The lifeblood of most businesses is money. Unless the company’s ownership and management principals are quite wealthy, the source for much of a firm’s operating capital and money for capital improvements is usually a bank loan.
While some business owners are anxious about applying for a bank loan, there really is no magic involved in getting a business loan approved. There is, however, a series of steps that must be taken before any bank will approve a loan. Knowing ahead of time what the bank expects from customers applying for a business loan makes it much easier to be prepared for the loan interview and improves the odds of the bank saying yes.
Smart Business turned to Sue Zazon, president and CEO of FirstMerit Bank in Columbus, for a look at how banks make credit decisions.
What paperwork should a business have available at the time of making its loan application?
The paperwork needed for a loan depends on the complexity of the transaction. It is very important that the loan’s purpose be clearly defined. If you have a relationship with a banker, a conversation regarding the information essentials is helpful. The borrower should have good quality financial information, be knowledgeable about the numbers, be knowledgeable about why he or she needs the money and also have a plan for repayment.
What kinds of financial considerations or ratios are you looking for with a business loan?
When I initially look at a loan request, I assess three factors.
- I look to the owners/managers of the business and their demonstrated ability to continue to manage the company profitably.
The people that manage or own the business are the most critical factor in my decision.
- Cash flow to repay the debt. If it is term financing, a rule of thumb is a debt-service coverage ratio of 1.2 times. The bank looks
at the cash flow leverage too, using a measure of debt to cash flow.
- Collateral, which is usually receivables, inventory, machinery, equipment and real estate. The bank generally discounts the value of the collateral to better align the total with what the bank would realize in a distressed situation.
Is the entire process objective, or do other factors come into play?
The entire process is both objective and subjective. The numbers are objective. The interpretation of the numbers, management’s capacity, industry considerations and financial projections are all subjective. I think business lending is subjective, which is why it is so important to have a strong relationship with your bank.
What ultimately determines the fate of a loan request?
The fate of a typical loan request is determined initially by what the borrower is using the money for. If it is to refinance a piece of real estate or to buy a replacement piece of machinery, the existing cash flow should cover the new debt. It gets tricky when a company asks for an increase in its line of credit because cash flow has gotten tight. The bank will analyze the balance sheet to understand the changes in accounts receivable, inventory and accounts payable, because that is what the line of credit is financing.
We ask questions. Is the money needed because receivables have not been collected as fast as anticipated? Is there a charge-off of bad debt? Is it a need based on revenue growth? It could be a combination of all of them.
If someone is buying another company and tripling the amount of debt while tripling the size of the company, banks have to determine the viability of the management team and the business plan. If the request is a small increase in its line of credit and the company is doing well, it’s a pretty easy loan request. Once it is very clear about the use of the money, the analysis begins. A good relationship with a bank is essential — especially when the loan requests become more complicated. Banks tend to be more flexible when the opportunity is well organized and thought out. The bank is in risk business, and when the borrower can clearly explain those risks and the mitigants, the process is much more streamlined.
SUE ZAZON is president and CEO of FirstMerit Bank in Columbus. Reach her at (614) 545-2791.
Every time any representative of a firm has a contact with a customer, it is an opportunity to build brand image, build customer satisfaction and cement a long-term relationship. This is true whether it is an in-person contact or a phone call.
“All customer service requires a three-pronged approach,” says Steve Boyazis, senior vice president of sales and new business development at InfoCision Management Corp., Akron. “First, you have to select the right people to put in front of your clients. Second, you have to train them on not only your company and products but also your history, philosophy, and softer skills like dispute resolution and dealing with difficult people. Finally, you have to monitor how people are doing and both provide instant feedback and share best practices.”
Smart Business asked Boyazis how to assure a customer has a great experience.
How do you properly train a CSR to handle customer calls promptly and with the appropriate tone?
Start the interview process when someone calls in to set a time for an interview. Look for style, tone, follow-through, etc. Then take everyone through a 30-day training process to learn not only how to make a quality client presentation, but also indoctrinate them in company culture. Finally, have a 120-point quality checklist that measures both the soft and hard details of the client engagement, and provide regular feedback and coaching to get everyone up to par.
But ultimately it’s all in the environment you create, goals you set and commitment you make to put the best people in the best roles. The art is either getting everyone up to par or routing calls to those people best able to handle the specific issues at hand. CSRs who can do both are in great shape.
What is the value of customer satisfaction?
I’ve not seen a lot of research that quantitatively ties brand image to client satisfaction and specifically how each client interaction drives this perception. But I have seen a lot about how many things impact brand awareness like advertising and product quality. Always at the top of that list is that one of the biggest opportunities to both create and destroy company brand comes on those few occasions when a customer interacts directly with the company. That moment in time can make or break a relationship.
What do you look at when pursuing customer satisfaction?
We recently did a study for a client (who sold a product with monthly renewals) about the impact of its customer satisfaction on the long-term value of that client and the results bore this out.
Specifically, the research looked at three common aspects of every customer-care call. (1) Did the clients call get answered? (2) Did the client feel his or her call was dealt with appropriately? (3) Were concerns and/or issues handled quickly and efficiently? These three same factors apply whether you are answering a call, sending out a service tech, or ringing up a sale at a cash register.
What were the results?
Here’s what we found. When a customer’s call went unanswered, that customer stopped purchasing 4 percent earlier.
When a customer scored his or her call experience at 79 percent or less (done through an end-of-call satisfaction survey), he or she stopped purchasing 6 percent earlier.
When a customer failed to get a problem resolved quickly, he or she stopped purchasing 12 percent earlier.
Does 4 percent or 6 percent really make a difference?
These may sound like small numbers, but when you improve all three areas, including client satisfaction, first-call resolutions and drop the abandoned call rate (that is, the numbers drop from 6 percent to, say, 3 percent), overall satisfaction jumps significantly.
Factor in an average lifetime customer value of just a few hundred dollars and the numbers show that this client saved more than $1.5 million by actively providing a great customer experience.
This is just the tip of the iceberg. This type of great client experience also leads to more referrals, better opportunities to cross-sell and up-sell, and shorter calls that make everything more efficient.
STEVE BOYAZIS is senior vice president-of sales and new business development at InfoCision Management Corp., Akron. Founded in 1982, InfoCision is a privately held teleservice company and is a leading provider of inbound and outbound marketing for nonprofit, commercial, religious and political organizations. Reach Boyazis at Steve.firstname.lastname@example.org or (330) 670-5877.
Everyone wants a good deal on their new car when they buy it. But there is another opportunity to make money on a car deal: buying a vehicle with the idea of maximizing its resale value.
“Resale values are critical at any price point, entry level to luxury, in both pre-owned vehicles and new vehicles,” says Fred Palmer, manager of pre-owned sales at Ganley BMW. “The purchase of a vehicle is likely to be the second-largest purchase we make as consumers, and that purchase should be researched with that in mind.”
Smart Business asked Palmer for some tips on maximizing resale value.
Are resale values more important in luxury cars than in other segments of the car market?
I’ll use actual vehicle examples. To remain unbiased, I won’t name makes and models.
One manufacturer’s four-door sedan entry-level offering has a Manufacturers Suggested Retail Price (MSRP) of $11,350, while a competitive model has an MSRP of $15,605. At first glance, that’s a substantial difference. But let’s do a little research, using comparative ALGs Automotive Lease Guide’s percentage of MSRP future value, the guideline used by financial institutions for leasing computation. The ALG residual value for vehicle No. 1 after 36 months is 28 percent. For vehicle No. 2, it is 45 percent.
You may or may not be considering leasing, but this data is as important in a purchase as it is in a lease. What it tells us is that, if we decide to purchase vehicle No. 2 and trade it in three years, we enjoy driving the nicer car and will recover almost all of the purchase price difference. Traditionally, even if we keep the vehicle, it will continue to maintain a much higher value in future years of ownership. The same theory applies to a pre-owned purchase. If you’re planning on making a pre-owned purchase, research what a vehicle of the same make and model is selling for two or three years from now. Many luxury vehicles depreciate very little after the first year.
Is it true that perception of a brand’s quality is one of the most consistent determining factors of resale values?
Brand quality is a major factor in resale, but perception is not always reality. Do some Internet research. Try to talk to a couple of current owners of the type of vehicle you are interested in. Use this information collectively. Just because one individual had a problem with a particular model does not mean every one produced has the same problem.
What are some key factors in resale value? Body style? Color?
Anything that affects the marketability of a vehicle affects its resale.
Any deviation from a consumer’s perception of ‘normal’ reduces the size of the market for any given vehicle. For example, we would assume a conservative family sedan would be equipped with an automatic transmission; a manual transmission would greatly reduce the market for this vehicle. You may like the almost-never-ordered color because it is different, but when it comes to resale you are risking dollars.
Which does better: a model with few options or those with all the available amenities?
One of the worst pieces of advice the ‘How To Buy A Car’ articles give to the consumer is to buy the base model with as few options as possible. The reason seems to be the idea that the more options, the more profit for the dealer.
I am not saying you have to ‘check all the boxes’ in the options list, but be practical and remember certain options are expected to be on specific groups of vehicles. For example, a luxury vehicle in the Cleveland area that originally was available with heated seats is expected to have them. Heated seats would add little or no value in the South, but up here the lack of even this one option will reduce the vehicle’s value.
Lack of power windows, power seats and alloy wheels in a near-luxury vehicle will make it much less desirable, reducing the number of people who would consider purchasing it, thus lowering its resale value.
Any other advice you could offer to retain as much of a vehicles value as possible?
Once you have decided on your next vehicle, new or pre-owned, keep it well maintained, both mechanically and cosmetically. Transferable manufacturer’s extended warranties help keep your vehicle in good repair and add value to the next owner.
Remember, one day you will have to ‘market’ that vehicle to someone. Whether that someone is a dealer or a private buyer, its condition is critical in the return on you investment.
FRED PALMER is manager of pre-owned sales at Ganley BMW in Middleburg Heights. Reach him at (440) 845-9333 or email@example.com.
“Leasing is not for everyone,” says Carlos Dague, new care sales manager at Ganley BMW in Middleburg Heights. “Drivers who do not properly maintain their cars technically and/or cosmetically can experience excess-wear-and-tear charges. Leasing is a commitment, and the driver must stay in the car for as close to end of lease as possible to avoid penalties.”
Smart Business asked Dague about the pros and cons of leasing versus buying luxury cars.
How important is total net cost?
Many consumers evaluate a lease by taking the total of the lease payments adding the lease end value (residual value) to the total. Since most drivers do not buy out their leases, the effect of the higher residual values that most manufacturers use in their leases is negated. The value of the lease is really how much vehicle you get for the payment, and whether it fits your needs.
What maintenance fees must lessees pay?
Maintenance (servicing the vehicle) is the same for both buyers and lessees. If the leased vehicle is not serviced according to the manufacturer’s recommendations, the lessee can be responsible for excess wear and tear.
How about the upfront costs?
The upfront costs of leasing are usually the first monthly payment; refundable security deposit; and license, title and registration fees. Upfront purchase costs (down payment) usually are 10 percent to 20 percent of the total price including tax and title fees.
How do monthly payments compare for buying versus leasing?
Monthly payments on a lease are usually much lower and for a shorter term than a purchase. For example, a $30,000 car purchase with 10 percent down will incur payments of $560 to $570 per month for 60 months. The same car leased will be under $500 per month with less than half the startup cost about $1200 to $1300 for only 36 months. The car will be under warranty for the entire lease term, assuming 12,000 miles per year, taking the uncertainty of repairs out of the picture.
What happens if you terminate a lease early?
Manufacturer’s leases usually are 24 to 36 months because most of us get the ‘new-car bug’ in this time frame.
Terminating a lease can be a challenge, since the lessee is responsible for the remainder of the payments plus the residual as a payoff, plus any penalties the lessor might want to collect. Unless the lessee is in the last 90 days of the lease, the payoff amount might be several hundred to several thousand dollars more than the trade market value of the car. The lessee is responsible for any difference in market value and payoff and may pay it or finance it on the next car.
When can a lessee opt to purchase the vehicle outright?
First, buying out a leased vehicle before lease maturity is not advisable, as the payoff is usually not negotiable and no interest is saved by purchasing it prior to lease end. It is better to wait until the last 90 days of the lease and see if the lessor might want to negotiate the residual value closer to market value, if market value is considerably lower. If the plan is to own the vehicle from the beginning of the lease, just purchase it then, and be done with it.
How about tax implications?
Tax implications on a lease are the same when it comes to sales or use tax, as the use tax rate in Ohio is the same as sales tax rate, based on the county where the lessee lives. The big advantage is that the tax is only on the payment, not the entire purchase price of the car. As to income tax deductibility, that is up to the driver’s accountant, although most business owners find leasing the best option for expensing vehicles.
What about the mileage at the end of a lease term?
Annual mileage factors a lot when the lessor determines residual value, and lessors get a break when adjusting for mileage increases above 12,000 miles per year, which is the most popular choice. Upfront mileage is usually 10 cents to 12 cents per mile, added to the lease payment. Waiting to pay at lease maturity can be twice as expensive at 20 cents to 25 cents per mile. It’s better to buy upfront than wait in most cases.
CARLOS DAGUE is the new car sales manager at Ganley BMW, Middleburg Heights. He has been selling BMWs since 1982. Reach him at (440) 843-3552 or firstname.lastname@example.org.
“An EMBA is a graduate-level program designed to provide current and potential executives with the knowledge and skills needed for effective management and decision-making,” says Tom Green, Ph.D., who is associate provost of National University in San Diego.
Smart Business asked Green about the particulars of an EMBA.
What is the difference between an EMBA and an MBA?
There are really two main differences. The EMBA typically requires prior work experience for admission to the program, which relates to the second difference: the EMBA is less a generalist degree than the MBA and more of an integrative experience.
So while the typical MBA provides a broad background in business-related disciplines (for example, management, marketing, leadership, finance and accounting), the EMBA addresses these disciplines more from a management perspective and should help students understand how they are all integrated.
Which is more prevalent in the marketplace and why?
The general MBA is more prevalent. There is really more of a demand at the entry level for graduate business education students who either recently completed an undergraduate degree or who are looking to advance in their careers. The EMBA is really designed for those who already have achieved a certain level of success.
Historically, executives have promoted through the ranks and received much of their executive ‘education’ on the job. However, it is very difficult for a CIO or CFO to move into a CEO position without a broader-based understanding of the different business functions. In addition, it is difficult to be competitive in a global economy with educational experiences that may be 10 or more years old.
How long will the EMBA program take to complete?
Our EMBA consists of 12 courses that can be completed in 12 months. Typically, EMBA programs tend to be shorter than MBA programs.
Is financial aid available?
We offer financial aid for all of our students, regardless of the program. To find out if your company offers tuition reimbursement, you should talk to your HR department.
How is an EMBA more meaningful to a minority MBA holder?
Historically, the barriers for minorities to middle and upper management positions have been education and [accrued] time in positions of progressive responsibility. Clearly, there is a link between the two: one does not get in those positions without a strong educational background, and one does not promote without the experience. An MBA helps to level the playing field for historically underrepresented groups.
Women are making progress, but are still underrepresented in managerial positions. Again, executive education and experience have been the barriers, and the EMBA, like the MBA, is a great equalizer.
Given the EMBA is a great door-opener, is it really of value to someone with 15 or 20 years in the work force?
For people at that number of years in the work force, the EMBA provides three benefits. First, it provides the most current research and business trends. Second, it provides a broader understanding of all business functions. Third, the program provides excellent networking opportunities with executives from other organizations.
How much more money will workers typically see in their paychecks after earning an MBA?
Many variables affect what a person makes, many of them beyond the scope of the graduate degree. While estimates vary, the median income of persons with a high school education in 2003 was $26,000; associate degree, $33,000; bachelor’s degree, $43,000; master’s degree, $53,000; professional degree, $81,000; doctorate degree, $70,000.
In 2005, MBA graduates with less than three years of work experience had an average salary of about $68,000; with three to six years of work experience, the average was about $89,000.
What are reasonable expectations for a student embarking on an EMBA program?
Students should be clear about what they expect to get from a graduate degree. For example, the average salary of a Stanford MBA is $100,000. The cost of tuition is significant, and students graduate with a great deal of debt. However, there is a valuable network to which graduates have access. But is the quality of the instruction significantly different? That is hard to say. It is important for prospective students to have a good idea of what they need in a degree program and to find a program that matches.
The bottom line for potential MBA/EMBA students is to find the right program. The most important aspect of a graduate education is the acquisition of knowledge and skills, and how to apply those in a real-world context.
A well-run program will provide health and medical education, nutrition information, physical activity to teach prevention of injury at work and to lead a healthy lifestyle. It will also save on the insurance premiums the employer has to pay and typically will reduce absenteeism.
Smart Business interviewed Thomas “Tim” Stover at the Akron General Medical Center about the ins and outs of a well-run program. Alexis Adams, AGMC’s wellness manager, provided details, too. We started with the basics:
Why should a corporation get involved in wellness programs?
The average annual health care costs for adults who are obese are 35 percent higher than for individuals of normal weight. People spend an average of 45 hours a week at work. That means the majority of time a person is awake, they are in a work situation.
Employees who are closer to their ideal weight miss fewer days of work than those who are overweight. Loss of productivity, time off, ineffective work, wasted time due to fatigue are factors to consider when instituting a wellness program.
Where does a company start? In the executive suite, where jobs are more sedentary, or with the labor and hourly workers whose work is more physical?
Executive physical programs not only provide a comprehensive testing and physical to local employer executives, but also include education on proper nutrition, exercise and alternatives to dangerous lifestyle habits.
What is involved in an initial screening?
An initial screening should include a thorough health risk assessment, cholesterol screening, body fat analysis, dietary analysis and an exercise test of some kind.
Later, a company might want to get involved in other areas like glucose screenings, ergonomics and work injury prevention, group personal training, health fairs, nutrition counseling, stress management, team-building exercises and wellness retreat days.
How much time is required? What is the cost?
Time involved varies to the extent of the investment in the program and what goals are to be obtained through the wellness program. The costs can be minimal per employee.
Some companies use programs like ours to come in at lunch time to show proper nutrition planning. This is done with in-house nutritionists through cooking and meal preparation classes.
Should an employer expect a program to come to the office park, or do employee/participants have to go to a health care center?
A program can take place at the work site or off campus. In either case, it can be specifically designed to meet the requirements of the company and its employees.
How often does a participant go back for additional screenings? Is this on company time or on the employee’s time?
Normally, screenings are held on company time. However, if follow-up is needed, this is usually on employee time. If the company sets up a program with annual screenings, it would be able to give data on how the program was proceeding from year to year.
Does insurance help cover the costs? Aren’t most health insurance programs geared to covering expenses incurred for illness rather than for preventive programs?
The insurance coverage is very early in paying for prevention and/or wellness programs. Their payment systems are designed to pay for illness, injury and rehabilitation but not for the prevention of the same.
Do the new HSAs (health service agreements) mesh better with the employee wellness concept than traditional insurance? What’s the strategy here?
HSAs do mesh with wellness. As employees start to invest more financial resources into these accounts, a good wellness program drives the workers toward not spending the invested monies. Keep in mind that wellness is free. Then the money comes back to the employee.
Can you point to one or two successful corporate programs where the company got a break in its insurance premiums or reduced absenteeism?
Local companies we help in employee wellness are Gojo, Sterling and DRB Enterprise. We have an employee walking program at the hospital focused on lifestyle change to improve heath.
Are most employees willing to change their lifestyles? What kinds of incentives work?
Among the biggest incentives are lower family premiums for health insurance. This is a great incentive to get in shape and stay well. Smoking cessation alone by our nation’s employees would take approximately $8 billion out of our nation’s health care costs.
THOMAS “TIM” STOVER hosts the Akron General Good Health Radio Hour. He is the medical director of Akron General’s Health and Wellness Center and the Care Management Program at Akron General Medical Center. Reach him at (330) 344-1099 or email@example.com.
They are worrisome because class actions are a form of claim aggregation. Instead of one or a handful of plaintiffs bringing a claim, state and federal courts permit lawsuits by classes of plaintiffs that can number in the thousands or tens of thousands.
Thomas M. Goutman, chair of the litigation department of White and Williams LLP, explains that the sheer volume of claims in a potential class action makes the consequences of losing financially ruinous to the defendant corporation.
White and Williams has handled class actions throughout the country in such areas as antitrust, security, consumer liability, insurance, toxic torts, pharmaceutical and medical devices, labor and employment, RICO, product liability and banking.
So Smart Business asked Goutman about the impact of class actions.
Can all types of claims be filed as class actions?
Certainly, plaintiffs’ class action attorneys have creatively attempted to force all types of claims into a class action framework. But the Rules in State and Federal Courts provide criteria that judges apply in deciding which cases are appropriate for class treatment.
What are those criteria?
Most jurisdictions require that putative class plaintiffs demonstrate that their claims are sufficiently numerous (“numerosity”), are typical of the claims of other class members (“typicality”), that common elements of their claims preponderate over noncommon elements (“commonality”), and that a class action would be a fair and efficient method of resolving the claims.
Most putative class actions that fail to get certified do so because they fail to meet the commonality factor. In those instances, the defendant has been able to demonstrate that each potential claim involves individual and unique circumstances that make class treatment of those claims simply impossible.
So, just because a case is filed as a class action doesn’t mean it will stay one?
It is filed as a putative class action. Then, typically, there will be a short period of discovery interrogatories, exchanges of documents, dispositions on the issue of whether the class should be certified. Then there will be a certification hearing before a judge, which will be like a mini-trial, where the class representatives will testify, as well as representatives of the defendant and expert witnesses.
Because a lot is riding on the certification decisions, class hearings can be lengthy and involved affairs.
But even if a class is certified, that doesn’t mean that the defendant loses, does it?
No. If permitted by the Rules, the defendant can appeal the certification decision.
But, failing that, more often than not, the case will settle because many defendants will make a business judgment that the financial risks of a jury trial on a class basis are simply too great. For that reason, others have called class actions a form of legalized extortion.
Is a class certification always a bad thing for corporations?
No. In certain circumstances particularly where it is in the corporation’s financial interest to resolve large potential liabilities in an efficient and predictable way obtaining court approval of a nationwide or statewide settlement class may be the best course of action.
Is there any hope for corporations?
Yes. Congress passed the Class Action Fairness Act last year that makes it easier to move cases filed in a state court to a federal court. In most jurisdictions, federal court judges and jurors tend to be more conservative and less apt to certify a class action or award substantial damages once certified.
I would like to think that there is a developing consensus that certain types of cases should not be certified. Examples of these are product liability cases involving claims for personal injury, property damage and medical monitoring ... cases where individual issues tend to preponderate over common ones.
Another example is consumer class actions where a necessary element of proof often is a consumer’s individual subjective reliance on allegedly misleading or fraudulent misrepresentations of defendant corporations. Here again, individual issues seem to preponderate over common ones.
In the securities field, there is a greater index of judicial suspicion about the manner in which these sorts of claims are brought. That has led to investigation of plaintiffs’ class counsel.
THOMAS M. GOUTMAN is chair of the litigation department of White and Williams LLP, where his practice involves the defense of corporations in class actions, product liability and toxic tort litigation. Reach him at (215) 864-7057 or firstname.lastname@example.org.