Matt McClellan

Thursday, 25 June 2009 20:00

Improving performance

As health care costs continue to rise, employers are searching for progressive strategies to improve the performance of their health plans.

One way to do that is with a worksite wellness program, which uses a variety of methods and incentives to reward employees for making healthy lifestyle choices. Incentives are typically activity-based, rewarding participants for doing things such as completing a health screening, and employers are now recognizing that they can gain tremendous savings by implementing a well-designed, achievement-based wellness program.

“Achievement-based programs create a win-win situation for employers, employees and their families,” says Sally Stephens, president of Spectrum Health Systems. “These incentive models, if well executed and managed, are financially beneficial to all stakeholders.”

Smart Business spoke with Stephens about how implementing a results-driven approach to wellness can benefit your company.

What types of wellness programs are available to employers?

The types of wellness program services are vast, so an employer has much to consider when deciding to implement a program. Some are more effective than others in changing behavior and reducing the overall risk profile of the organization.

It is increasingly evident that the most effective wellness programs are the ones that reward employees for meeting or achieving certain health goals.

One such strategy is a bona fide wellness program. Employers are adopting this approach at an increasing rate largely due to the associated results.

What is a bona fide wellness program?

Generally speaking, a bona fide wellness program must offer some type of discount or limited reward. They must be in place to promote overall good health, as well as disease prevention.

Some bona fide wellness programs may offer a reduced premium to participants who achieve a certain goal, such as low cholesterol or weight. The rewards must be available to all employees who are in similar situations.

If it is not feasible for a participant to reach a certain health standard, an alternative must be created and implemented. Alternatives typically consist of various health improvement programs to be chosen by the participant.

What issues do companies need to consider before creating a wellness program?

As employers seek to achieve measurable results and communicate a greater level of accountability to employees, achievement-based rewards are receiving greater consideration. Employers adopting this approach need to be aware of the Health Insurance Portability and Accountability Act (HIPAA) guidelines that are specific as to what is allowable in a bona fide wellness program.

Why should companies consider implementing a wellness program?

A successful wellness program benefits an employer in many ways. Within a few years of implementation, the most effective ones reduce the rate of health care cost increases, as well as costs for disabilities and workers’ compensation programs. In addition, well-designed programs help reduce absences and presenteeism and increase productivity.

Research has shown that the healthiest workers are nearly three times more productive than the least healthy. Other benefits include improved workplace safety and employee morale.

The underlying philosophy is that health risk factors such as nutrition, weight control, exercise, cholesterol, blood pressure, safety and mental well-being are strongly influenced by an individual’s lifestyle practices and contribute to the incidence of preventable illnesses.

What kinds of results can be expected?

The best way to illustrate results is through a case study. American Structurepoint Inc., an Indianapolis-based architecture, design and engineering firm, introduced a comprehensive wellness program in 2002. In 2006, the company moved to a bona fide wellness plan design and included spouses, bringing the total eligibility to 355.

It offered a generous premium discount for employees and spouses who completed the health assessment and met certain health goals. The average completion rate for the health screenings has been in the high 90th percentile for all program years.

Comparative biometric data on participants completing the assessments in 2002 and again in 2008 is quite impressive:

  • A 15 percent decrease in the number of participants with abnormal measurements
  • A 28 percent overall decrease in the number of abnormal measurements A 37 percent decrease in abnormal blood pressure
  • A 37 percent decrease in abnormal cholesterol readings
  • A 25 percent decrease in abnormal blood sugar readings
  • A 14 percent decrease in abnormal HDL cholesterol readings
  • The number of employees and spouses with a Body Mass Index greater than 30 decreased from 31 percent to 28 percent

The results from the highest risk segment of this population showed tobacco use decreased from 19 percent to 6 percent and obesity from 56 percent to 31 percent.

The company’s success is due to a well-designed program that drives the highest-risk participants into health coaching programs. It’s also due to the commitment of the management team to be an employer of choice, provide valuable benefits, create a culture that supports healthy behaviors and show employees that they care about their health and well-being.

Thursday, 25 June 2009 20:00

Doing more with less

Health care providers are facing a decline in revenues as a result of a widespread reduction in reimbursement for their services. The economic downturn has caused a shift, according to Michael L. Minotti, CPA, president of Skoda Minotti.

Insurance companies, Medicare and Medicaid have generally reduced the amount they will pay for procedures. Fewer people have coverage, which means more people are responsible for paying for their own medical care. However, if patients lack coverage and cannot afford care, hospitals do not turn them away.

“It’s forcing the physicians to spend more time chasing their patients for their co-pays and their portion of the procedures than ever before,” says Minotti. “All of that is leading to less top-line revenue for the physicians.”

Smart Business spoke with Minotti about what other industries can learn from the challenges facing health care and how innovation is helping some physicians get by.

How have today’s challenges affected the medical industry?

Health care providers are faced with the same economic issues that every other company, including their contemporaries in the nonmedical field, are facing. The economic times are similar for all of us — employee issues, rising business costs, etc. One of the largest problems for physicians specifically is the continually increasing cost of medical malpractice insurance.

What must health care companies do to adapt and succeed today?

They absolutely have to keep up with changing technology. There is a push to move all of the physician practices to electronic medical records. Currently, there is an incentive (reimbursements and funding) for physicians to put the technology in place. The Obama administration is forcing the acceptance and installation of electrical medical records by 2015. Otherwise, if you have not embraced it, your Medicare reimbursements will decrease by 7.5 percent at the first level. Certain things are being mandated, but others are necessary just to continue to provide quality care.

What hurdles are in the way of adopting new technology?

One of the issues is the sheer cost of buying and installing the technology, plus training costs for physicians and staff. That is a significant investment practices have to make. In all businesses, the larger the group or organization, the easier it is to absorb the costs, because you either have higher revenues or more people to spread the cost.

What it’s going to do is force a lot of the smaller practices to either join hospital-based groups or hospitals or join with other practices to create group practices. That will allow them to adapt and overcome the challenge of cost. From a financial standpoint, it’s a lot easier to practice in a larger group setting because there will be shared costs. A larger group can much more easily afford the investments of time and money that are necessary in these changing times. There is strength and safety in numbers.

Other than consolidating, how else can physicians defray rising costs?

What today’s physician needs to do is ask, ‘How can I legally create additional or ancillary revenue so that I can increase my top line and, therefore, bottom line?’ Medicare continually reduces what they’re willing to pay. So you can have the same number of patients, but for every procedure you do, you’re making less money.

Some very innovative physicians in Florida and Arizona have created a concept called concierge medicine. Let’s say the physician had 2,500 patients and does more and more work just to make up for the reduced revenues. If the physician gets 500 patients to pay a fee to join this concierge medical practice at $1,000 apiece, he or she can focus on those 500 patients and provide the more personal care they desire.

With that combination of fees plus reimbursements from Medicare, physicians have found they’re not working as hard, they’re able to concentrate on their patients and practice in a better manner, and they’re making more money. It seems somewhat simple, but it’s a very creative way to increase revenues and still provide quality medical care.

What can other industries learn from the challenges of the health care industry?

Other industries need to learn that they cannot be complacent, believing there will be little to no change that will affect their business lives. Physicians have seen an incredible amount of political and regulatory changes on top of the economic changes that are affecting everyone. You can’t be content. You have to realize that change is coming; be aware of that changing landscape.

Collaborate and consult with contemporaries within your chosen profession and outside your field. Seek out and work with appropriate professionals and consultants that can keep you abreast of changes and give you suggestions for options to adapt and deal with the changing environment. You need a vision of where you’re going and a plan to get there.

This economic environment is unique to anybody alive today. It’s being proven that we really don’t know how to get out of it that easily. You need a disaster and contingency plan — the ‘what if’ scenarios. What happens if our business contracts? What if we’re faced with changing regulations? How are we going to address it?

Be creative and nimble and adapt to the changing world. You can’t do it all on your own. You need help, and that help can be found in contemporaries within and outside your field and quality professionals who have the expertise.

Tuesday, 26 May 2009 20:00

The risks of reductions

The current global financial crisis has sent shockwaves throughout virtually every sector of the economy. Employers across the country are responding to this uncertainty by reducing expenses, either through the reorganization of business units or the reduction of staff through voluntary and involuntary group termination programs.

Those initiatives, while certainly effective, also present a wide range of employment law risks, according to Lynn C. Outwater, a managing partner with Jackson Lewis LLP.

“Employers must do what they have to do, but they should do so cautiously and with awareness of the legal and practical landmines,” says Outwater.

Smart Business spoke with Outwater about how employers can guard against risks, particularly in the face of increasing discrimination charges and employment lawsuits.

How are employers responding to this crisis?

Everyone understands that things are not the same in this economy. Worsening economic conditions often necessitate adverse employment actions. Yet, employment litigation and discrimination charges are increasing. Simply taking action without thought will not save you, because it could cost more than it saves. If you find that you have to slash employment expenses, the only way to proceed in this environment is to follow best employment practice tips and avoid outcomes that are less desirable than the status quo before you implement the adverse action.

What employment law risks are presented by reductions in force?

Before you take any adverse action, whether it is a layoff or not, here is what you should think about. First, focus on benefit issues. Are you impacting a pension plan? Are you triggering withdrawal obligations? Did you give adequate ERISA (Employee Retirement Income Security Act) notice? Second, be knowledgeable about relevant laws and different statutes, whether WARN (Worker Adjustment and Retraining Notification Act), COBRA (Consolidated Omnibus Budget Reconciliation Act) or ERISA.

Also, carefully consider the criteria for making these decisions. The more valid and objective the criteria, the better. Document everything, because if there is a lawsuit
you will have to prove that what was done was job-related or consistent with business necessity.

Would a third-party view the action as fair or appropriate? Even though the law doesn’t require you to be fair, if you do something that seems unfair, the likelihood of a lawsuit or discrimination charge is much higher.

All the money you needed to save goes out the window with the expense of defending employment litigation lawsuits, or worse, you can be hit with unfavorable outcomes, including an administrative agency or a jury finding there was discrimination.

How can employers select criteria that limit the risk of a lawsuit?

Length of service is usually a safer criterion. Eliminating all the employees in one job classification is another way to minimize risk. However, in this day and age, many employers want to keep their best and most talented. In these circumstances, utilize more objectives and reliable criteria, such as every employee who received the lowest rated performance appraisals or ‘anyone who was disciplined in the last year’ will be let go first. You could also base the selection on productivity or customer satisfaction achievements.

Employers can also rank employees based on the skills and abilities they will need in the future. For instance, everyone who is left will have to know how to make our new product, or how to use a particular computer program, or must speak five languages. The more objective the criteria, the more likely your decisions will be upheld and understood.

How can employers be sure their selection criteria will hold up under legal scrutiny?

Make sure the decision-making and criteria you’re using are as objective as possible and consistent with the documented performance of that person up through the selection. Cases are lost because of inconsistencies. For example, a manager states, ‘I’m letting you go because you don’t show versatility,’ but written in last year’s performance appraisal is that the individual is ‘very versatile.’ It has to be a very thoughtful process. Make sure what you think you know about people is supported by what has been said, or written, about them in the past.

How can employers help their employees understand the reasoning behind their actions?

Communication is critical when adverse action is taken. You should not only communicate with those who are adversely affected but also with those who are not. Articulate a cohesive message on what you did, why you did it, what it means to the future of those who are still there and where the company goes from here. You want to have good morale after an adverse employment action.

Employees generally understand the need for adverse action, but they don’t understand it if it is not articulated well or if they think the way something is carried out is unfair. For example, if you suddenly surprise people one afternoon and you have security guards escort people out, and then you don’t talk about what you did or why you did it — obviously, that is not recommended. While not illegal, this is not a best employment practice.

How do you keep employee morale up after an adverse employment action?

Inspire the remaining employees and enlist their support. Really focus in on those who remain with you. Make sure they understand that they are an important part of the team going forward. If they recognize that you did what you had to do for the good of the whole, going forward you will still have the committed employees you will need.

Lynn C. Outwater is a managing partner with Jackson Lewis LLP. Reach her at (412) 232-0232.

Tuesday, 26 May 2009 20:00

Crossing borders

The seeds of today’s ocean cargo insurance were sown centuries ago on a Chinese river, where boat traders shifted cargoes one to the other to spread the risk of loss. That way, if a boat was lost, the merchants would not suffer a total loss of cargo.

Today, although the terms of insurance have become more complex, the same basic principles hold true, says Jay Frank, a vice president at ECBM Insurance Brokers and Consultants.

“Buyers of insurance need to know that each cargo shipment really is a joint venture on the part of the ship owners or operators and cargo owners,” says Frank.

If there is damage to the ship or cargo, all of the cargo owners participate under a “general average adjustment” that is covered under the cargo policy.

Smart Business learned more from Frank about how to minimize your risk when transporting cargo internationally and what to look for when selecting a broker.

What do business owners need to know about insuring product for international transit?

If you are in the position of frequently shipping — either importing or exporting — it’s a good idea to have a broker who does that kind of business. It’s also important to use an insurance company that is a major underwriter of cargo insurance and that can be a source of information and service.

There are other insurance companies that do not underwrite cargo insurance in any great volume. Therefore, their support would be a lot weaker than that of an insurance carrier that has experienced underwriters, adjusters and claims correspondents in many lands.

What should a business owner look for in a broker?

You want to have at least a medium- to regional-sized broker who has experience with ocean cargo coverage so the broker can offer advice when needed and will know which insurance carrier is most receptive to your product and the ports you ship to and from.

It’s wise to interview two or three brokers to find one whom you feel has the knowledge and insurance company contacts you require.

What are some common mistakes insureds make when transporting products internationally?

In order to collect an ocean cargo claim, you have to be able to prove insurable interest. Shipping documents, which include invoices, insurance certificates, purchase orders or contracts, delivery receipts with exceptions, survey reports, carriers written confirmation of nondelivery and a summation of the claim are required.

The documents will indicate the INCO TERMS — standard terms used in international contracts, such as free on board delivered or point of purchase — so that title would transfer at the buyer’s warehouse or at the shipping point. If the documents are not properly aligned and the insuring party has no insurable interest, it’s likely you will not collect your loss. Also, it’s best to make sure the insurance coverage is placed in the U.S. insurance market.

The terms of the American cargo policies can be quite comprehensive. Insurance policies from other countries can be very deficient. You want to be paid in American dollars, and you want any disputes to be settled in American courts. To allow a foreign placement of coverage puts you at a disadvantage.

What should business owners look for when purchasing ocean cargo insurance?

Look carefully at the insuring terms and conditions. There are a variety of insuring terms available under a cargo policy, such as Perils of the Sea, which is well defined in the history of ocean cargo underwriting, because it dates back 350 years to Lloyd’s of London. Perils of the Sea can be enhanced to include specific optional perils, such as theft and contamination. Or you can go to an All Risk policy that puts you in a much better position because you don’t have to cherry-pick a specific peril and risk an uninsured loss.

If it is All Risk, it would include all perils except those that are specifically excluded. A few that could be excluded, depending on the product, could be breakage, rust or contamination. If those are important to your insurance coverage, you have to be sure your policy includes those perils — which are very often excluded by underwriters who are looking to collect your premium but avoid the most likely loss.

Rust is a good example of that, when shipping metals. If they are exposed to either freshwater or seawater, they can sustain a great deal of damage. If your cargo is being shipped in a vessel that has a problem with leakage or sweating, having a policy that includes rust coverage would be very important.

What other factors can affect your policy?

The previous loss experience of the insured is going to sway the underwriting opinion of the insurance carrier. For instance, a client who imports steel from a foreign company may have a five-year history of water damage or rust claims that the underwriter will very likely not want to insure because that importer is doing something wrong, whether it is picking the wrong ships or not properly protecting the product while it’s under way.

Independent survey companies will examine your product and the ship at loading and comment on the condition of both. Then a surveyor at the offload port can do the same to identify if damage occurred in transit. Proof of claims could depend on the surveyor’s reports. If so, how did it occur? Did it occur on the ship, or did it occur prior to being loaded?

Jay Frank is a vice president with ECBM. Reach him at (610) 668-7100 x1302 or

Tuesday, 26 May 2009 20:00

The new reality

On a daily basis, banks are dealing with the reality of today’s world versus what things were like before this financial crisis. It’s radically different, and it impacts everyone from lenders to developers to building tenants, whether they are renting a retail facility, a commercial office building or flex space, or even an apartment.

Michael Dostal, the commercial real estate banking team leader for FirstMerit Bank, says the meltdown of the financial sector has created a paralyzing effect.

“Nobody knows what the next event is going to be,” says Dostal. “You can look at a whole litany of things that have happened in the last six to nine months that weren’t there even a few years ago.”

Smart Business spoke with Dostal about the root of the problem and some possible solutions.

How did the financial trouble start?

The meltdown in the residential market has already been well documented. These comments here will be restricted to investment real estate. Many commercial banks have commercial real estate departments where much of the financing for residential builders took place. In addition to large write-offs in residential mortgages, many of these same banks were holding loans to builders and developers that were now non-performing and were either charged off or placed in the work-out departments of these banks.

A second problem was the aggressive and highly competitive bidding on the few investment real estate projects that the banking community had the opportunity to fund. Up until early 2008, many of the larger and stronger transactions were placed with insurance companies and pension funds. This was because banks, as a rule, could not offer the same rates, amortizations and non-recourse features that were commonplace with insurance companies and pension funds.

With fewer deals available, many banks would try to gain an advantage by lowering rates, reducing the required equity and extending beyond the normal amortization terms. All of these activities contributed to banks taking on additional risk. When the market got soft and values dropped, many banks found themselves with non-performing projects, based on a current appraisal, that were underwater.

Will banks and lenders go back to performing due diligence like they used to?

Absolutely. Sound underwriting has not changed that much in the past 40-plus years. What does change over time is the degree to which a bank wants to adhere to those principles. We are now seeing a very quick return by many banks who veered from these principles to what has historically worked in this industry.

Given the heightened degree to which the regulators and investors are questioning banking policies and procedures, the industry must change if it wants to survive. Now more than ever, training and continuing education in the industry is critical. Those few individuals that have 20-plus years experience in commercial real estate lending have the added benefit of going through the ups and downs of an economic cycle before.

What is the real estate atmosphere like right now?

Banks have tremendous pressure on them to try to lend, but at the same time, regulating bodies tell them they can’t afford to take any more losses, and the easiest way to avoid losses is not to make the next loan. You’ve got people out there who desperately need capital to keep their businesses afloat, and those few people who want to start a business are finding they can’t get financing.

Here’s the real head-scratcher: There are billions of dollars sitting on the sidelines from the private investors who are afraid to redeploy their money. I’m not saying they’re keeping it in tin cans in their backyards, but they might as well. They have taken that money out of the money supply; it’s not out there working. Banks aren’t solely responsible for the tightening of credit.

But you can’t eliminate risk. Banks are in a risk business, they just need to do a good job of identifying the risk. With a real understanding of what the risks are within a particular transaction and how you are going to monitor that risk over time is the key to successful portfolio management. As the financial partner you need to be one of the first ones to react to a negative event, not the last one.

How can it be fixed?

The question becomes: Can an environment of hope and potential be created that could provide incentive for the private investment dollars sitting on the sidelines to come back into the field of play? When that happens, then things will start to move.

We need to get to a point that the rules for both the banks and the clients are at least consistent over time. Much of the fear and reservation many banks and clients have today is their concern that the rules and regulations for lending will be at least the same tomorrow as they are today. The fact that the rates may be higher is a much easier concept to deal with compared to issues regarding changes in what types of projects maybe acceptable, changes in loan covenants, lower advance rates on certain types of real estate, and shorter maturities.

Michael Dostal is the commercial real estate banking team leader for FirstMerit Bank. Reach him at or (216) 694-5654.

Tuesday, 26 May 2009 20:00

Loan to own

In today’s economic climate, many businesses are struggling, and lending institutions aren’t extending credit as freely as in the past.

And that can present an opportunity for investors to take control of a company without buying it outright, providing capital to a business that needs money to continue operating.

“Business owners often view control as related to ownership of the company,” says Matthew R. Zakaras, a partner with Levenfeld Pearlstein, LLC. “But you can often control a company through leverage by buying its debt (preferably at a discount), or issuing new debt because, as a secured lender, your consent is required to sell the business. In addition, loan documents can contain covenants that require the lender’s consent for major decisions. Loan-to-own opportunities arise most often when the target is in a distressed situation, i.e., when debt is putting tension on an otherwise profitable business. A loan-to-own strategy can be the first step in a transaction that enables an acquirer to unlock value in a debt-burdened company.”

Smart Business spoke with Zakaras about the viability of the loan-to-own strategy and the steps to taking control of a distressed business.

What is ‘loan-to-own,’ and how does it work?

There is nothing new about loan-to-own strategies; we are just seeing more of them given the economic climate and the lack of available financing alternatives. Loan-to-own strategies are used by private equity and other investors to purchase companies as an alternative to conventional asset, stock or merger transactions.

A lot of times, loan-to-own transactions are utilized because the target business needs working capital and cannot obtain financing from conventional lending sources. Investor-lenders are looking to structure the transaction to reduce downside risk. For this reason, the investment is structured as a secured loan so that the investor-lender is among the first to be paid in a liquidation or bankruptcy of the target.

Also, these investors are sometimes looking for a toehold position in the company. The investment may be small in the beginning, but it often increases as the target continues to need working capital for survival. As more money is loaned, the investor-lender gains more control of the target.

Loan-to-own strategies are also used when a target’s balance sheet shows more liabilities than assets and the secured lenders are unwilling to release their liens because they will not receive full value at closing. Acquirers are often in a better position dealing with the secured lenders of the target directly, rather than negotiating through the company that has been unable to meet its debt service obligations.

Once the acquirer buys the secured debt of the target, it has control over the sale and can often negotiate a lower purchase price with the target because, as a secured lender, the acquirer can also foreclose on the target’s assets if the purchased debt is in default.

When would a business owner use loan-to-own strategies?

Usually, business owners are forced into the situation because they either need working capital, or they are unable to sell their business because there is more debt than assets on their balance sheet. Ultimately, it comes down to leverage: How can an acquirer structure a transaction to reduce risk, obtain control and capture maximum value?

What are the steps involved, and what are the different types of strategies?

The steps in a loan-to-own transaction vary on a transaction-by-transaction basis, and, as we discussed earlier, there is nothing new about the loan-to-own strategy. If the investor-lender is loaning money to the target, the loan documentation is very similar to any other secured loan.

The investor-lender will want extensive representations and warranties, and covenants related to the target’s business. The investor-lender will also want the right to foreclose on the target’s assets in the event of a default.

When the investor-lender purchases the debt, there is a loan purchase agreement, and the important thing to remember is that the investor-lender is stepping into the shoes of the original lender, and so its remedies vis-À-vis the target are contained in the loan documentation that the target negotiated with the original lender.

In both situations, the investor-lender may need to coordinate its efforts with, and may needed to subordinate its position to, the target’s senior lender.

What should investors look for when determining if using a loan-to-own strategy to purchase a company is a sound investment?

Investors ultimately need to look at the underlying business fundamentals of the target. Like any other transaction, the investor needs to ask himself, ‘Does this company have a reason to exist?’ If so, the investor should look at the target’s balance sheet to determine what debt can be shed to make the target more profitable.

The investor-lender also needs to understand the value of the target, and where the investor-lender stands in line in the event of a bankruptcy or liquidation. This understanding also underlies the price points that are negotiated with the secured lenders and the target. It is no different than buying a company through any other type of asset sale, stock sale, etc. Investors still need to conduct proper due diligence. In the acquisition of distressed companies, it is important to understand the debt and capital structure of the target as it relates to its value and the amount of the investment.

matthew R. zakaras is a parner with Levenfeld Pearlstein, LLC. Reach him at (312) 476-7567 or

Saturday, 25 April 2009 20:00

Understanding behavior

Have you ever worked with someone who just seemed to rub you the wrong way? Perhaps there’s a co-worker with whom you always seem to be at odds, despite your best efforts.

Sam Lucci III, founder and CEO of Partners Through People, has developed a unique training program based on the Inscape DiSC system that can help you understand why people act the way they do.

Lucci says that people fall into four different categories, which are called behavioral styles: dominant, influencing, steady and compliant. Business owners can use the system to improve relationships within their company and with their customers.

“A company that doesn’t do this is really leaving a lot on the table,” says Lucci. “Understanding this can probably reduce 50 percent of the conflict you’ll have in an organization.”

Smart Business spoke with Lucci about how a better understanding of human behavior can help your business.

How are the behavior types different?

Dominant people are leaders and quick decision-makers. Influencing people are entertainers. They like to constantly interact with people. Steady people are slow and methodical, stable and loyal. Compliant people are quality control people. They like to do things correctly and follow procedures.

How can understanding someone’s behavioral style help?

Once you know which style of behavior a person is, you adjust your behavior to match his or hers to make the person comfortable. Once you do that, you put the individual in a comfort zone and cooperation becomes much more possible.

When you understand this, you don’t just use it for your employees, you use it for your customers, too. Let’s say you install garage doors and one of your salespeople recognizes a compliant behavior style in a customer. Once your staff knows that it is a compliant person, you know you need to send one of your top installers, because compliant people don’t like anything that isn’t perfect.

It would be silly to send a brand new installer to a compliant customer. You would send the new installer to a steady person, who would be more understanding of their learning curve.

When you know the system, you can begin to use it among your staff to help them identify their customer base and create the environment that each one needs.

What are the consequences of ignoring behavior styles in business?

If it’s a stranger, you never get a second chance to make a first impression. When you have long-term interactions with co-workers, each style wants to be treated differently. Without this knowledge, you can be abrading each other without even realizing it.

When you don’t know this system, you abrade people. If you abrade somebody once, that’s one hit. If you abrade them 400 times in six years, that’s 400 hits. It’s like cartilage on your knee — you start to wear it out. You’ll see that in companies. People get to the point where they can’t stand each other.

The biggest fallacy people make is they treat people the way they want to be treated. That’s the Golden Rule from the Bible, but it’s just not the way to do it. Why? Because dominant people are 7 percent of the population. The other 93 percent don’t like to be treated the way dominant people like to be treated.

How do you identify behavior styles?

The only way you can get proficient in this is to study, learn and internalize it. This is not something you do over a seminar. This is something you do over a several-year process where you incorporate a whole new way of doing things.

This knowledge will make you an expert in predicting what people are going to do. Once you know this information, you know what people are going to do before they do it, because they fall into four distinct patterns.

There is a list of what you should do to make them comfortable, what you should never do that would make them uncomfortable, what they like and don’t like. You use this knowledge to change the way you interact with people. The way you identify the style is once you know what it is, you’ll see the patterns in the behavior.

For instance, if you were standing in line in a retail store, you may see a dominant person walk right up to the counter and ask the clerk a question. He or she has no problem interrupting the clerk because the person wants an answer. The other three styles would never do that, but the dominant person would find that very normal.

You can tell a compliant person by his or her posture, because it tends to be perfect. If you see someone who is self-contained with perfect posture and a nondemonstrative demeanor, that individual is probably a compliant person. As you interact with people, you keep getting more and more clues as to the type of person you are dealing with. Then you keep adjusting to that.

Why should you take the time to learn what styles fit your employees?

When you’re a business owner, you have a lot to do. We don’t always take the time or want to take the time, but each behavioral style needs to be treated differently. If you don’t do that, you lose your employees’ respect and loyalty. It’s a stress builder for people, too.

When I take the time to understand you and create an environment that makes you comfortable, that is one of the highest forms of respect you can have. When you respect somebody, whether they are an employee or a customer, you’re going to see your relationship with that person improve.

Build teams with all four styles to create a balance. Then, teach them why they are there — their strengths and weaknesses and how they balance each other. Then they gain an appreciation of each other.

Samuel J. Lucci III is the CEO and founder of Partners Through People. Reach him at or (724) 457-2500.

Saturday, 25 April 2009 20:00

Kick-starting the economy

Business owners should be sitting down with their accountants to discuss The American Recovery and Reinvestment Act of 2009 in order to get the most out of the new law.

“It’s a matter of getting to know what benefits are out there and then taking advantage of them,” says Corey Higa, a senior manager at Haskell & White LLP. “Sometimes cash can be left on the table. To avoid that, work closely with your CPAs. Be sure they are on top of the news and that they are up to speed on all the new rules and regulations.”

Smart Business spoke with Higa about the changes and how business owners can derive tax advantages in light of the new law.

How have bonus depreciation and Section 179 changed?

The act has extended the 2008 increase in Section 179 deduction limits for depreciable property through 2009. The limit will remain at $250,000 ($285,000 if the business is in a qualified enterprise zone or renewable community). The eligible Section 179 deduction is decreased dollar for dollar for the amount by which the cost of property acquired during the taxable year exceeds $800,000.

In addition, the act extends the 2008 bonus depreciation allowance for certain qualified property placed in service during 2008 and 2009 (2010 for certain property having longer production periods and aircraft). The taxpayer may deduct an additional 50 percent of the adjusted basis of qualified property, after reduction for any Section 179 deduction but before regular depreciation.

Qualified property is tangible property with a recovery period of 20 years or less, water utility property, off-the-shelf computer software and qualified leasehold improvement property. The depreciation limits on autos, trucks and vans have also been increased for the year.

The extension of the Section 179 deduction amounts and the bonus depreciation provisions are two of the significant business provisions in the act. Businesses should plan their asset purchases to maximize these deductions. It may be necessary to accelerate or defer asset purchases depending on the business circumstances.

Note that an election exists for corporations, which allows them to treat unused pre-2006 Alternative Minimum Tax (AMT) or Research credits as refundable credits. The cost of this benefit is the corporation must agree to forego bonus depreciation and must use straight-line depreciation method on those assets. The availability of this election has been extended through 2009 along with the bonus depreciation provision. This may be beneficial to loss corporations or those frequently in AMT.

What do business owners need to know about the net operating loss carryback provision in the act?

This provision allows a net operating loss to be carried back up to five years rather than two years for qualifying businesses. This can help business owners by infusing cash into their operations this year. If a business had profits in prior years and paid taxes on those profits, it has the ability to take a deduction for this year’s losses and claim a refund up to five years.

For example, if a company had profits in 2006 and paid taxes on them, it could carry that loss back to 2000 and get a refund of the taxes it paid previously.

For 2008, the new law extends the maximum NOL carryback period from two years up to five years for small businesses with gross receipts of $15 million or less.

How does the new law affect businesses in debt?

Under prior law, taxpayers generally recognize income where the taxpayer is released from a debt obligation or if the taxpayer repurchases its debt at a discount. There are exceptions for bankruptcy, insolvency and certain qualified real property business indebtedness. Certain businesses will now be allowed to elect to defer cancellation of debt (COD) income generated from the repurchase of its debt by itself or a related party for five years (for acquisitions in 2009, four years for acquisitions in 2010), and then recognize the COD into income ratably over the following five years. These same rules will apply also to a complete forgiveness of debt by the creditor, as well. The important consideration here is that any taxpayer making the election under this provision will not be allowed to utilize any of the other exclusion provisions for the year of the election or any subsequent years. This is significant because the exclusion provisions in some instances provide for either a permanent exclusion from income or a long-term deferral into basis of property, which the taxpayer may decide to continue to own and thus not trigger the income.

Have there been any changes to the work opportunity credit?

The new act adds two new groups for which employers may receive work opportunity tax credits of up to $2,400 per individual hired from a qualifying group. The new groups are unemployed veterans and disconnected youths. Qualified veterans are those discharged or released from active duty during the five years prior to hire. A ‘disconnected youth’ is an individual between 16 and 25 who hasn’t been regularly employed or attended school in the past six months. It is intended to motivate and provide financial assistance to businesses for hiring from these targeted groups.

Corey Higa is a senior manager at Haskell & White LLP. Reach him at (949) 450-6389 or

Saturday, 25 April 2009 20:00

Fresh start

When Bill Wilkinson bought GreenLeaf in 1993, the produce distributor was wilting fast. One of the previous owners had died, and the company hadn’t been the same since. Service was poor, customers were leaving and GreenLeaf was on the verge of bankruptcy.

And Wilkinson, recently retired after a successful career in the hotel industry, wanted a new project.

“I insisted on the high standards GreenLeaf had and put those back in place,” he says.

“We made it perfectly clear to people around that they could trust us. We didn’t have much in the way of a management team. But the people who were going to be running the produce business now, they had to be honest and straightforward — no monkey business — disciplined into doing what was right.”

Wilkinson’s focus on rebuilding GreenLeaf has resulted in healthy revenue growth — from about $4 million in 1993 to $54 million today.

Smart Business spoke with Wilkinson about how to add an air of professionalism to your business and why investing in your employees pays dividends.

Communicate constantly. Do it, and do it often. We talk on a regular basis. We have leadership meetings on a regular basis where we discuss all kinds of issues that come up and how we’re going to handle them.

Our leadership meetings are every Monday at 1 p.m. Our general manager chairs the meeting. All the things we have going on are reviewed and voted on. The various department managers report on where they technically are on things. The other various department managers report on how training is going with their employees. So everybody knows what’s going on.

If somebody is stuck, the employees who are reporting to them get together and then discuss the issues. Then they solve the problem. There is very little mystery in any of these businesses.

Train your work force. Any training is good training. We do a lot of training — both with management staff and with all the staff at different levels.

When I started with GreenLeaf, everything was done by hand. We began to build on the needs of the company, and you’ve got to have computer skills. So we’d bring people in and have formal teaching methods to help people pick up the skills.

We have a book club. Employees, the managers take a book and they will all read a chapter of it. One of the employees, the managers will lead a discussion about what they learned that week in the book.

They make recommendations themselves. For example, our general manager went off to Stanford for a course. He came back and reported on how he was trained and what he learned at Stanford. It takes them and builds their skills, builds their self-confidence. It opens their minds to a different way of doing things.

They discuss it in relation to their work, and they basically wind up living it.

Be a coach. We build incentives in jobs, so they get paid for performance. So they can do quite well in their jobs, and there is performance accountability at all levels. So they know they can get paid well.

You have the mechanics of evaluating productivity and measuring that kind of thing, so we can judge performance that way. It’s just accountability and management. If they’re not performing, the numbers show it.

If we have an employee who is stuck, who isn’t performing, we help them. We coach them. Most people want to do a good job, and they want to be associated with people who do a good job. At the same time, you want to be compassionate and understanding.

You find yourself with employees who don’t know what to do, so they avoid the doing. In that case, you just sit down with them. You don’t reprimand them; you coach them. You treat everybody like they want to do a good job, because people do want to do a good job.

You have to coach them privately. Give them a hand, then ask them what they may be having a problem with. Say they don’t know how to buy a truck. So you sit down and work with them and say, ‘Well, you get bids and make sure they’re the same. You check the references,’ and things like that. And they learn.

If people who get a new job don’t do well, then we coach them. If that coaching doesn’t work, we replace them.

Create an enjoyable workplace. Employees should be treated nicely. If there is a problem at GreenLeaf, they will get an airing and a decision will be made. If, indeed, something has been done unfairly, it will be undone and done fairly.

I used to walk around and know all employees on a regular basis. I don’t know them as well as I used to. But they understand they’re going to be treated fairly, and they expect it. If not, they are going to say something about it and we’re going to get it sorted out. You bring in their supervisor and you’ve got to take them aside and say, ‘Listen, I don’t know how you worked at the last place you worked, but here we don’t treat people that way.’

When you start in the produce business, you’re working on a cold loading dock or in a refrigerator in the middle of the night. It’s not glamorous work. Even the employees who are working in the refrigerator, they’re treated very well. It makes it a positive, cheerful place to work.

How to reach: GreenLeaf, (415) 647-2991 or

Saturday, 25 April 2009 20:00

Time to interview

With interest rates falling, financing requests being declined, and some financial institutions on thin ice in an uncertain market, now may be the right time to consider switching banks.

“If you’re not satisfied with the bank you’re with or if you have some questions or concerns about it or you just want to get a second opinion to ensure you’re getting the value that you should be from your relationship with it, then that’s the right time to interview other banks,” says Sue Zazon, president and CEO of FirstMerit Bank’s Columbus region.

Interviewing a prospective bank can be a stressful process if you aren’t properly prepared, but the reward is a relationship with a company that completely understands your business’s needs.

“That process is going to depend on how formal or informal you want to be,” says Zazon. “If I am a business owner, the first step is deciding whom I want to interview. I recommend you get referrals from your accountant, your attorney or other trusted advisers. Certainly one of those folks would have a recommendation for a banker or bank you’d want to visit with.”

Smart Business spoke to Zazon about what business owners need to know about interviewing a bank.

What should business owners do before meeting with a bank?

Prepare an agenda in advance of the meeting and share it with the bank. Then, ask if there are things in addition to what is on the agenda that they would like to cover. You need to begin with the end in mind. Decide what you want to hear from the bank and what you want to share with the bank.

That interview meeting will be a two-way, thoughtful business discussion. You are sharing relevant information about your company and the bank is sharing relevant information about the bank, so you can both come to a decision on whether there is a good fit.

Have the agenda distributed prior to the meeting. That way, you’re making the most of your time and you ensuring that you’re addressing any questions that the bank is going to have and that it is addressing any questions you may have.

What information should you be prepared to share?

Touring your facility is always a great way to help the bank understand your business. That way it’s not just about looking at numbers on a page; the bank gets to see the operation. Also, be prepared to share information from your business plan. You really want to help the bank understand your business, so be prepared to tell it what you do. Help it understand how you make money.

Do you make things? Are you a service company? Who do you sell to? How do you set up supplier relationships? What is your geographic market? What are your competitive advantages? You need to help the bank understand what you do, how you do it and what makes you so good at it.

Share background information on the management team so the bank knows who’s running your business and their capabilities. At the end of the day, it’s a relationship business. Banks want to have confidence in the management and ownership of that company.

From a financial standpoint, be prepared to provide at least three fiscal year-end financial statements and tax returns and any interim financial statements on the company with prior-year, same-period comparisons.

I would share with the bank the services you currently have with your current financial institution and why you have those services. If the bank knows what you value about those services, it will know what the current banking relationship looks like. You should also be prepared to describe the loans you use and your plans for the coming years so it understands how they can best help you.

What should businesses look for in a banking relationship?

A bank shouldn’t be an order taker. It’s not like going to the restaurant where you say, ‘I want a hamburger, fries and a milkshake.’ You’re going in and saying, ‘My plan is to grow my company 10 percent and, to do that, I know I’ll need an increase in my working capital line. And my building is starting to feel pretty tight. What do you think about helping me finance a plan expansion?’

I would encourage the banks to think creatively and bring new ideas to you. Let them know that you really want to hear their recommendations; you want their advice. Bankers are experts at getting to know a business, its cash flow and cycles, and then coming back with recommendations.

Bankers can advise you on ways to save you time, save you money and make you money. If you encourage them to be creative and bring new ideas, they will.

What questions should business owners ask the bank during the interview?

Ask the bank to describe its company, organizational structure and culture. That way, you have a sense of who the bank is. It is important to find out how decisions are made with respect to loans. This takes the mystery out of the decision-making process.

Find out if a loan committee or just a few people make the loan and, most importantly, are any of those decision makers in your local market. If so, find the key decision makers and find out how they make the decisions. And make sure the follow-up timeline is clear in terms of when you’d like to have a decision made.

Also, ask about the bank’s team and how experienced it is with your type of business. For instance, if I were a manufacturer, does the bank work with other manufacturers? Try to understand their experience level, as it is an important factor in the bank becoming one of your trusted adviser team members.

SUE ZAZON is the president and CEO of FirstMerit Bank’s Columbus region. Reach her at or (614) 545-2791.