chosen for a telephone interview, it is generally possible to choose at least three to five candidates to invite for a face-to-face interview.
The person conducting the interview should understand the goal of the interview, the company’s personnel needs, the culture of the office and the style of the person managing the new employee. Interviews should last about one hour and be conducted at the workplace.
How can employers conduct an effective in-person interview?
A good interview has a format: a beginning, middle and an end. It begins with an introduction that sets the stage for the interview by explaining to the candidate that he or she will be asked a number of questions, and at the end of the interview, will be able to ask his or her own questions.
The middle of the interview should be designed to learn what measurable skill sets the candidate possesses, and what kind of workplace cultures he or she has been in previously.
The interviewer should ask open-ended questions that discourage yes or no answers. But don’t be too broad by requesting a candidate to ‘tell me about yourself.’ Ask specific questions about skill sets, education and experience that reflect the candidate’s past experiences and reactions to workplace events.
You should also ask behavioral questions. The theory behind behavioral questioning is that past behavior is a predictor of future behavior. For example, if your workplace has a strict 8-to-5 workday, or the manager has a micro-management style, ask the candidate for a specific example of when he worked in that kind of environment, and how he felt about it.
How should an interview end?
It is the interviewer’s job to let the candidate know the interview is completed. Ask questions to learn what the candidate has learned about the workplace, the position and the company’s culture. Then allow him or her to ask questions.
How should employers follow up after interviews?
Background checks should be performed on all candidates on your hiring short list. Check motor vehicle record, credit, education and criminal records. All these investigations may be performed by an outside service able to quickly access resources. Results can generally be presented within 72 hours.
Company CEOs or CFOs are effective in obtaining necessary information for the higher level positions in their companies. When one CEO is talking to another, he or she’s going to be more candid with a peer than with an HR person or someone on another management level.
On average, how long does the hiring process take?
Typically, between 20 an 30 hours to source, screen, interview and select qualified candidates. Often, someone within the organization is performing the task in addition to doing his or her own, unrelated job. Companies can hire search professionals who charge a percentage fee (up to a third of the starting salary) to conduct the screening and interviewing process for them.
How can employers fill critical positions during the hiring process?
Employers can fill critical positions during the hiring process by temporarily hiring a person. Someone with lots of experience who may have lost a job through a merger or buyout can be productive right away. Also, establishing a good rapport with a temporary employment agency is a good idea.
In long-term hiring, employers should understand that 80 percent of hiring success lies in the fit of the candidate within the organization and its culture There are not short cuts to finding the right person for the job.
POLLY KNOX is a manager in the HR Placement and Consulting Division of SS&G Financial Services. Reach her at (800) 869-1834 or firstname.lastname@example.org.
From corporate names to product lines, software to research data, every company has unique intellectual property. And while the majority of business people realize the need to protect their company from the threats of trademark and patent infringement, knock-off artists and claims of software piracy, at least as many are unaware that intellectual property (IP) also represents a valuable asset just waiting to be tapped.
By viewing intellectual property just like other capital assets, companies can harvest and use IP as a valuable market resource, says Mark Terzola, an attorney in Roetzel & Andress LPA’s Akron office and the Intellectual Property Practice Group manager.
Smart Business spoke with Terzola to learn how intellectual property can translate into opportunity for its owners, and how to manage IP assets to their highest potential.
What kind of intellectual property do business owners often fail to recognize?
Intellectual capital only exists if you look for it. For example, every business has a name. A lot fewer have a brand or brands, which serve different but coordinated, strategic functions. Very often business owners don’t recognize a company name as an intellectual property asset that can be used to create value.
There are also other overlooked IP assets such as those relating to innovative products or processes, the look and feel of a particular product line or even a marketing strategy aimed at specific price points or to a specific distribution channel.
How can business owners identify and evaluate IP assets?
Every company’s CEO or president says that its employees are their company’s most important asset. Capture the creative output of those employees. Employees love to have their employers see value in what they contribute every day at work.
And their creative ideas whether in product design, manufacturing, marketing or any other field are what they would most like to see valued. The trick is to create a system to harvest that creative output and bring it to the attention of management.
How can such a system be initiated?
Every company is different. There is no one-size-fits-all answer. For some companies, personnel and department meetings work; in other companies, a patent committee or IP coordinator works. Companies also need some ability to monitor the financial investment into those ideas.
In the end, companies need to communicate the fact that they recognize the value of existing intellectual property in the business and emphasize the development of new intellectual property.
How can business owners determine which IP assets have revenue-generating potential?
Businesspeople are very adept at figuring out how to use an asset once they know what it is. IP is no different. Generally, value is easy to see; it’s a question of how much value.
The first step in assessing value is to determine if the IP asset can be protected with legal tools. If the asset can be protected, the next step is to identify value generation models. When appropriate, there are professional consultants that can help companies value their IP assets and commercialize them.
Once IP assets are identified, what can businesspeople do to protect them?
Hire counsel who is good at working with businesspeople. Generally, in the U.S., IP assets are protected by copyright, patent, trade secret, trade dress, trademark and a host of other laws.
Businesspeople should first seek counsel to recommend ways to aggressively protect assets while understanding the company’s vision, culture and operations. Counsel can then help shape direction and strategy consistent with those core values. Such a strategy would include being vigilant against infringement and to take action, whether that is litigation or seeking a license arrangement, the very first time unlawful use of their protected IP is discovered.
Businesspeople who act quickly and firmly soon become recognized as intolerant of IP infringement. Consequently, infringement is not likely to happen as often
How can businesspeople start discovering and capitalizing on their IP assets?
Business owners should ask themselves a few questions: Do I have a system to take advantage of the creative output of our people? Do I have a system to bring those ideas to management’s attention, and a system to evaluate their value?
Answering those questions helps businesspeople begin to recognize that their companies do have IP capital. Once businesspeople recognize assets, they almost always find ways to use them to create value.
Mark Terzola is an attorney and Intellectual Property Practice Group manager for Roetzel & Andress LPA. He works with companies to harvest and use IP as a valuable market resource. Contact him in Akron at (330) 849-6607 or email@example.com. Roetzel & Andress has nine offices throughout Ohio, Florida and DC. Find out more at www.ralaw.com.
While many may never experience illness requiring long-term nursing facility or home care, an estimated 22 million seniors will require long-term care by the year 2020. With the current cost of an average nursing home stay hovering around $65,000 annually, paying for care can devastate retirement funds.
But, according to certified financial planner Carina Diamond, managing partner of SS&G Investment Services LLC, a regional wealth management firm, long-term care insurance can preserve hard-earned assets.
Smart Business spoke with Diamond about how long-term care insurance can protect personal assets and how businesses can help their employees prepare for later life needs.
What is long-term care insurance, and what are the benefits of obtaining it?
Long-term care insurance is a policy that covers nursing home care and home health care services. Some policies have also expanded to include adult day care and assisted living costs. That coverage may allow you to stay in your own home instead of having to go into a nursing home.
It is one way to ensure that you get your retirement savings, or that your children get their inheritance. It also increases your chances that you won’t impoverish yourself or your spouse or partner if you need long-term care at some point.
When is the best time to purchase a policy?
If a person is in their 20s, long-term care insurance is probably not something they think about. But a person in their 50s or even in their 40s should consider it.
What do premiums cost?
For people in their 40s and 50s who are in good health, the premiums are very reasonable. Depending upon the policy and coverage, cost for a comprehensive policy can range from $1,000 per year for a person in their 40s to $2,000 per year or more for a person in their 50s.
What should people consider before buying a policy?
One of the first things to look at is the elimination, or waiting period that’s 30, 60 or 90 days before benefits begin. It’s like a deductible. The sweet spot is 90 days. Before 90 days, premiums are going to be higher; after 90 days, they aren’t significantly reduced enough to make a difference.
The next thing to look at is the daily benefit. Most range from $100 to $150 per day. That may seem like a good amount now, but 10 or 20 years from now, that’s going to look like peanuts.
There are riders that can be placed on the policy that cover cost of living increases usually about 5 percent per year. It makes the policy more expensive, but cost for long-term care is expected to increase faster than inflation, so this is a critical rider to have.
How do people qualify for benefits?
Benefits typically begin after the waiting period, when a person can’t perform several activities of daily living, such as eating, bathing, dressing, toileting and transferring. That determination must be made by your doctor.
After that, payments must be made to a bona fide long-term care provider. Policies won’t pay a family member or a caregiver who is not recognized. Some policies will pay the policyholder directly.
Can a policy be purchased for someone else?
Some people are taking policies out for their parents because they know they will have to look after them someday. However, in order to take a policy out on another person, that person must agree to it.
Can businesses include long-term care as an employee benefit?
Yes. Companies often look at long-term care coverage as a recruiting and retention tool. For certain management positions, it’s becoming part of the benefits package.
Coverage for groups may be guaranteed standard issue with no underwriting. That means that even if there is someone in the organization who is not in the best of health, the coverage is provided with no questions asked.
Also, companies are not required to offer it to all employees. While companies can’t discriminate according to age, they can offer the coverage only to people in certain levels of management positions.
What else should people keep in mind about long-term care insurance?
The important thing is that people don’t know they need long-term care insurance until it’s too late. But many people have misconceptions about what Medicare and Medicaid cover. Both Medicare and Medicaid coverage are extremely limited. The good news is that long-term health insurance is becoming a household term.
Carina Diamond, CFP, MBA, is managing partner of SS&G Investment Services LLC. Reach her at firstname.lastname@example.org or 1-800-871-0985.
While losses may vary, no business is immune. But, says Jeff Firestone, a certified fraud examiner and manager at SS&G Financial Services Inc., a Cleveland/Northeast Ohio-based regional accounting, management and consulting firm, there are ways to reduce fraud exposure.
Smart Business spoke with Firestone about fraud risk and what systems can make firms less vulnerable to occupational fraud.
What kinds of occupational fraud threaten businesses?
Businesses are exposed to both internal and external fraud. Fraud includes collusion where employees work together with outside vendors paying money to people who don’t exist, or bid rigging with vendors. Another is stealing assets people from the inside stealing money or materials or other assets in inventory.
The third general area where businesses are also exposed is to fraudulent statements, both financials and nonfinancials. Those range from creating false financial statements to something as simple as fudging on a resume.
What are those warning signs?
If you have an employee who is in charge of accounts receivable, for example, and that person never takes a vacation, it’s a trigger for suspicion. Also, look for relationships if the person in charge of accounts receivable is a close friend or relative or the business owner or CEO, that person could become involved in a fraud situation believing that he or she would never be suspected because the relationship would protect them.
Also, if you have someone in the organization who is shy and meek and suddenly changes drastically has had plastic surgery or shows up with expensive clothes or driving a snappy car that person could be suspected of fraud.
How are most fraud cases uncovered?
Up to five years ago, the number one way of finding fraud was by accident. Now, the number one way is through tips.
Personally, I think that people are generally good and would be offended if someone in their organization was stealing or getting something for nothing. In order to get tips, a system has to be in place where tips are confidential and, in many cases made to a third party.
Fraud is also found through investigations performing internal or external audits, computer forensic examinations and other techniques. When fraud is suspected of an employee, private detectives can be used to investigate a person or situation. Either way, a system speaks to a company’s commitment to creating an atmosphere to employees that fraud will not be tolerated.
How can businesspeople create systems to prevent occupational fraud?
It has to start from the top down. If people believe their leaders are honest, they’re less likely to commit fraud. Create a corporate culture that spells out employee responsibilities to minimize the opportunity for fraud.
For example, establish a mandatory vacation policy. Cross-train employees people who do accounts receivable and accounts payable learn each other’s jobs to create a checks and balances system.
Do background checks on prospective employees and weed out troublemakers from the beginning. Create internal controls that lay out the flow of money and responsibilities and also create fraud prevention policies.
Use employee newsletters to communicate policies, systems and a zero tolerance attitude. Do the same with clients placing a tagline on invoices asking them to alert you if they suspect something’s not right.
Also, if you’re in real estate or property management, you can use a newsletter or alert to tenants asking them to be alert to something such as a property manager collecting rent in cash or claiming an empty space is occupied.
How should business owners proceed if fraud is found?
Be aware that every situation is different. When you discover a fraud, it is a good idea to first research your insurance policy to ensure that you don’t jeopardize your coverage. Proceed cautiously. Investigate before involving the police or your insurance company.
Get a lawyer or consultant to advise you. Once fraud is proven, one goal is to get your money back. Another goal is to punish the thief, and a third goal may be to deter further fraud.
You do have a choice once you have the facts and sufficient evidence for a case, you can prosecute. Call in the police, and to have them take the employee away in handcuffs. It’s a real deterrent.
Jeff Firestone, CPA, CFE, is a manager for SS&G. Reach him at mailto:jfirestone@SSandG.com or (800) 869-1834.