Inefficiencies in your accounts receivable functions can dramatically impact your business.
“If a company is not managing its accounts receivables, it faces a greater risk of not collecting the money on a timely basis or, even worse, not being able to collect on the funds at all,” says Nick Heintzman, staff accountant at Ashton Staffing, Inc.
Managing your accounts receivable can be one of the most time-intensive duties your company faces, but it is also one of the most important functions
“It lays the groundwork for solid financial footing,” he says.
Smart Business spoke with Heintzman about how companies can better manage their AR to ensure fiscal stability.
How much control can a company really have over its AR?
A company has as much control over its accounts receivable as it can devote to it. The accounts receivable process is more than just managing the account once it is established. The process should start before the client ever begins doing business with you. A credit check should be run so you can evaluate the financial history of a prospective client to better protect you from losing money on the back end. If you notice a trend of late payments, you are better prepared to negotiate terms with the client that will help you still be profitable in the event that you are paid late. A credit report will show bankruptcies and liens, which could help you avoid getting tangled up with a client that would be more likely to fail and leave you with pennies on the dollar.
Another important part of evaluating a credit report is to set credit limits for prospective clients. This will help to protect you and also let the client know it will have to keep up with payments in order to maintain the relationship.
What are some of the more common problems companies face regarding AR?
Three problems that seem to be the most common are short-pays, payment beyond terms and companies failing to pay because of economic difficulties. All three can become significant difficulties in a very short time.
If a client is short-paying invoices, you are not capturing your full earning potential on the account. A client paying beyond terms will hinder your cash flow and potentially cause you to have to borrow to keep up with your financial responsibilities. And if you never receive payment from a client, you have not only lost the money associated with providing the goods or service, you also have lost the profit potential associated with the sale.
What technologies exist today that can help improve a company’s AR function?
There are several accounting software packages that make managing your accounts receivable much easier. QuickBooks, for example, creates reports that will break down your accounts receivable, in detail if needed, by preset time intervals. It can quickly show you which accounts are beyond terms, and this will help you focus on delinquent accounts on the days when you don’t have a lot of time to allocate to managing your accounts receivable.
QuickBooks also can apply finance charges to delinquent accounts, which helps to offset the cost associated with payment beyond terms. Many times, applying late fees will cause a client to re-evaluate its payment terms for you because paying late fees often is a burden. If a client knows you are serious about staying on top of its account, it is likely to get back in terms to avoid the extra charges.
Overall, what are the key factors to efficient AR management?
Some key factors are to keep up with it daily, be friendly but forceful, follow up in a timely and consistent manner, and do the research before taking on a client. However, being rude toward a client will not get payment any faster and will most likely cause the client to think twice about doing business with you. By being friendly and personable, you can help establish a relationship with the client, and that can go a long way in ensuring you are paid on time.
How can inefficiencies in the AR function, if ignored, affect a business?
The longer an account goes outstanding, the lower your success rate of collecting on the funds. In both scenarios — collecting the money late or not at all — it is going to restrict your cash flow for expenditures. Most accounts are set up on a net-30 term, whether it is accounts receivable or accounts payable. If you are collecting your money at the 45-day mark, it’s because you are not staying on top of your customers and you will most likely end up paying most of your vendors at 45-plus days, beyond terms. This can create conflict between you and your vendor, straining the relationship or even causing the vendor to require payment up front. Going one step further, if companies report to credit bureaus, your credit rating will drop if you are consistently late on payments. Poor credit ratings lead to higher interest rates for borrowing, which costs the company more money and restricts cash flow even further.
How should a business go about getting its AR functions back on track?
Set aside time every day to focus on it. If you devote some time every day to contacting aging accounts, you will:
- Stay at the top of their minds, which will hopefully lead to faster payments;
- Know which accounts you will need to keep a closer eye on by seeing ongoing trends; and
- Be able to catch delinquent accounts right away before they spiral out of control.
Nick Heintzman is a staff accountant at Ashton Staffing, Inc. Reach him at (678) 359-3783 or email@example.com.
Insights Staffing is brought to you by Ashton
The U.S. economy has been volatile to say the least in the past few years, and tumult in markets across the globe is chipping away at companies’ already shaky confidence, which has stalled hiring.
However, some industries are seeing orders or requests for service start to increase, which requires companies in these fields to try to keep up with demand using a pared-down work force. That’s where staffing agencies have been able to lend a hand.
However, the impending implementation of the Patient Protection and Affordable Care Act is likely to have an impact on workers’ compensation benefits, a program for which many staffing and professional employment organizations take responsibility. While the consequences are uncertain, employers and staffing agencies are taking measures to provide safer workplaces to reduce claims but are otherwise bracing for its potential impact.
Smart Business spoke with Hayden Smith, account executive and consultant with Solid Agency, LLC, about how staffing firms have been faring in this choppy economy.
How has employment been impacted by economic uncertainty?
There have been some positive trends in the staffing industry. Temporary and contract employment has grown 24.8 percent since the beginning of 2012, according to the American Staffing Association. There are certainly many rosy predictions and forecasts for the temporary industry, with the consensus saying good times are ahead for well-operated firms.
Since September 2008, 88 percent of employers have either maintained or increased the size of their nonemployee work force and ASA reports that temporary and contract staffing employment jumped 24 percent in May.
Further, reports indicate more college-educated professionals and managers have been hired than blue-collar workers in the past years, signaling that contract workers have become the go-to solution for companies across industries.
This comes at a time when only 23 percent of U.S. companies say they plan to add staff in the next six months. That figure is down from the 39 percent of companies that planned on hiring when they were surveyed in April. Clearly, companies are exhibiting caution when it comes to adding costs, such as those incurred when hiring full-time, permanent workers, while the global and U.S. economies stand on shaky ground.
Workers’ compensation is a significant cost often covered by staffing agencies. How are recent events impacting this program?
Workers’ compensation coverage is the second-largest expense behind payroll for temporary agencies.
When employers use temporary workers, they can avoid the possibility of having workers’ compensation claims made against them as contract workers are covered through the agency’s program. However, the Supreme Court ruling upholding the constitutionality of the Affordable Care Act could impact the current workers’ compensation program. For instance, there is some speculation that frivolous claims made by workers could drop as more are provided health care coverage with which to get treatment, instead of filing a fraudulent workers’ compensation claim. A study that examined the impact of health care reform on workers’ compensation medical care in Massachusetts found that health care reform could reduce workers’ compensation billing volume and costs. However, it’s unclear how the findings will apply across states mandated to abide by the Affordable Care Act.
Additionally, alternative markets available for the temporary industry to secure valid coverage have continued to grow and can offer cost-effective, tailored methods other than traditional methods of workers’ compensation.
The temporary agency that does not manage its workers’ compensation very carefully will eventually find out how important this expense is to its bottom line.
How can the number of workers’ compensation claims be reduced for a temporary staffing agency?
While accidents cannot be completely eliminated, several processes and procedures can be used to help reduce the number of accidents and injuries, and possibly stop fraudulent claims.
Implementing a proven best-hiring practices program is first on the list. In depth prehire and post-offer questionnaires will help in deciding the type of work of which a temporary employee is capable. A drug-free workplace is another key component but only if the program is well managed by the employer. Also, most states offer premium discounts for drug-free workplace programs.
Another risk-reducing element that every business needs is a formal written safety program. However, this can be difficult for a multi-industry temp agency to provide. A thorough job description from the client employer will aid in the task of understanding risks and managing safety. Additionally, use these job descriptions with the aforementioned post-offer questionnaire, so client employers receiving qualified labor will be more confident using the services of a diligent temp agency.
A managed care organization is another helpful tool of a well-managed workers’ compensation program. When put in place and enforced, these can help reduce the total number of compensable workers’ compensation injuries. However, if a temporary employee is never informed and updated about the procedures of his or her workers’ compensation program, all will be for naught.
Ultimately, providing a safe workplace for employees is the responsibility of the employer. If employees are hurt, regardless of whether they are temporary or permanent, your bottom line could potentially suffer in several ways, including higher workers’ compensation premiums, loss of production and a negative impact on overall employee morale.
Proper planning, efficient management and complete implementation of components available to the staffing industry can help you avoid ‘the ugly’ in the future.
Hayden Smith is an account executive and consultant for Solid Agency, LLC. Reach him at (678) 460-2965 or firstname.lastname@example.org.
Insights Business Insurance is brought to you by Entera
In business, as in life, there’s a benefit to having guidance that’s tried and true. Most successful business owners can cite mentors who have directed their paths along the way. As companies grow, those informal relationships are usually replaced by formal boards of directors. A board of directors is a very useful method for allowing significant shareholders to feel they have a say in the strategic planning for the company.
It’s my opinion that all companies – regardless of size – need to have a board. In this two-part series, I will explore the benefits that a small company can gain from having a corporate board and how a small business owner can establish a board.
First, let’s examine the benefits:
1) A good board of directors will do what employees often are afraid to do: challenge the leader. Most employees don’t feel empowered to speak up when they think a strategy is misguided or out of sync with customers or a target market. Board directors should be willing to openly question ideas and the assumptions that guide strategic planning to help the president or CEO suss out their soundness.
2) A board can provide accountability – particularly in family-run businesses where it can be hard for an unbiased assessment of the business without familial issues clouding judgment.
3) Boards can help with recruiting, evaluating and selecting top job candidates, as well as setting compensation criteria that are fair and transparent. Since directors are removed from the daily running of the business, they can help with succession planning.
4) For companies considering a public offering, setting up a board early can help acclimate the owners to the enhance scrutiny that they will face once the company is publicly traded.
5) A board of directors is legally required for registered corporations.
Next column: How to create your own board.
Patricia Adams is the CEO of Zeitgeist Expressions and the author of “ABCs of Change: Three Building Blocks to Happy Relationships.” In 2011, she was named one of Ernst & Young LLP’s Entrepreneurial Winning Women, one of Enterprising Women Magazine’s Enterprising Women of the Year Award and the SBA’s Small Business Person of the Year for Region VI. Her company, Zeitgeist Wellness Group, offers a full-service Employee Assistance Program to businesses in the San Antonio region. For more information, visit www.zwgroup.net.
When Andrew Dorn, Industry Leader, Information Intensive Business, Acxiom Corporation, was recently researching the top manufacturers in the United States, one topic kept coming up — the strong growth expectations focused on the world's emerging markets. With the economies of the U.S. and Europe in flux, Dorn felt that, now more than ever, manufacturers need to be attentive to those emerging markets.
"The world is now flat," says Dorn. "Competition comes from everywhere, so manufacturers need to be everywhere."
Because of that, Acxiom has partnered with Smart Business to present a special one-hour webinar: "Driving Global Sales for Manufacturers: Why global growth for manufacturers is more important than ever."
During the webinar — on Wednesday, September 19 at 1:00pm EST — we will discuss why global sales for manufacturers is critical, what factors should be considered in developing or refining the international strategy, and, finally, present a roadmap that can be employed to optimize chances for success.
Featured panelists will be Zia Daniell Wigder, Vice President and Research Director, Forrester Research; Jennifer Barrett Glasgow, Global Privacy and Public Policy Executive, Acxiom; and Michael Biwer, Managing Director, Acxiom.
"As you enter the global market, it is imperative you understand the privacy laws in each country as they are quite complex and some are very stringent, for example, having criminal penalties for some violations," says Barrett Glasgow.
Other topics to be discussed include:
- How to determine which countries to enter and what data to gather to understand regional customer requirements
- Recommended approaches to building country-specific strategies that can help facilitate smooth transitions, lowest possible cost-of-entry, and consistent performance
- Considerations for navigating the complex web of country-specific data protection and privacy laws companies must adhere to in their efforts to connect with customers and prospects
- Best practices used by leading companies that have successfully entered new markets
"The U.S. and European economies are still recovering and the balance of growth is constantly shifting," says Dorn. "For example, China and Brazil have been experiencing strong growth. They are encountering a maturity curve, but that doesn't lessen the importance of the issue — manufacturers need to be diversified and have a presence in all major world markets."
The webinar, "Driving Global Sales for Manufacturers: Why global growth for manufacturers is more important than ever" will be held at 1:00 pm EST on Wednesday, September 19.
An organization is a factory that depends on its employees to manufacture judgments and decisions. Ironically, people receive very little formal training in the human tendencies that unconsciously threaten these choices. The problem is that a misguided belief left untamed will contaminate judgments, decisions and bottom-line performance.
An Atlanta-based CEO of a midsize company recently told me how his new levels of authority policy for decision-making will mitigate risk. His self-confidence eroded when I asked, “Can internal policies alone change the way individuals receive and filter information, or is the human component of risk management an inevitable limitation on its utility?”
A couple examples of human tendencies that can lead to problems are when workers unconsciously spin information to please the next level of management, or when they reject new facts because they conflict with existing norm. When this is part of an organizational culture, operational risk increases and performance suffers.
Expose the risk
In any business activity, there is one element we cannot fully understand because it is us: the human element. From psychology to cognitive social neuroscience, research points to shortcomings in how people gather and process information and experiences in order to answer questions, solve problems, determine judgments and make decisions. Many are simply unaware of the flaws plaguing some of their decisions. This generates risk associated with an organization’s culture, which I call cultural risk.
If we think of risk management as the entire machine, cultural risk management is one of the critical gears. The machine will not work as well if this gear is faulty. While merely a starting point, asking these questions routinely before recommendations are moved upstream will begin to create an organizational culture in touch with its thinking.
1. Do we have sufficient information to make this decision?
This question addresses the requirement to make decisions based on both relevant and significant information of adequate breadth and depth. One human tendency is that we may present and/or accept data as sufficient for a decision that does not completely frame the situation in a balanced fashion, as long as it supports the decision we subconsciously want to make.
2. What makes us confident that information is accurate?
Clarifying accuracy addresses the requirement to make decisions based on clearly defined, reliable, factual, precise and fair information. If inputs are not accurate, then decisions will be faulty regardless of the quality of the ensuing decision-making process. We may unknowingly confuse unverified information with fact, see patterns that are not real, or experience a reflex-like rejection of data simply because it contradicts existing norms.
3. How do individual beliefs color the decision?
Giving attention to our beliefs considers the influence of one’s own point of view, desires, values, principles and emotional connections in conjunction with any decision. The question addresses the idea that whenever we reason, we do that within a point of view. Any flaw in that point of view is a possible source of faulty thinking. We may unknowingly draw conclusions and make decisions based on limited, unfair or misleading personal interpretations of information. We can get so locked in that we are unable to see the issue from other rational points of view. Once under the control of our beliefs, the truth is hard to see and hear.
4. What is the influence of the group involved with this decision?
This examination considers the group’s definition of reality, as well as bureaucracy, power structure and vested interests in conjunction with any decision. Every organization consists not only of individuals, but a hierarchy of power among those individuals. No matter how noble the group’s goal, there is often a struggle for power beneath the surface. Personal strategies may be obscure or in apparent, even to those who are using them.
Many nuts-and-bolts leaders find talk of culture to be a “soft issue” and give it second-class attention at best. But to lower risk and improve performance, culture must be addressed.
Larry J. Bloom spent 30-plus years helping grow a small family business to more than $700 million in revenue. He is the author of “The Cure for Corporate Stupidity: Avoid the Mind-Bugs that Cause Smart People to Make Bad Decisions” and the owner of a start-up media and software company that promotes better thinking. For more information, visit www.curecorporatestupidity.com.
Robin Raina acknowledges that the last four years provided a stern test to his prudent leadership throughout the last 13 years as he turned Ebix Inc. into a highly profitable, efficient company designed to weather tough times.
The recession hit the insurance industry hard, putting many insurers out of business and forcing many others to tighten their belts drastically. As a result, companies that supply goods and services to the insurance industry felt the pinch too.
The Atlanta-based supplier of software and e-commerce services to insurers, weathered the storm better than most. Ebix made it through — not unscathed but a stronger, wiser company whose leaders have grown and learned a lot in the process.
“The insurance industry wasn’t prepared for the economic downturn,” says Raina, chairman, president and CEO. “When people are not able to pay their mortgage, insurance becomes a luxury, so insurance companies were suddenly having a hard time. As a result, they tightened their purses and started spending less money on new projects, new initiatives, new distribution media.”
At the same time that the recession forced insurers to start curtailing their spending, a handful of other developments made life tougher still for Ebix. The health reform movement put even more downward pressure on the insurance industry. Some insurance companies declared bankruptcy. Many insurers started getting acquired by other companies, shrinking Ebix’s pool of potential customers even further.
“The health reform movement created a lot of inertia in the insurance industry,” Raina says. “Around the same time, a lot of acquisitions started happening. A lot companies in the financial world — the banks who were our clients, the insurance companies who were our clients — got acquired. And some of them went into bankruptcy mode. They had lots of difficulties.”
A large part of Ebix’s business comes from setting up exchanges to streamline insurance transactions. Thus, insurance transactions are the lifeblood of Ebix’s business.
“The more policies that get written, the more transactions we do and the more money we make,” Raina says. “It’s as simple as that. And when the insurance industry shrinks, less policies are written, less prospects are offered insurance, and Ebix’s exchanges are utilized less. So you have a direct impact — an inhibiting factor in terms of your revenue growth.
“That was the biggest challenge we faced. In spite of the state of the economy, and at a time when the insurance market was shrinking, we had to somehow keep the company growing and still report profitable results.”
Lay the groundwork
To a great extent, Raina had been preparing Ebix from the day he became CEO in 1999 for the economic storm that hit in 2008.
“We didn’t just sit down and create a plan on how to respond when this thing happened in ’08,” he says. “To me, that’s a mistake. Companies have to be ready. Companies that are designed to be run when the economy is strong are not good companies, in my view. You have to have systems in place and the fundamental strength to still do well if the economy goes south.
“For us, this journey of still being able to do well in spite of the economy didn’t happen because we put our heads together when the crisis hit and said, ‘Let’s figure this out.’ We were always prepared for it.”
How did Raina and his leadership team members build Ebix to weather the recession? The ways were many. They made prudent, careful investments. They avoided growth for growth’s sake. They went after new business when it made sense to do so, and had the restraint to pull back when it didn’t. They streamlined and centralized many of Ebix’s business processes. They converted the company to paperless operations, and taught its customers to do the same.
“It’s a series of things you have to be doing,” Raina says. “The fundamental strength of Ebix has always been that we created the systems so that our business scales up as our revenue scales up. And we run a very common-sense kind of business where anything we do has to come up with a particular model operating margin.”
Fiscal restraint, careful investing and caution in executing big transactions have been key elements in Ebix’s leaders’ ability to build resilience into the company’s design.
“Many people underestimate the value of financial discipline,” Raina says. “If you have a business model where you say you want 40 percent operating margins out of everything you do, and you run into a situation where you’re offered a big revenue deal but it will take your margin down quite a bit, then don’t do it.
“Focus on what you evolved as your business model. Have the courage and the financial discipline to be able to say no to such opportunities.”
In many ways, efficiency has been built into Ebix’s model for years. This played a big part in the company’s staying power when it ran into tough times.
“We had centralized and streamlined our business operations,” Raina says. “We had converted Ebix into a paperless company, where very little paper is transacted, and taught our customers to do the same. What did that all result in? It resulted in a highly efficient company.”
That efficiency served Ebix well when the recession struck in 2008. Not that it made the ride entirely smooth, but it served as a base of strength, a stabilizer to enable Ebix to traverse the rough road without breaking down.
“We were well prepared, but that’s not to say it was easy,” Raina says. “We were able keep our head high and make it through, keep growing, stay profitable and maintain our operating margins.
“Obviously, the revenue growth becomes lesser when you go through times like these,” he says. “It might not have been as good as it would have been if the economy was in good shape, but we were still able to show revenue growth.”
As Ebix moved through the storm, its leaders had to make many modifications to keep the company on course. They had to make sure the company’s existing revenue sources were secure. As Ebix’s clients were being snapped up by acquirers, they had to convince the new owners of the value of the company’s products and services. Some of Ebix’s customers’ budgets were cut, so there were issues of price sensitivity that had to be dealt with sensitively.
“The last four years have been an issue of doing small adjustments here and there, and restructuring certain things,” Raina says. “You become more controlled than you ever were. You focus back on making sure you don’t lose a single client because you know in a time like this there’s a possibility that some clients might get price-sensitive, so you have to form a different plan.
“Overall, we didn’t run into a lot of price sensitivity, fortunately. Our bigger issues had to do with the extent of overall budgets, and whether the clients had budgets that were sanctioned or not. We had a few exceptional cases where we had to come up with a solution for them because they had a lesser budget, and we had to somehow help them through that. So we did.”
Ebix managed to find ways to retain most of its customers who were hurting financially by working within their smaller budgets for temporary periods.
“You have to look at the client, and you have a choice to make at that point,” he says. “One choice is you can basically say, ‘Well, I’m not going to change anything that I do.’ The second way to look at it is you look at the client and say, ‘Are they genuine? Do they genuinely have an issue?’
“You look at how long they’ve been your client, and if you think they’ve been a sincere client, you make a decision that this is a time for you to show that you’re a true partner. You tell them, ‘I’m going to work with your present budget, with a basic assurance that as you get into better times, you’re going to come back to the normal level.’
“If they’re willing to do that, you give them a break. That’s what we did with a few of our clients because they had shown that they were true partners to us by staying with us for many years.”
Diversify your business
Asked what advice he would give other CEOs facing a similar challenge, Raina says he believes it’s critical to keep your business diversified and maintain your customer concentration as low as possible.
“It’s important to understand that you can’t have a business that is too heavily focused in any one business area or with any one client,” Raina says. “This was a key learning point for us. If you step back a few years, Ebix had a fair amount of customer concentration. If you go back to 2003, 2004, we had a situation where one client accounted for 40 percent of our revenue. Today, our customer concentration is minimal. We deal with hundreds of thousands of users, and our largest client accounts for less than 2½ percent of our revenue.
“I see publicly traded companies today who are doing extremely well — at least in the stock market they’re doing very well — and they have customers accounting for 52 percent of their revenue. To me, that’s a bad business model. It’s too risky. If one customer moves out, their entire business could be at risk. You have to diversify your business.”
Raina recommends keeping your company’s structural elements simple — your vision, your business model, your financial model — especially when the going gets rough.
“That’s the biggest mistake I see companies make: They get carried away by their own vision,” Raina says. “It’s very important to have a simplified vision, a vision you can explain in a few words, in a few sentences. If it takes longer than that to explain your business model, it means it’s not a good business model. I’m a firm believer in that.”
It’s equally important to have a straightforward financial model, according to Raina.
“You’ve got to have a very simple financial vision and a simplified way of making money,” he says. “It really comes down to this: If you can figure out that your selling price has to be a lot higher than your cost price — if you can figure out that basic fact — then you’ve arrived, in my book. Many people laugh at that statement, but too many companies ignore this. You’ve got to get down to the basics of the business.”
Lastly, Raina says that being able to learn continually and to adapt to constant change are crucial survival strategies for CEOs faced with guiding their companies through harsh economic times.
“You must keep learning all through this process,” Raina says. “Lots of managers are very proud about saying, ‘I came up with a vision a decade back, and that vision has worked very well.’ And they stick to their vision too long sometimes.
“It’s a real-time world we live in, so you have to be dynamic,” he says. “You have to be ready and willing to learn, to change, to keep evolving: the way you sell, the way you deploy, the way you market, the way you host, the way you implement services.
“To me, the key issues are simplification of your vision, simplification of your business plan, being able to spell it out to your employees and your partners, and being ready to change all the time and learn from everything you do.”
HOW TO REACH: Ebix Inc., (678) 281-2020 or www.ebix.com
THE RAINA FILE
Chairman, President and CEO
Born: Kashmir, India
Education: Bachelor’s degree in industrial engineering, Thapar University, Punjab, India
What important business lesson did you learn during your time in school?
Engineering doesn’t necessarily teach you everything you’re going to need in terms of technical skills because times keep changing. But what engineering does teach you is an aptitude to learn. It gives you an aptitude of knowing that everything can be understood as long as you’re willing to apply yourself. You don’t get overawed by things because you learn how to analytically think everything through.
Do you have an overriding business philosophy that you use to guide you?
Be sincere, transparent and truthful to your customers. You have to be able to talk to your clients in a very open manner through thick and thin. If you’re running into a problem, you’ve got to be able to tell them what it is. Today, in the new world that we live in, all the companies are trying to create recurring sources of revenue. We’re trying to create annuity sources of revenue. What does that mean? That means you’ve got to have clients who really want to stay with you, because that’s the only way you will get recurring revenue.
What traits do you think are most important for a CEO to have in order to be a successful leader?
Conviction and the ability to listen. These are key, because we’re not perfect, we make mistakes every day, and people have to be able to relate to you, to talk to you, and you have to be able to listen to them. Ultimately, you make the final decisions, but you have to have the ability to listen and to digest in your mind, am I doing this wrong? Maybe they’re correcting me in the right fashion. So that becomes a key.
When Mexico makes headlines these days, it’s usually for rare but shocking drug-related violence. Unfortunately, this dark spot has blocked an expanding bright spot that is helping many U.S.-based global manufacturers to stay competitive. A variety of companies have set up plants south of the border and are counting on Mexico’s proximity, cultural similarities and highly skilled and motivated workforce to fuel growth plans that support domestic job security.
According to the manufacturing trade journal IndustryWeek, foreign direct investment in Mexico rose 9.7 percent in 2011 compared with 2010 to reach $19.44 billion. After a 5.5 percent growth rate in 2011, the Mexican economy is expected to grow 4.5 percent in 2012. Mexico is still considered a lower-cost option compared with the United States, but increasingly, manufacturers are putting production in Mexico for other competitive advantages that benefit the entire company, including U.S. operations.
One such company is Atlanta-based Whitepath Fab Tech, a contract manufacturer for wiring and wiring harnesses, control panel assembly, custom molding and value-added assembly. The company employs 70 people at its Saltillo plant, which primarily serves one Mexico-based client but also enables it to be a global player in the electronics assembly marketplace. The company’s other three plants are based in Georgia.
“The Mexico plant gives us flexibility,” said Randy Durden, CEO of Whitepath. “If we really needed to get a low-cost volume to someone because we know they aren’t going to pay the U.S. price, it helps to have that option. Plus, we have an international presence. We are not just some small shop from Georgia.”
Whitepath has its own plant in Saltillo, Coahuila, but is a client of The Offshore Group, a shelter-services company in Mexico. The Offshore Group runs two industrial parks in addition to Saltillo, at Guaymas/Empalme, Sonora, and Guadalajara, Jalisco, and has initiated service to manufacturers in Guadalajara, Jalisco.
Fundamentally, the shelter model mimics outsourcing, but the manufacturer maintains control of critical functions such as production processes, engineering and quality control, in addition to strategy planning, hiring decisions and product-specific parts and materials procurement. The shelter company handles the administrative side of setting up and maintaining a plant: permitting and regulation, the importing and set-up of production machinery, utilities relationships and even recruitment of labor, both direct and indirect.
“They take care of all the headaches and hassles,” Durden said. “Just being able to focus on transitioning the product has been huge instead of worrying about paperwork, hiring, working with the local government, water, power, Internet service. We wouldn’t have known where to start without them.”
Beyond economies-of-scale cost savings, the biggest benefits of a shelter model are that manufacturers can launch production much faster; the entire process of setting up a foreign site is simplified and handled by experts; and the producer can devote resources to core competencies and serving customers.
“All of our conversations with our Mexico team are about making deliveries, about quality, about production schedules,” Durden said. “I don’t know that we have ever had a conversation about paperwork or notifying local authorities about something like putting in a driveway. We just let The Offshore Group take care of it.”
The Saltillo plant accounts for about 10 percent of Whitepath’s business, and business in general is expanding, Durden said. Here again, the shelter model has been beneficial.
“If we need to add people very quickly, they have the resources that enable us to do that. You don’t have to go through the process of finding and screening them. As a matter of fact, we called them today and said we need five new people Monday. We’ll have five candidates there Monday.”
For companies looking for a shelter partner, a crucial differentiator can be workforce support. Whether the employees work for the client company or the shelter company, there should be a strong training-and-education offering from the shelter company. Manufacturers need an abundance of skilled workers in order to build long-term viability, and such workers are going to be in higher demand and shorter supply in the developed world in the near future.
According to Armando Lee, general manager for The Offshore Group’s Mexican subsidiary, Maquilas Tetakawi, S.A. de C.V., the company created a manufacturing technology training center where it can train on a variety of skills such as CNC machining, plastic injection, metrology, lean manufacturing and Six Sigma. Open courses are offered for client employees and customized training is developed as requested by clients. In most cases, the state government provides financial support.
Another initiative started in 2010 offers teenagers attending public technical schools the opportunity to apprentice at client companies. The program runs for two years and includes four days of hands-on education at a manufacturing site each week and one day of classroom instruction. About 100 students are enrolled, and indications are that the program will be highly successful. Already, one company has offered one of the students a scholarship to study engineering.
Another program, Metromatematicas, addresses skilled labor needs on a deeper level. The Offshore Group is paying for public school teachers to be trained on how to teach applied mathematics. (Traditionally, only math theory has been taught.) The company also lobbied the regional governor to support the program and won his agreement to supply public money to build applied math laboratories at schools. The labs will include modern production equipment that is used in aerospace and other industries.
“We wanted to give something back to the community, and we decided the best way to do this is through contributing to the education of future generations,” Lee said. “This effort is long term.”
When a business owner wants to relocate, the task can seem daunting. However, by exploring some key considerations, you can prioritize the move and find a location that works well for your present company and your future growth.
One such location — Irving, Texas — is in the Dallas-Fort Worth Metroplex. Irving has more than 8,500 businesses that are already operating in the region, including the headquarters of five Fortune 500 companies.
“You need a value-driven proposition,” says Carter Holston, general manager of Real Estate for NEC Corporation of America. “You have to have a good location. You have to have a great office space. You have to have access to your employees and pay the right amount of tax, both school and other. All that goes into the mix when you make the decision.”
Smart Business spoke with Holston about what employers need to consider for relocation and why the Greater Irving-Las Colinas area fits that bill.
If a business is thinking of relocating to a new city, what does it need to take into consideration?
There are three components that any company needs to consider:
- The work force
- How you access the work force, the accessibility to the region, and how you move about via the roadways and mass transit
- The business friendly environment
Irving is in the center of the Dallas-Fort Worth Metroplex, so access to an available work force is not a problem. The area is adjacent to a major airport — the Dallas/Fort Worth International Airport — allowing you to get your people in and out of the city in an easy and efficient manner. The Irving area also has accessibility from the standpoint of mass transit, which is a game changer in business today. The new work force is more mobile and prefers living, working and playing in the same area instead of driving long distances to and from work.
Then there’s the business friendly environment, which is probably one of the most important factors. Companies need to be in cities that believe in business, that understand the revenue they derive from taxes and what it means to have their citizens employed.
What’s the current state of the commercial real estate market in the Irving area?
Commercial real estate for Irving is on the rise, generally, and Texas, itself, is a good market for companies and corporations to consider relocating to.
Irving has more than 30 million square feet of commercial office space and is the third-largest submarket in the Dallas-Fort Worth Metroplex. Typically, there is about a 20 percent vacancy rate, but that has been as high as 25 percent, so Irving is a value-driven market.
With 30 million square feet, there are some large blocks of space that are available at affordable rates. Most companies seem to be taken aback at the leasing rates in Dallas compared to other regions.
Irving also has another game changer that just opened in July — a light rail system that runs through the central urban center. That mass transit will affect commercial real estate in a positive way in Irving.
What else makes the North Texas region so attractive?
Texas in general, and the Dallas region in particular, are ‘can do’ regions. There’s really no reason for Dallas to be on the map. There’s no geographic reason for Dallas to exist, no great river system. However, the people who settled here on the prairie a long time ago made it work, and that theme and attitude have carried through the years. Even when the oil business was not good, Dallas found a way to diversify and found other industries to attract, such as technology, oil and gas, banking and insurance. Just about every sector of the economy is represented in North Texas, and the Dallas area specifically.
This ‘can do’ attitude holds true for the area’s longevity and its future, which is based on finding a way to get things done.
How can an employer find things such as tax breaks and incentives when moving into a new area?
First look at what is important to you. There are a variety of tools that each region and city has to offer. The tax breaks, in and of themselves, shouldn’t make the decision for you. The decision to relocate should be based on where you can get a fair deal — where the value deal is found.
That said, for new construction, there are many incentives available, varying greatly by city. You should have a good broker representing you who has access to incentives and knows what has been granted in the past. You should be represented well and compare with past incentives, but don’t let incentives be the only thing that makes up your mind.
The Greater Irving-Las Colinas area is certainly very affordable with available space and incentives, but it’s also a great product in a business-friendly area.
Carter Holston is general manager of Real Estate for NEC Corporation of America, where he oversees all domestic commercial real estate functions and is responsible for more than 1 million square feet of leased and owned facilities. In addition, Holston serves as a consultant to the Irving Economic Development Partnership at the Greater Irving-Las Colinas Chamber of Commerce. Reach him at (214) 262-2190 or email@example.com.
Visit the Greater Irving-Las Colinas Chamber of Commerce at www.irvingchamber.com.
Insights Economic Development is brought to you by Greater Irving - Las Colinas Chamber of Commerce
When Dr. Hansen Chang’s medical practice began to grow, he needed to double his office space. Chang, who shares his practice with another physician, opened his medical office 15 years ago as a place where patients could receive expertise in both Eastern and Western medicine.
Within a decade, the two physicians, board certified in internal medicine and acupuncture, had grown the medical practice to six full-time employees, with a patient load of 10,000.
“Our practice was expanding and we were looking to move from a smaller office to a larger location 10 miles away in Berkeley Lake,” says Chang.
Along with the need for a larger office space, Chang’s telecommunications needs were also growing, and the office’s old T1 line was not able to handle the massive volume of data transfer that took place on a daily basis.
Smart Business spoke with Chang about the telecommunications needs his growing medical practice faced and the solution that worked for him.
What kind of telecommunications challenges did you face before your move into the larger space?
We were using a telecommunications provider that provided us with a T1 line. Not only was the smaller office incapable of handling our growing patient flow, but the T1 line, although reliable, was extremely slow and overloaded.
Additionally, medical records are required to be transferred electronically, which was part of the problem. Laboratory services that use email added to the issue. Lastly, the pharmacy needed a reliable connection. We needed a telecommunications provider that could accommodate all of this and make things more efficient with a faster Internet connection.
In a medical practice, security is paramount because we deal with sensitive material and personal patient information, so having a secure and reliable connection was important to us.
Why did you choose Comcast Business Class for the new office space?
We constructed the new office from the ground up and at the time there were no fiber optic lines or cables in the location, so we had to find someone who could build our cable infrastructure and complete it before we moved in. Because we deal with health emergencies regularly, we also needed to ensure that the transition was seamless and that we didn’t experience any downtime.
We evaluated various carriers, but Comcast offered fast Internet speeds as well as Norton Security Suite and Cloud Services from Microsoft, so that made it easy to choose.
The actual switch took place outside regular business hours, when the phone lines were forwarded to an answering service, but it was instantaneous.
We also wanted a private static IP address to access medical records from anywhere — from the office computer, home computers or laptops, so that if an emergency call came through, medical records could be accessed remotely. This private IP would also allow for viewing and transferring data safely and securely.
Additionally, Comcast Business Class provided a bundled phone line with our Internet service so we now work with one provider rather than multiple companies.
How long did the process take?
The planning stage took approximately a month, but it was worthwhile because the process went so smoothly. After that, the actual cutover was instantaneous and was done over the weekend before the new office opened on a Monday.
How has the new system helped your medical practice run more smoothly?
In order to provide a reliable service, we require a reliable backbone. With the high volume of patients coming in, efficiency is key. For example, patients should be able to go straight to the pharmacy after the doctor’s visit to pick up prescriptions, have a lab report emailed directly to them, and all their insurance information entered and sent instantaneously. Without a reliable network, this would not be a smooth process for our patients.
Communication is key in the medical business, and doctors are using more electronic devices and methods to do this. The system works very well now but as the practice expands, there may be a need for increased speed or bandwidth, which can be easily done.
What other factors are critical with the service?
Reliability comes first. Speed is next. Downtime can be disastrous in a medical practice, as missed phone calls from the ER or a pharmacy can be critical.
When dealing with human lives our telecommunications system is critical. To be able to handle any type of emergency, I have to put my trust in my provider’s network.
Dr. Hansen Chang runs an internal medicine and acupuncture practice in Berkeley Lake, Ga. Reach him at doctorsLLC@hotmail.com or (770) 454-9047.
Anthony Catinella is director of sales for Comcast Business Services. Reach him at Anthony_Catinella@cable.comcast.com or (770) 559-2132.
Insights Telecommunications is brought to you by Comcast
Dealing with the daily responsibilities of running a business can distract an owner from the big picture. To take some of the burden off of CEOs running small and mid-sized companies, Professional Employment Organizations offer services that handle outsourced aspects of daily business, including recruiting, payroll, workers’ compensation, risk and safety management, and training and development.
However, selecting the right PEO for your company requires thoughtful consideration. And J. Richard Hicks, CEO of HR1 Services Inc., says that working with a PEO requires cooperation and commitment.
“This is really a partnership to help streamline and make your company more cost and time efficient. You need to work closely with your vendor and treat the relationship like a partnership to make it work for you,” Hicks says.
Smart Business spoke with Hicks about what to look for when choosing a PEO.
How does a PEO work?
A business and a PEO establish a three-way relationship — a co-employment arrangement — among the PEO, the client company and the company’s employees. This means the PEO co-employs your work force and becomes a legal employer responsible for such functions as payroll, recordkeeping, benefits and services, and participation in hiring, evaluation and firing. This frees up business owners to focus on the core operations of their business.
What do companies need to understand about the co-employment relationship they establish when working with a PEO?
The co-employment relationship allows your employees to participate in the PEO’s benefit programs, as well as its risk management programs. The employer retains control of the workplace, but when it comes to government compliance, the PEO takes those burdens off its hands.
What differentiates one PEO from another?
PEOs can be grouped by the range of services that they provide. Some could be considered turnkey and take care of the company’s employees from top to bottom. Others simply provide payroll and workers’ compensation services.
Every company has its own specific needs. Generally, the more people you employ, the more important HR functions become. Conversely, fewer employees mean fewer stresses exist on that aspect of your business, and all you would likely need to outsource are a few administrative services.
There are also PEOs that specialize in certain industries and you want to work with one that has experience relevant to yours. When you evaluate a PEO, ask whether it’s done work with companies in your field because that experience helps with the back end legal responsibility and mitigates your exposure. A PEO will never completely remove your legal exposure, but it will greatly reduce your risk.
Does hiring a PEO mitigate any legal risks associated with the services it provides?
It does mitigate them, but they never go away completely. An example of some items that will go away when you enter into a co-employment relationship with a PEO are 401(k) fiduciary requirements, health care fiduciary responsibilities in terms of COBRA administration and workers’ compensation liabilities.
Working with your PEO can also help protect you from many types of employee lawsuits. While the arrangement doesn’t prevent a lawsuit from being filed against your company, having a relationship with a PEO can greatly increase your protection.
Companies should make sure that their PEO has employers’ liability insurance, as well as errors and omissions coverage in suitable amounts that cover its entire block of business. You should also look into what resources it has available in terms of legal counsel.
How can a company rate a PEO’s affordability?
Look at your business and the issues you’re having with running it, specifically with issues such as all forms of insurance administration, insurance procurement, employee administration and federal, state and local compliance. Brainstorm those items out, pencil in who is doing that work and how often it’s being done. Typically when you’re looking at a company with about 35 employees, the person doing most of that work is the owner or CEO. Even if he or she doesn’t do it all, that person is involved in a lot of it. As a result, your cost for handling those issues increases dramatically, both with the owner’s time and with opportunity costs in terms of the time lost pursuing company growth.
The best way to evaluate the savings impact of a PEO is to look at the cost of employing someone to do that job, including salary, continuing education, vacation, coverage for when that person is on vacation and turnover cost, as well as any software or hardware expenses associated with a new position and new full-time employee.
When you hire a PEO, you’re hiring a team of experts, not just one person. The organization will have experience across a broad range of areas, and it never calls in sick, goes on vacation or asks for a raise every year.
How can a company determine which PEO is right for it?
The most important thing when choosing a PEO is to find a company that believes in doing business the way you do business — that treats employees the way you do. You should feel confident that you can reach the right person within the PEO to get a problem resolved. It comes down to finding people you want to do business with and who treat employees the way you want them to.
It’s not for every company, but if you have fewer than 200 employees, a PEO is something you should consider.
J. Richard Hicks is CEO of HR1 Services Inc. Reach him at (800) 677-5085 or RHicks@HR1.com.
Insights Outsourcing is brought to you by HR1