The days of oil and gas and real estate limited partnerships tax shelters with 3 to 1, 4 to 1 and 5 to 1 write-offs are but a distant and faded memory in the minds of most experienced investors and real estate professionals. Nonetheless, even in today’s significantly more conservative climate, there is a vehicle available to help taxpaying businesses and individuals defer taxation in connection with the disposition and acquisition of property. It’s Section 1031 of the Internal Revenue Code and it is commonly referred to as a tax-free exchange, a like-kind exchange, or simply as a 1031 Exchange.
“In a typical situation, an owner selling its property would be taxed on any gain realized from the sale of the property,” says Claude P. Czaja, an attorney in the Real Estate Practice Group at Gambrell & Stolz LLP. “Section 1031 provides a mechanism that allows the property owner to defer taxation on the gain and keep all the proceeds invested.”
Smart Business spoke with Czaja about the benefits of a 1031 Exchange.
How does a 1031 Exchange work?
Typically, as a company outgrows its building, it develops a need for more space, and thus a new location. In a retail setting, the desire is to add new stores while reducing underperforming or older units. In each of these situations, the property to be sold, known as the relinquished property, is exchanged with the property to be purchased, known as the replacement property.
At the sale of the relinquished property, the proceeds are not tendered to the seller, also known as the exchangor. Rather, they are placed into an escrow account with a qualified intermediary, who holds the funds for eventual disbursement to pay for the purchase of the replacement property. Exchangor has 45 days to identify a limited number of replacement properties and 180 days to close on the purchase of the replacement property. If these and other technical requirements of the tax code are met, the exchangor will be able to roll the proceeds from the sale into the new facility and be spared from paying any tax on the gain that otherwise would have been realized in a routine sale of the property. This type of exchange is commonly described as a deferred exchange.
Besides real estate, can any other type of property benefit from a 1031 Exchange?
Yes, provided the subject property is like-kind or like-class to the property being relinquished or replaced, as the case may be, personal property used in a business can qualify for the tax shelter effect of Section 1031. Besides real estate, it is not uncommon to see equipment and furnishings, collectibles or larger-ticket items such as aircraft, being exchanged under Section 1031.
Actually, there are certain types of property that are specifically excluded from Section 1031 treatment. This group includes property held primarily for sale, inventory, stocks, bonds and other securities, and notes and other evidences of indebtedness. In general, if the property is not on the excluded list, it can qualify for tax-deferred treatment provided it is like-kind or like class property.
Are there any types of transactions that qualify for treatment under Section 1031 other than the deferred exchange?
Yes. In addition to the deferred exchange, there are a few other types of exchanges worth mentioning:
- Simultaneous exchange. As its name implies, the consummation of the closing of the sale of the relinquished property and the closing of the replacement property occur at the same time.
- Reverse exchange. This is a more complicated, costly and less frequently-used exchange method. In it, the replacement property is actually acquired prior to disposition of the relinquished property. These transactions are sometimes referred to as parking arrangements because the replacement property is purchased and ‘parked’ with an exchange accommodation titleholder who holds title to the replacement property until the exchangor is able to sell the relinquished property.
- Multi-asset exchange. This is an exchange that involves both real estate and personal property. Typical examples include exchanges of hotels or restaurants. In such transactions, the exchangor will exchange the real property as one part of the exchange and the furnishings and equipment as the second part of the exchange, with careful attention paid to ensuring that the furnishings and equipment are separated into groups of like-kind or like-class property.
- Construction exchange. In the construction exchange, the exchangor is allowed to build on or make improvements to the replacement property which is parked with an unrelated entity much like in the reverse exchange method. The exchangor can utilize escrowed exchange proceeds from the sale of the relinquished property to fund construction on the parked property. However, construction cannot occur on replacement property the taxpayer already owns.
CLAUDE P. CZAJA is an associate in the Real Estate Practice Group at Gambrell & Stolz LLP, concentrating on commercial real estate and business transactions. Reach him at (404) 223-2218 or firstname.lastname@example.org.
As improved technology continues to narrow the global communications gap, it is becoming increasingly important for many companies to expand internationally.
“The ‘flat world’ was created by today’s access to split-second communication enabling individuals to retrieve information faster than ever before,” says David Lanier, managing director of brokerage and corporate services for CB Richard Ellis in Atlanta.
Smart Business talked to Lanier about the importance of a company’s ability to go international.
How has the flat world theory changed companies’ real estate needs?
It has made the world smaller from a communication standpoint. However, companies must establish or retain a physical presence in most of those major markets where clients want to expand. A real estate company, for example, still needs its people on the ground in India, China, and Europe to service those clients whose business has grown internationally.
Are more domestic companies seeking a presence overseas?
International expansion is not for everyone, but if your company is involved in the communications, financial services or technology industries, you either have a global presence or your competition will pass you by.
How difficult is it to build an overseas presence? Do you staff with Americans or people native to the country?
Staffing should include a combination of people from the United States as well as natives of the country. For client satisfaction reasons, I think the most effective way, however, is to have your own people on the ground. That way you can look your clients in the face and assure them by saying, ‘You know what, when you go into those foreign markets and you feel a little unsure, you have a CBRE person on the ground with you.’ If that is not possible, the next best alternative is staffing through alliances or joint ventures with existing firms already in those locations.
Are more domestic companies opening branches overseas?
Absolutely. In real estate, our clients demand it. If you are a small- to mediumsized firm seeking only domestic businesses, then you do not need to be international. But for a global service company like CBRE to maintain or grow its international client list, especially on the corporate side, a presence overseas is critical. The size and scale of a large real estate company makes the international market feasible and the expenses associated with growing in emerging markets manageable.
How hard is it to purchase real estate overseas?
The answer varies from market to market. Whether a company wants to buy or lease also depends on the market. Doing business varies greatly from market to market, due to cross-cultural differences, reinforcing the importance of having local influence and local expertise inside your company.
What’s the process when a client is looking to get into real estate overseas?
We have centers of excellence, or expert centers, where we can refer a client. For example, if an Asian client wants to open a foreign office and needs help or advice in doing so, there is a specific group of people with whom they can work with to start the process for any type of real estate service from a multi-billion dollar investment to a single distribution center.
For U.S. brokers, it’s an easy process because it’s not simply a hand-off. No client wants to feel like they have been abandoned and passed off to someone else. It is okay, however, to say, ‘Sir, here is the number to the desk of my contacts in the Beijing office. They’re the experts in your market and I am completely comfortable putting you into their hands.’
Are companies that are not international at a disadvantage?
That’s such as broad question. It depends on the business of the companies. I can’t think, however, of many companies of considerable size and scale that would not benefit from branching out to international markets.
DAVID LANIER is managing director of brokerage and corporate services for CB Richard Ellis. Reach him at (404) 504-7906 or email@example.com.
Born: Lancaster, Pa.
Education: Gettysburg College, bachelor’s degree, business and political science What has been your biggest business challenge?
It’s been being an entrepreneurial-spirited person in a big business kind of culture that was not entrepreneurial-spirited. It was like being in a box for a number of years.
The greatest thing to happen to solve that frustration was the management buyout we started in the fall of ’95. That was the greatest challenge and frustration in finding a way out of that big-company box.
What’s the most important business lesson you’ve learned?
You can’t let the lows drag you down. Hang in and persevere and battle through the difficult times and realize there’s always another day.
There’s always another alternative. There’s always another way that you can move on and solve some of the problems that you have and move on to some opportunities.
What was your first job?
My first job was delivering morning newspapers at 4:30 or 5 in the morning for a number of years seven days a week. Those were challenging days. I started doing that when I was 12 or 13.
What’s your favorite board game?
The only game I play with any frequency is checkers. I enjoy Monopoly, too I play it with the kids and grandkids.
Monopoly is business-oriented, and checkers is just a good competitive and strategic thing. I just enjoy both of those for the competitive nature.
Are you a sports guy?
I’ve always been. I played football and baseball in college. I’m still playing baseball, tennis, golf and basketball. I’m still doing all those things and trying to still feel like I’m a kid. My wife always wonders when I’m going to grow up, and I say never not until they put me in the box.
Changing demographics, a shortage of qualified workers and the growing importance of retaining top talent have many organizations modifying their approach to long-term work force planning. But adjustments are being made to short-term programs as well including processes for screening, interviewing and hiring employees.
“Forward-thinking organizations are taking advantage of innovative technologies and applications to streamline the hiring process, reduce costs and enhance their ability to identify best-fit talent,” says Kevin White, director of operations for Spherion Staffing Services.
Smart Business talked with White about which automated tools are gaining traction, and why.
Why are more and more companies adopting high-tech tools in the hiring process?
According to the latest Spherion Emerging Workforce Study, many employers spend a significant amount of time interviewing and screening potential candidates. The study found that the typical human resources manager interviews an average of nine people for one open position. And nearly half of the employers surveyed (44 percent) believe their hiring managers are interviewing too many people to find qualified candidates effectively.
In addition, a study conducted by Aberdeen Group found that 33 percent of employers cite inefficiency, cost or lack of timeliness in managing the hiring process as a challenge at their company.
What’s the first step of the hiring process to use these tools?
That’s the screening and assessment function, where we’re seeing a new breed of tools and processes beginning to change the way the employment process looks. Companies are using these tools to more effectively and quickly tap into talent pools, screen out unqualified candidates, and assess an individual’s skills, behavioral or cultural fit with the organization.
Innovations such as the Web, and phone-based technologies like interactive voice response (IVR), have moved pre-employment screening to the top drawer of HR hiring tools.
What are some of the benefits of these new tools?
The use of automated screening and assessments tools is now considered one of the most effective HR practices today for a number of reasons. By delivering tangible results such as reduced time-to-fill-the-job rates and intangible perks like increased job satisfaction among hiring managers these tools can make a significant impact on any organization.
You mentioned tapping into larger talent pools. How does that work?
Casting a wider net to increase your applicant pool will improve your chances of finding qualified candidates. Automated application and screening tools give potential job candidates the flexibility and freedom to apply online anytime from virtually anywhere at their own convenience. This is especially attractive to candidates who juggle a full-time job and a busy personal schedule.
And when busy candidates are able to search and apply online, literally around the clock the result is a larger, more skilled applicant pool for the prospective employer.
With a shrinking labor supply, is speeding up the hiring process important?
Absolutely. And automating the screening and application component speeds up the hiring process dramatically by enabling an entire applicant pool to be matched against an organization’s inventory of HR requisitions. Automated tools can immediately rank potential new hires based on ‘best-fit’ criteria, and quickly alert recruiters to well-qualified applicants when they apply.
By speeding the process, there’s less chance of having a good candidate get away. In the current job market, which we expect to prevail for quite some time, the employer who can move to hire with speed and agility wins the day (and the candidate).
Are there any quantifiable results from these tools?
Technology-enabled assessments can significantly improve turnover rates at any organization. With a poor hiring decision often costing a company between two and seven times the employee’s annual salary, any positive impact on turnover can save thousands, even millions, of dollars. In fact, Spherion’s automated assessment tools have shown to reduce turnover by 35 percent to 45 percent, thus helping companies reduce employment costs and improve their bottom line.
Think about it: more candidates, in less time, at lower cost. When you look at the results, it’s clear that technology has improved the way businesses screen, assess and hire employees. Really, now it’s not so much a question of how technology has helped but more a matter of how businesses are still managing without a high-tech hiring process.
KEVIN WHITE is director of operations for Spherion Staffing Services in the Southeast. Reach him at (904) 358-7864 in Jacksonville or at KevinWhite@spherion.com.
Handing down the family business to the next generation can be a proud moment, but it can also be a complicated one. Proper preparation is critical to ensuring a smooth transition for all involved.
It’s never too early to start that preparation, says Joe Astrachan, Ph.D., director of the Cox Family Enterprise Center of the Coles College of Business at Kennesaw (Ga.) State University. Astrachan says children should be raised from the day they’re born to handle the issues they’ll face in heading the business.
Smart Business spoke with Astrachan on what family business owners can do now to prepare for the moment they’ve been waiting for in the future.
How far ahead should a business owner plan the transition of the business to the leadership/ownership of a son or daughter?
Even before children are born, there are things that can be done in a family business to prepare the way. It’s important to have discussions with other family members about who’ll be allowed to work in the business, by what rules, as well as who gets to own stock and how it can be transferred. This can save a lot of potential strife in the future. For example, when one brother is worried that his other brother wants his children to have top roles without starting at the bottom and the children are already in their 20s. It’s a much easier conversation before the children are even born.
Children should be raised to be able to work together, make decisions and understand risk, reward and patient capital (delayed gratification). At an early age, they should learn what money is, how to save and how to wait for things they want.
Next, they need to learn that actions and consequences are linked. This is the primary route to self-confidence.
Next comes the importance of learning from failure, which is essential in business. Unfortunately, it seems that our modern culture abhors failure and only celebrates success. That leads to children who aren’t in touch with reality as they’ve learned that they aren’t allowed to say, ‘I lost’ or ‘I failed.’ This means they don’t learn how to learn from problems, challenges and failure.
Later, they should learn to make decisions together by selecting the places to go to dinner or having a vacation. Learning that they need to work together and that there’s no excuse for not being able to cooperate are important early life lessons that can cut down on sibling rivalry.
After that, they need to learn the basics of business and responsibility to employees and customers as well as understanding finance.
Is it as easy as saying, ‘Son or daughter, you’re now the president!’?
For a well-prepared family, yes, that’s all you really need to do because they can and will take over. They’ll have the right conversations and do what’s needed to succeed. In fact, there’s almost no scientific research on succession that shows what works and what doesn’t. There are as many examples of young leaders who succeed not out of any planning but because they had to learn to swim without a lifejacket.
A second route is to prepare the next generation through training and experience. A good program is to give the next generation the opportunity to earn their stripes by putting them ‘in combat,’ where they have to succeed or fail. When the time comes to select a successor, the future owners should take part in the decision.
How should the transition be handled among employees?
Hopefully, they’ve known for a long time that a transition is taking place and who the leaders and owners will be. The most important thing they need to be told is that the family is committed to the long-term ownership and stability of the business. During the transition, they need to be told that the new leader is the new leader and his or her decision will be backed. Then, the new leader’s decisions need to be reaffirmed, no matter who those decisions hurt or benefit. Do not, under any circumstances, allow employees to plead their cases to former leaders. Respect the transition.
What if someone not only wants to relinquish a title but sell his or her share of the company outright or sell/transfer it to a family member?
The easiest way to do that in a small business is to give the shares to the next generation because that has the least impact on the company’s cash flow. Hopefully, the senior generation will have other means of income and will have done appropriate planning so taxes are minimized.
To sell the company means that a new leader not only has to establish his or her credibility but also do so while making substantial noncompany development-related payments, a hard task even for seasoned entrepreneurs. Couple that with trying to keep brothers, sisters and cousins happy and you have a mountain to climb.
If you want to sell, it depends on what the company’s value is and how long you’re willing to wait to be paid. There are all kinds of IRS rules about this, so anyone considering it needs to get the advice of a tax lawyer or CPA.
JOE ASTRACHAN Ph.D., is Wachovia Eminent Scholar chair and the director of the Cox Family Enterprise Center of the Coles College of Business at Kennesaw (Ga.) State University. Reach him at (770) 423-6045.
The United States has a system of taxation by confession (Hugo Black) and the Financial Accounting Standards Board has moved the confessional from the income tax return to the balance sheet and footnotes. With the implementation of FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes;” an interpretation of FASB Statement No. 109 (FIN 48) comes the most significant interpretation for tax reporting that has been seen in many years and the implementation date is right around the corner for SEC filers.
Smart Business talked to Barbara Catherall, a senior audit manager at Tauber & Balser, P.C., about the importance of the new interpretation.
What was the impetus for FIN 48?
Tax positions represent interpretations of the income tax code. As such, it is easy to understand the validity of recognizing the benefit of a tax position in the financial statements when the degree of certainty that the position can be sustained is high. However, the law is often subject to interpretation and whether a tax position can be sustained can often prove to be difficult to determine. FASB 109 contains no guidance on assessing the degree of confidence of sustaining tax positions. Consequently, a diversity of practice developed and has resulted in non-comparability in financial statements.
FIN 48 clarifies the accounting for uncertain tax positions that have been recognized in the financial statements in accordance with FASB 109, ‘Accounting for Income Taxes,’ by developing a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, FIN 48 provides guidance on derecognition, classification, interest, penalties, accounting in interim periods, disclosure and transition.
How are tax positions evaluated?
First, evaluate the position for recognition. The company should recognize the effects of a tax position in its income statement if the position will more likely than not be sustained on examination by the relevant tax authority. The term ‘more likely than not’ is a likelihood of more than 50 percent which is the same criterion used to evaluate whether a deferred tax asset is realizable. An entity should not recognize any income statement benefit for a tax position if the more-likely-than-not threshold is not met. Entities should base their analysis of the more-likely-than-not threshold only on the technical merits of the tax position. In making this analysis, an enterprise should presume that the tax position will be examined and evaluated by the relevant tax authority with full knowledge of all relevant information. The company must also assess the technical merits of the tax position based on the weight of the relevant tax law authorities at the reporting date. Each tax position must be evaluated individually. FIN 48 prohibits offsetting the positions against each other or aggregating positions.
What provides guidance concerning technical merits?
The authority for tax law can be found in legislation, statutes, legislative intent, regulations, rulings and case law. A company can also consider prior administrative practices and precedents established by the relevant tax authority if they are widely understood. For instance, many tax authorities have indicated by historical administrative practices and precedents that they will not challenge an entity’s capitalization policy of deducting insignificant assets, even though the tax law may not prescribe a capitalization threshold or contain a materiality provision.
What types of issues are included in tax positions?
Tax positions can include the following:
- A decision not to file a tax return in a jurisdiction
- The allocation of income between jurisdictions
- The characterization of income in the tax return
- A decision to exclude taxable income in the tax return
What happens when the tax return basis is different than the result of applying FIN 48?
Any difference arising between the amount that a company recognizes by applying FIN 48 and the amount reported, or expected to be reported, on its tax return results in a liability for unrecognized tax benefits (a FIN 48 liability) that should be classified as current for those amounts expected to be paid within one year. It is not classified as a deferred tax liability.
FIN 48 is effective for fiscal years beginning after December 15, 2006. This means that SEC calendar year filers need to consider FIN 48 when preparing their first quarter 2007 filings.
BARBARA CATHERALL is a senior manager providing service to both the Forensic and Audit departments at Tauber & Balser, P.C. She has more than 20 years of public accounting experience for both publicly and privately-held companies in the professional services, retail, wholesale distribution, manufacturing, health care, real estate, not-for-profit and construction industries. Reach her at firstname.lastname@example.org or (404) 814-4961.
Forget alarm systems. The most potentially dangerous intruders already know the codes. When employee dishonesty penetrates a company, the consequences can be incredibly damaging.
“Financial losses from employee dishonesty do happen,” says Ralph Cummings, fidelity underwriter at Westfield Insurance. “We see them every day. “The results can be devastating not only financially but also psychologically. The guilty employee often is a trusted, long-time member of the business. The hurt that comes from the breach of trust adds to the loss.”
Smart Business spoke with Cummings about the issue of employee dishonesty and how to prevent it.
How do dishonest employees steal from their companies?
Small-scale theft happens with the loss of relatively low-cost materials and supplies. Large-scale theft usually results from taking expensive property or accessing the company’s bank account.
At one truck dealership, an individual in the parts department took expensive truck parts with him over a long period of time. He would make excuses, such as he was taking the items for a delivery, when in fact he was taking them for his own profit. Another unfortunate loss happened with a contractor whose bookkeeper took money from the company over a period of seven years. The loss exceeded $1 million and cost the owner his business and his relationship with his sister, who was the bookkeeper.
The business community often isn’t aware of these dangers and situations because the affected companies don’t want to publicize the loss. But the truth is that employee theft does happen, particularly when employees are trying to support expensive bad habits, and businesses need to guard against it.
How does employee dishonesty affect businesses’ insurance expenses?
Insurance is a mechanism for spreading losses among policyholders. Protection against a large, uncertain loss (an embezzlement) is traded for a small, certain loss (the premium). As a company’s losses grow in size and amount, the premiums to pay for them will increase.
How can companies create a culture of honesty and integrity?
Every company should closely examine the way it deals with its customers and employees. Does the company deal fairly with others, or does it often take advantage of them? If employees are encouraged or permitted to deal dishonestly with customers, how can they be expected to deal with integrity with their employer? A culture of honesty and fair dealing must start with upper management. Treating employees fairly and respectfully is also very important. Showing an interest in each employee, and making each feel that his job is important can foster employee satisfaction. But beyond that, an employer must demonstrate that cheating, dishonesty and unfair business practices will not be tolerated.
What controls can help prevent employee dishonesty?
Over the years, I have seen many employee dishonesty losses. There is one method that seems to recur most often and seems to result in very large losses.
Every insured company has a bank account. At least one employee is responsible for reconciling the monthly bank statements against the employer’s records. That person is the most likely to detect any discrepancy between the two. Very large losses happen when this person is also permitted to handle bank deposits or to have access to blank checks.
For example, if an employee is given a deposit to take to the bank but decides to keep it for himself, the bank statement will show no deposits for that particular day. An impartial bookkeeper would catch this discrepancy in the records. However, if the person reconciling the bank statement is also the person who should have made the deposit, he will obviously not let management know about his theft. With no unusual records and no checks on the behavior, the employee is free to continue this activity indefinitely.
Likewise, if the person who reconciles the bank statements also has access to unissued checks, he could use the employer’s checks to pay his personal bills, make purchases, or simply make checks payable to himself. Even if this individual does not have check-signing authority, he could forge a signature. Banks generally just pay the checks and rely on the customer to let them know of any discrepancies. It is not uncommon for losses of this type to continue for years and reach very high amounts.
One of the biggest keys to preventing employee dishonesty is to have the bank accounts reconciled by someone who does not handle the bank deposits and who does not have access to unissued checks.
RALPH CUMMINGS is a fidelity underwriter. Reach him at (330) 887-0544 or email@example.com. In business for more than 157 years, Westfield Insurance provides commercial and personal insurance services to customers in 17 states. Represented by leading independent insurance agencies, the product we offer is peace of mind and our promise of protection is supported by a commitment to service excellence. For more information, visit www.westfieldinsurance.com.
That’s how Ronnie Hollis has grown Prestige Staffing between 80 percent and 105 percent per year for the last four years, with estimated 2006 revenue of $18 million and anticipated 2007 revenue of $20 million to $35 million. The company, which fills temporary, permanent and contract positions for businesses across North America, employs 55.
The average age of employees is 26, and such youth, coupled with the company’s anticipated continued growth, means that training is critical. “Our goal is to create leaders, not just manage them,” Hollis says.
Smart Business spoke with Hollis, CEO of Prestige Staffing, about how he keeps employees motivated and the importance of finding weaknesses even when things are going well.
Q: What is the most important skill for a CEO to have?
A CEO has to be humble. Nobody has all the answers, and if you’re humble, you’ll take advice from others, and you’ll need advice from others. It may be an entry-level person; it may be your right-hand man who has been with you since the beginning.
If you’re not humble, you’re going to try to call every shot without gathering the pertinent data you need to make a decision. Other people have brains, too, and you have to use them.
Hire smart people, and be smart enough to take their advice. You’ve got to have good gut instincts, because sometimes there are decisions to be made, and the data’s not there. You’ve just got to have the courage to take some leaps of faith.
Q: What is the biggest trap a CEO should avoid?
Contentment. If, as a CEO, you don’t stay focused on the big picture, the company’s not going to grow. If you become content, the company becomes content.
If you become stagnant and content, your staff is not going see opportunities. If they’re not going to have opportunities for themselves, they’re going to leave. Your people are your most valuable asset, and the best way to keep them around is to keep creating opportunities for them.
As a CEO, if you get content, you’re dead. Whatever numbers you hit this month, great. Let’s beat them next month, and every month. You’ve got to reinvest that money in your company for opportunities for your people. You can’t be too greedy. The temptation is there, especially in a successful company. You didn’t make it by yourself.
It doesn’t have to be in pay; it can be in opportunities. Create opportunities for your people. In return, they’ll make you a bigger, more successful company.
Q: How do you avoid stagnation and contentment?
You have to be able to identify weaknesses before they become problems. When a company is doing well, it’s easy to just sit back and watch it and enjoy it. But in reality, what you should be doing is identifying weaknesses before they become problems.
Where are you weak? Where can you get better? If you don’t fix it, it’s going to become a huge problem for you, and that can stunt your growth. I don’t care how good you’re doing; you have to look for weaknesses.
Yesterday in the weekly meeting, we had our best week ever, and we’re on track to have our best month ever, but the meeting was about an area I found that we need to work on. I focused more on that weakness.
You have to celebrate your successes and all that, but the clich is that there is 90 percent you’re doing right and 10 percent you do wrong. My job is to always identify the 10 percent we’re doing wrong.
Q: How do you attract and keep quality employees?
Why do you get up and go to work every day? Well, you want to be successful at what you do; you want to make as much money as you can, and you want to have a successful career. So your vision must be built around giving people those opportunities.
Our vision is built upon giving our employees everything they would want from a job so it becomes their career, not just a job. We give them a career path they can be happy about, and they feel like they are a part of creating something.
Q: How do you do that?
You have to make sure there’s no division between management and staff. So many times, leaders just try to tell people what to do. You have to get out there and show them. They have to feel like you’re in it with them.
A lot of companies use classroom training. We avoid that. We try to roll up our sleeves, get out there and show them how to do it.
HOW TO REACH: Prestige Staffing, (770) 200-3565 or www.prestigestaffing.com
When Jeff Sprecher was 23 years old, he had 26 MasterCards and Visas because they were the only means he had to fund his business. Then he realized that was a poor way to finance a company, a lesson that has impacted the way he does business today as chairman and CEO of IntercontinentalExchange, an online marketplace for global commodity trading. Last year, his company had $156 million in revenue and didn’t use credit cards to raise capital. Smart Business spoke with Sprecher about the importance of setting a good example and why you can’t dwell on mistakes.
Reflect your ethics in the organization. Have a certain ethic that says you’re honest, trustworthy and fair. In any place in life, people respect those qualities. It’s hard to operate in an environment where you don’t have a highly ethical, highly honest work environment.
Set the example at the top of the organization. Just like a parent, you can’t say, ‘Do what I say, not what I do.’ People admire good leadership and want to work in companies that have good leadership. They want to emulate the actions of good leaders, so it’s important that you live by example.
Hire and surround yourself with people that reflect your own ethics and hope that they do the same. Over time, you can change the culture of an organization through individual employees.
Trust your people. Be a person that believes in the good. Have a ‘glass is half full’ attitude, and when things are going wrong, insert yourself and make sure that people recognize where things have gone wrong, and try to learn from those mistakes.
Businesses make mistakes. A good business will figure out the mistake early, correct it and move on, and not paralyze the organization in that process.
The worst thing you can do is admonish somebody who took a calculated risk that they felt was valid and was wrong. Reward somebody who takes a calculated risk, was wrong and corrects it.
Don’t create a fear-based company, where people worry about losing their jobs because they make decisions. Create an empowerment-based company, where people feel that they are required to make decisions and required to be responsible for them and take ownership of their mistakes.
Innovate. Go into a mature market, look at things and re-innovate.
I have grown up having always been able to order a pizza and have it delivered to my home. Yet people have come up with all different ways of making pizzas and delivering them to homes and create amazing franchises in a space where one would say the market is largely served. You can find that same kind of example in any industry where someone goes in, innovates and takes the calculated risk to invest and apply that innovation.
You need smart people that can see opportunities, and those opportunities are usually presented to you by talking to your customers about what their needs are or where others are not fulfilling their needs.
Don’t get ahead of yourself. Don’t hire people too much ahead of the need. One way to empower people is, as the company is growing, put more responsibility on people and not let them hire that responsibility away.
By running relatively lean, you’ll find those people that are willing to take on new responsibilities. Build businesses and growth areas around them.
In a growth environment, look to the people that have leadership skills and have good decision-making, and give them that part of the business and let them run with it. It’s almost a self-policing activity.
Raise money and think bigger. It’s easy to have great ideas but lack the resources to implement them.
It takes a certain amount of salesmanship and entrepreneurship just to raise the resources that you need to operate in business. Get that balance right because you can’t spend all your time raising money, because then you’re not doing the business, and you can’t do the business unless you’re raising money.
A lot of articles say there’s a lot of capital in the world looking for opportunities to invest. Finding the neck of the funnel where your ideas and those dollars come together is incredibly difficult. It takes just as much energy for an investor to invest $5,000 as it does to invest $5 million.
Anyone who is on the investment side of the business has a certain amount of due diligence that they want to do to protect any amount of money that they want to put into a venture. Once you figure that out, you’re better off thinking big and coming up with an idea that warrants the $5 million, as opposed to the $5,000 investment.
People come to me to ask for help for ideas they have that are relatively small. Can that idea be bigger? Can it be national or global? If it has applicability in what you’re doing locally, would it have applicability around the world? If it does, think about setting up a business for that because it may be easier to raise money for a good global idea than for a small regional idea.
Be prepared for change. The world and the capital markets have trends. Recognize that whatever you’re looking at in the market today is not constant and is likely to change. Always be evaluating: Is it going to change, and is it going to change for the better or the worse? What do I need to do to position myself for that change?
I made mistakes as a young person because I didn’t realize how rapidly markets and environments can change, and it’s not forgiving. You cannot control that change, but you can benefit from it.
You’re going to jump in a river. If you try to paddle upstream, you’re not going to make it. That river is going to take you somewhere, and you don’t really know where you’re going to come out at the other end.
What you can do is paddle to the left and paddle to the right. Make sure you’re going left when you need to go left, and go right when you need to go right, and avoid the rocks as you go down the stream.
HOW TO REACH: IntercontinentalExchange, www.theice.com
Your lease expires in 12 months and it’s time to decide where you want your company to be located for the next 10 years. You have a solid work force and good cash flow. Do you stay where you are or find another building?
“When representing tenants, we tend to look at the company’s current economic situation and what other options exist in the market,” says David Todd, first vice president for CB Richard Ellis. “Maybe it’s time to see what someone else is offering.”
Smart Business spoke to Todd about how to tell if renewing a lease or relocating is the better choice for your company.
How does a business owner know if it’s better to renew or relocate?
First, you analyze the market. You look at vacancy rates in your current building as well as areas that may offer your company a strategic advantage by relocating, such as proximity to clients, vendors or amenities.
Next, a broker can determine incentives for each of the different locations including the building you currently occupy. Your landlord won’t always want to offer you as aggressive a deal as he would offer a new tenant because he knows that moving costs money.
You also need to look at sublease options versus direct-lease options. There may be a great sublease available from a large company downsizing, merging or relocating to a more suitable building.
Finally, you compare proposals from the relocation options to what you pay at your current location.
Another option is looking at the economics and affordability of purchasing a building or a build-to-suit (building not owned by you but built specifically to accommodate your company’s needs, whereby you lease the majority of the building). Over 10 years, you may see great appreciation and the tax benefits of ownership.
Signals that it may be time to purchase a building:
You’re a growing business and cash flow is great
You know that you’re going to be around for at least 10 years and that your employee base isn’t going to shift too much in either direction
The current owner of the company is in a position to purchase a building and lease it back to the company.
Does it make sense to upgrade or downgrade a space?
You have to ask yourself several questions before you make this decision, questions that are based on the needs of the business. Are clients coming to your office, or do you mainly go to your clients’ offices? Is the company office-driven, cube-driven or an open atmosphere? Has your corporate culture changed as the result of a merger or acquisition? Is your work force getting younger and more trendy, or is it mostly suit-and-tie?
Other factors include whether you need to expand or contract your office space based on the current financial situation of your company. Does technology drive your company, and does the current building have the technological capabilities it needs? Is there a strategic need to be in a higher profile building? Are you now a public company? If the company’s been around for a while, do you want your name on the building? Do you need to be close to certain clients, such as the largest law firm in the area or the headquarters of a certain company? And, finally, what are the demographics of your work force? Are your people having traffic issues and do you need to be close to public transportation or the airport?
If a company is growing rapidly, when does
it become apparent that it needs to move to
a new building?
If the company has expansion rights or expansion options, then it may not need to move at all. Expansion rights part of the original contract give the company the right to expand into an adjoining suite or onto adjoining floors. If a company has 10 floors and expansion rights for two more, those floors must be made available when the company states that it wants to exercise its expansion rights. With expansion options, a company has the right of first refusal on adjoining space as it becomes available.
Strategically, if a company feels the need to re-brand itself and raise its profile, a new location can provide somewhat of a catapult for accomplishing that initiative.
To get you to stay in your current building, your landlord may offer you the option to relocate your growing company to a larger or more prestigious space in the building or move a smaller company to another floor in order to keep you from leaving. This creates a ‘winwin’ for both parties.
DAVID TODD is first vice president at CB Richard Ellis in Brokerage Services. Reach him at (404) 504-7916 or firstname.lastname@example.org.