Making a name

 For J. Ricky Arriola, reputation is everything. And the president of Inktel Direct Corp. says it’s his company’s good reputation that allows him to attract quality customers and employees.

“We’ve got a reputation for taking care of our customers and being cutting-edge in technology, being ahead of the curve in coming up with service solutions,” Arriola says of the direct-marketing communications and outsourced business solutions company. “That has also helped us distinguish ourselves from our competitors.”

Creating that reputation takes a lot of behind-the-scenes work with his 400-plus employees, from the training and motivation they receive from Day One to the professional development they continue to receive through their tenure at Inktel.

The results speak for themselves, as 2005 revenue hit more than $25 million, an increase of more than 15 percent over 2004.

Smart Business spoke with Arriola about the processes he uses to build his company’s positive reputation.

How do you build a reputation for your business?
It starts with the employees — how they’re trained, how they’re motivated. If your employees are happy and motivated to come to work, it starts to create a culture in the company for caring about your fellow workers [and] the environment that you’re creating.

That manifests itself into output. So if your employees are happy and motivated, they’ll do a good job for you. And if they’re producing quality work, that’s what customers want to buy.

How do you motivate employees?
We have a fairly rigorous review process and evaluation process where people are given goals. Those goals are measured. The feedback is given to them as to how they’re doing against goal.

Those that are doing well are rewarded financially and otherwise given opportunities for promotion. Those who are not meeting goal are put on a corrective action plan to get them back on track.

So it becomes a very performance-driven culture. Over time, if you can develop that right, it feeds on itself and it actually becomes a lot easier to attract quality people, because quality employees and people want to be in a culture that is merit-based, that is performance-driven.

How did you come up with your values?
We’re basically putting teams together, talking about what our values are and listing them and voting on them. It was a team effort. It was not top-down at all.

That’s how you get buy-in. If it’s top-down, the person at the top who’s making those value judgments may be the only one who shares those values in his company. Just because that’s what the company says the values are, if they’re not practiced and preached, then those aren’t really the values of the company.

Some of ours are fairly unique, but it’s because that’s what the company wanted and that’s what we look for in employees. We have some things there like sense of humor, like thinking, like relentless work ethic. Those are values that we practice, not just put on our Web site.

Everyone can say ‘integrity’ and ‘ethics’ and things of that nature. That is a requirement. I think that’s the bare minimum. What about your company is unique to your company?

How do you promote out-of-the-box thinking?
We bring in outside resources and we also share knowledge inside. We want to make sure we’re cutting-edge in our thinking. We want to make sure we’re staying current in what’s happening in our prospective industries.

For example, in our mail operations, one of the things that we do as a learning tool — as well as other work-related tools such as presentation skills, communication skills, teambuilding — is we take the U.S. post office’s direct mail manual.

It’s a very dense book, and we make the team members responsible for taking a chapter of those books — everyone gets a different chapter — reading it, becoming an expert in that area and then condensing it into a very user-friendly summary.

And then over a brown bag lunch twice a month, one person who’s responsible for learning about a particular chapter will teach the others. So it distributes the weight of learning and teaching among the team members so it’s not overwhelming, it’s fun and obviously, it’s very useful.

Why is professional development important?
The business world has accelerated quite dramatically in the past 10, 20 years through advancements in technology. Your work force and your service offerings will become stale if you’re not constantly refreshing your skill set.

You don’t have employees that are with a company 20, 30 years anymore like you used to. The skill sets that the marketplace requires change so rapidly that the work force just needs to be incredibly adaptable. So for us, if we’re not constantly looking at things … we risk becoming obsolete.

If you’ve got that adaptable and well-trained work force, you should be able to flex as a company and meet that opportunity, meet that unmet need that the customer is telling you about.

HOW TO REACH: Inktel Direct Corp., www.inktel.com

Team approach

While Donna Abood has seen many changes in the last few years, one thing that has remained constant is Colliers Abood Wood-Fay’s commitment to teamwork.

The merger of real estate firms Abood & Associates Inc. and Wood-Fay Realty Group, and the later joining with Colliers International, gave the management team a strong support network and reputation to build on. But CEO Abood is quick to point out that it is the full-service commercial real estate firm’s energy and culture that motivate success.

“We’re like a network here,” says Abood. “Our brokers can go out on a limb, but they’ve got a net to catch them. If it’s not going well, they’ve got a huge team to rise up behind them and pull them through it.”

The company’s transaction value grew from $770 million in 2004 to to $1.3 billion in 2005, and revenue has followed the same trend.

Smart Business spoke with Abood about how the company uses teamwork to create a culture of optimism and better serve clients.

How do you create an atmosphere of teamwork?
It starts from the top and flows down. And you can feel it in any environment you go into, whether you are in a bank or in a shopping mall in a store. Whatever the service provider’s environment is, is a reflection of the culture that whoever runs that company possesses.

That high energy we have here, the teamwork approach to business, the optimistic way of looking at the world and our industry, it starts from the principals, and then, people that possess that same outlook on life want to work here. If they don’t, they wouldn’t be happy here anyway. They will weed themselves out.

We have three brokers who are creating their own marketing program and partnering it together. So instead of one broker going out there pitching business, there’s a team of three people going after the client’s business.

If the client connects better with one versus the other, then the client benefits. He’s still going to get service with the Colliers’ level of service and knowledge and background, but he might have a greater synergy or connection with one of the brokers as opposed to the other two.

When we create a marketing plan for a client to work for them on their assignment, we’ll have one or two lead brokers, but we’ll have one of our principals involved, too. We’re in there from the very beginning, from the ground up. We don’t get brought in later when the problems come out.

How does this create more value for your customers?
The principals individually have well over 25 years’ experience in the industry. (Customers) are going to get tremendous wisdom and experience on the team. Our brokers have experience, too, but there are not too many brokers that have been doing this for over 25 years.

The more heads the better. More creative knowledge and experience [are] being brought to the table, so our clients benefit greatly.

How do you get employees to buy into that kind of environment?
We … go out to look to acquire a property … and offer our brokers the opportunity to invest in it. It’s bringing them along on the ride to wealth. The opportunities that the principals find, we share with our brokers, as well. I think it’s also what motivates them to want to be part of (the team).

What has been your greatest challenge associated with growth, and how did you overcome it?
Our biggest challenge for Abood Wood-Fay three-and-a-half years ago was when we merged our two firms. (The other principals) and I come from the same mold of morals, ethics and how we look at life. But we ran our two firms differently.

For example, all leasing brokers wear suits every day because we are engaging with the public, our clients, on several meetings daily. Naturally, when you’re in a sales environment like that, you’ve got to look the part.

On the investment sales side, they seldom interface with the public physically. Their work is done off of e-mail and telephone. They were seldom wearing suits. And they each had their little system how they did things. So you merge those two companies together, and you really have two different approaches.

Our greatest challenge was to educate our brokers, both sets of brokers, on different approaches to business and come up with an Abood Wood-Fay way —one that would work the best for everybody.

Fortunately, my two partners love to communicate. Respectful communication is what has really pulled us through what I think was one of our most difficult obstacles … without any real destruction or damages.

HOW TO REACH: Colliers Abood Wood-Fay, www.colliers.com/Markets/Miami

Tools for success

Michael Levine doesn’t mince words when it comes to Murton Roofing Corp.

Levine, who serves as president, believes his roofing business is one of the best in the country. It’s a claim he stands firmly behind, knowing the training and motivation he instills in his employees.

“Our philosophy is to produce a better value for our customers,” says Levine, “and that’s not necessarily the least expensive roof. But we think our quality is second to none.”

The company is further aided by the fact that its parent company is Tecta America, an alliance of 47 roofing companies throughout the country.

The set-up allows companies to share resources and insurance savings but operate independently under their own names.

The company has grown from $18 million in 2003 to $36 million in to 2005, and Levine projects 2006 revenue of just under $50 million.

Smart Business spoke with Levine about how he trains, motivates and rewards employees to grow Murton Roofing.

How do you position Murton ahead of the competition?
Training is a big issue for us. We sat down and made a five-year plan a couple years ago, and one of the things we thought all companies are going to eventually have to adopt is an intensive training program, because you can’t just depend on getting people from another roofing company.

We have a big Latin influence [in our employee base] … and we have to be able to communicate with them, so we have a program where we teach them English. We also have a training program at all different levels.

We have an apprenticeship program, we have a foreman program, we have every person in the company above that is required to take 20 hours a year in appropriate training courses that would help them do their job better.

How do you cultivate a culture of safety among your employees?
Everyone goes through safety training before they get on the roof. There’s daily safety talks. We have safety inspectors. We have what they call a behavior-based safety program, and what that basically is is the safety is taught within the job.

What we found is the rules are one thing, but the reality is you could make a million rules, no one’s going to remember them or even read them. So for us, it’s a matter of building it into the whole process so that we reduce accidents very significantly.

How do you build employee loyalty?
A significant amount of our bottom line we give out in bonuses to our people, and that goes from the bottom to the top … to get everybody on the same page and to let people understand that we need to make money, and if we make money, it’s our pleasure to share it with them. We gave out $1.5 million last year in bonuses.

On every job, we look at the quality of the job. We look at the performance. Did we bring it in on time? We look at safety, any customer issues. Are they happy? And based on that, certain employees can earn up to 50 percent of their salary in a bonus.

They know how they did on their job. They know the issues. They know if there’s an accident, then they’re not going to get a bonus. Or if I get a call from a customer saying, ‘This isn’t right,’ or we get called back to the job and there’s a leak, all those go into it.

We have an open book system. Everyone knows exactly how we’re doing. A lot of our people just don’t understand how to read a financial statement, so I’ll do a number of seminars where people get to know what the numbers are, and we pass them around.

I think that creates a better atmosphere, so it’s not like, ‘Hey, they’re making all the money, and I’m not getting anything.’

How do you also create a culture of good customer service?
What we do is try and track how long it takes for us to call a customer back, how long it takes him to get his quote. We stress communication with the customer.

Before we start a job, we like to bring in the owner, and if there’s an architect, a consultant — whatever the interested parties are — we bring in the entire crew and we talk about the job.

Certain people just have certain needs, and unless those are communicated early, you end up doing something not to their liking. And if you just had known, you could have done it right the first time. It just creates more of a teamwork kind of atmosphere.

HOW TO REACH: Murton Roofing Corp., www.murtonroofing.com

Foundation for success

Some 21 years ago, Luis Garcia used $7,000 of his hard-earned savings to start Adonel Concrete Corp. with just his pickup truck, a mixer and himself.

Today, the Miami-based concrete pumping business has a fleet of more than 150 trucks and 170 employees and earned more than $50 million in revenue last year.

“I’m not an owner that is just behind a desk,” says Garcia. “I’m the kind of person that I’m out there in the field talking to (customers), talking to the owners, talking to the project manager, talking to the superintendents. And our customers like that because the other companies lack that.”

Garcia plans to expand his business with several plants in Palm Beach, St. Lucie and Indian River counties. As a result, he expects his company to hit $100 million in revenue by the end of 2007, with the number of employees rising to 280.

Smart Business spoke with Garcia about how he uses personalized service to satisfy customers and gain their loyalty.

How have you grown your business so successfully?
By joining associations, I’ve been able to meet the best builders, best developers in South Florida. We have been able to create a core group of loyal customers, and that has been giving us the opportunity to grow. They are loyal to us. We are loyal to them.

We’ve been growing with our own customers. They’ve been talking to us and letting us know where we need to head and … we expand with them.

Also, in the ready-mix business, it’s controlled by big corporations out of the United States. And we’re a locally owned company. We understand our customers a little better because we’re local.

We know what we need to do to make them happy. We know how to help them out.

How do you build that loyalty with your customers?
This has been in the making for 21 years. We’ve been targeting the most important developers, the most important builders in our industry, and we treat them like friends.

We don’t just build a business relationship; we basically try to make them our friends. Friendship and business go well together. When you’re a friend of somebody, they help you out, and then you can help them out.

That’s something that I teach my sales force. Help our customer. Don’t just sell them a product, help them out, educate them on how they can be more productive. And that has been the key.

How do you exceed your customers’ expectations?
My competition delivers their product when they can handle it. We deliver our product when my customer wants it. If they call me today and they want it tomorrow, we do whatever it takes to have it there tomorrow.

We don’t try to tell our customer no. We try to accommodate them whatever way possible we can.

All the other companies (say), ‘Oh no, tomorrow? We’ll give it to you in three days, in four days, in five days,’ because they’re overbooked. They take more business than they can handle.

We know what we can do. We don’t do more business than we can handle. We take only enough, and we do business with a certain amount of people. We don’t just try to take over the industry. That allows us to give better service.

How do you deal with dissatisfied customers?
Before the day is over, my customer is going to be happy. As soon as we hear the complaint, we jump on it right away. We don’t wait. We don’t have a bureaucracy.

As soon as an issue comes, within an hour or two —no more than two hours — one of our representatives is on that job. Whatever it is, wherever the complaint is, we’re on the job site addressing the problem.

How do you maintain your culture, values and mission as your company grows?
You have to surround yourself with good people. They have to think the same way I think. They have to know what our goals are as a company. We’ve been growing for 21 years, and the people that are expanding with us are our employees that have been with me for many years, and they have gone up the ladder and become managers. So these people that have been with me five, eight, 10, 15 years … they know how, I think, so it has not been an issue.

These people that have been working with me for many years … see how I operate my business. They work with me hand-to-hand because I’m out there with them every single day.

I’m delegating a lot, but I’m supervising what they’re doing. Communication is on a daily basis, not only on a daily basis once, but … every hour. They have issues and they fix it, and then they’ll report to me how they fixed it.

If … the issue was not addressed the way I wished it to be addressed, I call them, I have a meeting with them, I tell them, ‘Listen, this is the way you correct this problem. Next time do it this way. This is the way I would like you to do it.’

HOW TO REACH: Adonel Concrete Corp., www.adonelconcrete.com

Industry chameleon

Vista Color Corp. bares little resemblance today to the humble color separation business it started as in 1968.

As the commercial printing industry has evolved with technology and market trends, so has Miami-based Vista Color, which now offers everything from in-house graphic design and pre-press services to bindery and die cutting.

“The most interesting thing that typically stands out for people is how (the company has) managed to change and transform itself several times throughout its existence in order to survive and grow,” says Henry Serrano, CEO of Vista Color, which posted more than $11.5 million in revenue last year.

Smart Business spoke with Serrano how his company survives in a shrinking industry.

How do you stay on top of industry trends to be proactive to changes?

You’re reading trade magazines. You’re exhibiting at trade shows, attending trade shows, taking seminars, talking to industry peers. We also have another philosophy, which is kind of unique. We invite competitors over and we meet with them and visit their plants.

We try to keep that type of culture of openness toward everybody, and that’s allowed a lot of information to trickle our way.

How do you keep employees adaptable to change as the company continues to evolve?

We train our personnel to be used to change and adapt to it. We keep people very informed of what we see in the market. For example, I’ll attend a national printing conference … and I’ll present to the staff, here the key points that I think affect our company and will affect us in the near future.

I bring back financial information about the industry, and we share that with our personnel. And we tell our personnel how profitable we are, or not.

We understand that we need to keep everybody informed and abreast of what’s going on because we don’t want them to make assumptions that everything is great when, in reality, the industry is in flux, and it’s going to require continuous change in order to stay in business.

There’s a very interesting short story book that’s called “Who Moved My Cheese?” It is a perfect example how human beings adapt to change. But within the story, you can recognize how you’ve taken probably one or two or three of those different approaches to change before.

I’ll hand out the book to the staff. Then … I’ll have a lunch session where we’ll listen to the book on CD and then the second half of our meeting will be a discussion about how we adapt to change. Then I’ll typically bring up what kind of changes we’re seeing and what kind of changes are going to be required.

How do you attract customers to your business?

We use concepts like market push and technology pull. Typically, a market is pushing in a certain direction for faster service or a higher quality, and if you can buy the technology that pulls that, that can satisfy that need, you tend to pull that market in toward you.

We’re constantly, constantly upgrading our equipment. The printing industry is a very capital-intense industry. So we use very high-end equipment, state-of-the-art technology, in addition to the personnel and the quality of the product and the service that we give.

How do you get customers to refer you to other potential customers?

Giving very, very good customer service and being attuned to the customer needs and the customers’ changing demands and trying to be ahead of the curve. When a customer comes in, if there is a problem with the job, they can get immediate results and resolution to the conflict or the problem, and typically to everybody’s liking and satisfaction.

We just make sure that we use a lot of strong values and beliefs of honesty and integrity. A lot of that has really, over time, been the anchor for the referrals — basically being known as nice people.

We’re very careful about the folks that work with customers and that they share in the same values and beliefs. And we explain those values and beliefs and demonstrate them on a daily basis, and it’s contagious.

How do you work to cut costs in an industry with such low profit margins?

We’ve trained our people to be obsessed with cost reduction. We have a cost-reduction committee … and different people from throughout the company — people from management, accounting, estimating, production, sales and management — will meet and discuss different ideas for cost reductions.

Some of them are as simple as shopping for company insurance. Others are changing uniforms from leasing service uniforms to giving the uniforms to the employees and making them responsible for the maintenance.

We’ve renegotiated contracts with our vendors. We bring in technicians from the companies that sell us equipment, and we look for ways to speed up the processes and gain efficiencies and lower our costs.

HOW TO REACH: Vista Color Corp., www.vistacolor.com

Connecting with people

Jorge Granados knows that the key to his company’s success is people.

And the founder and CEO of LatiNode believes strongly in serving the needs of people — both his customers and his employees — to grow his Miami-based telecommunications company.

It’s a practice that permeates the entire corporate structure, from customer service to budgeting.

“If the manager needs (something), it’s not up to me to tell that guy that I trust what to do, how to do it,” says Granados. “He has to tell me, and I have to provide the resources.”

Granados’ mission has helped LatiNode — whose core business is the international transportation of calls using VoIP technology — grow from revenue of $43 million in fiscal year 2004 to $72.5 million in 2005. The company expects to hit $165 million when the 2006 fiscal year ends June 30.

Smart Business spoke with Granados about how he uses people to grow his company and how he adapts to change.

How do you retain valuable employees?
With three major key elements. One is the challenge. I think when you have smart people, you have to provide them with a challenge.

The second one is to have a clear goal. What do you expect from them, and what are they going to get at the end of whatever is the goal of the company?

And the third is the ability to reward the people.

How do you measure and reward success?
We use a system called Balance Score Card. Everybody in the company has at the beginning of the year clear objectives of what we expect from them, how those objective are going to evaluated, and so forth. Every quarter, we do an evaluation. The manager of (each employee) does an evaluation, and the manager of the manager , until it gets to the VPs. And I do the evaluation of the VPs.

This system includes the budget. It includes also some personal objectives. At the end of the year, we have a final evaluation, where we determine if the person performed according to expectations, below expectations or over expectations, and based upon that, we have certain rewards — rewards in cash bonuses, promotions [and] salary increases.

How do you ensure superior customer service?
We are in an industry where customer service is the best key for retaining the customer. There are two major issues in the telecommunication business. The first one is the customer acquisition — be able to get to the customer and move the customer from whatever services he is in right now to your services.

Then retaining the customer is probably the most important piece of your day-to-day operation. And we now know that the best way to retain the customer is with customer service. So we have three customer service locations (in the United States, Guatemala City, Guatemala and Buenos Aires, Argentina).

From those, we provide customer service, customer retention, customer evaluation and some other techniques to keep the customer happy, offer more services, more products and know exactly where we are failing and how to correct it.

How do you adapt to changes in your industry?
We are in a sector of technology that is moving really fast. Things [are] changing dramatically almost every day, so you have to be on top of the technology. But at the same time, you have to keep a core business.

You cannot keep moving around to any new technology that is coming into the market. So we have the … Voice over IP technology as our core business. And around that core business, new technology is integrated. So if something happens with this new technology, we still are not losing the main source of revenue or the main focus of the company.

But if the technology succeeds, then we integrate it into the package and we keep moving, and that’s the way that we’ve been growing.

How are you able to coordinate all your business operations and personnel across the globe?
I have a good management team. When we open a new country, the first thing that I do is to select a manager that has been already trained in our organization in a previous job. He or she already knows how the company is run, and I move that person to be the local manager.

The main function of that particular person is to start operations and also to look for someone, a local guy or a local gal, that is going to be his or her successor. It keeps the philosophy of the company, the methodology of the company, the way that we work [as they] train more people around them.

We have also executive committees every two weeks where we have meetings with the managers. And also, I travel a lot. I think knowing what people are doing, knowing what people are thinking about and letting them speak to you directly is really important in a global company.

HOW TO REACH: LatiNode, www.latinode.com

Hanging on to success

When Devon Rifkin founded The Great American Hanger Co. in 1999, he was determined to grow it responsibly. He didn’t take on growth he couldn’t handle, he maintained tight credit controls and he stayed involved in the hiring process.

“Growing at our own pace, responsibly … is really the only way,” says Rifkin. “We haven’t even really started advertising yet because, in my opinion, we’ve been growing very, very quickly, but we’re just not ready to advertise. We need to make sure we have all our ducks in a row.”

With $7.5 million in revenue in 2005, up from $5.1 million in 2004, the company has become one of the largest manufacturers and distributors of hangers in the United States.

Smart Business spoke with Rifkin about the keys to his company’s growth and how he keeps everyone moving to the beat of the same drum.

How to you get people to shop for hangers online instead of at local retail stores?
We found an item that is something that everybody needs, and very few people really know where to get good, quality hangers. We’ve gotten a lot of press. And it’s a ton of word of mouth and a lot of referrals.

Hangers have a very high perceived value. And in a lot of retail stores, they sell them for $10 each, which is crazy. We’re the manufacturer of our own product. We end up selling most of our goods for between $1 and $2 per piece. We do a minimum amount of advertising.

How do you distinguish yourself from other hanger manufacturers?
We’re a small enough company and we don’t care about jamming thousands of hangers down people’s throats. We’re the only company that has full boxes, half boxes and bundles.

The few competitors there are will only sell to hotels or only sell to retailers. We will sell to virtually any sector … and break boxes so that if you want 12 satin hangers, you can get 12 satin hangers instead of having to buy a hundred.

We have two warehouses — one on the East Coast and one on the West Coast — which gets every single package that we ship to our customers within 48 hours … from ordering, which is amazing because we ship everything same day. So when somebody calls up and they say, ‘I’m opening up a new store,’ or, ‘My closet just got installed and I need hangers,’ we [would] have to overnight hangers.

We don’t have to do that so much because we’ve got equal inventory in Miami and in Reno.

And we really go out of our way to provide exceptional customer service. We always pick up the phone. And … we send a thank you note out with every single order. That’s expensive, but it’s an investment. There’s be no way we could grow this quickly and without the advertising part of it if we hadn’t.

How do you emphasize the importance of customer service throughout the company?
The key is that we have focused on assembling the best team, because at the end of the day, it’s all about people. And we are extremely selective in who we hire. I think we interview the average person five or six times. I still interview everybody that steps through the door.

How do you attract the kind of people you want to hire?
Something that I’m proud of that we’ve done from the beginning is we’ve had exceptional benefits. We pay 90 percent of health care. And really the only reason I don’t pay 100 percent is because I think people would, frankly, forget that the company pays for it if they didn’t have to pay 10 percent.

We’ve got 40l(k) and profit-sharing, as well. And for a small business, in this business climate, I think that it’s really important, and I think it says a lot.

Everybody wants to be part of something exciting, something responsible and something that is on a big growth curve.

How do you keep everyone on the same page and develop the right policies as you grow?
I love speaking to people that are a hell of a lot more intelligent and experienced than I am and really listen to what they have to say. But we’ve also created policy and procedure manuals.

Most companies think that ‘policies and procedures’ is an HO manual. That’s fine, and we have that, and we’ve had that since we have been a two-person company. What I’m talking about is really a playbook. When A happens, you do B. And when C happens, you do D. And it has worked.

The biggest challenge has been training and creating policies and procedures as we’re growing. Because you have to manage and do. You can’t just stop the business to create policies and procedures, and you can’t neglect them, either.

HOW TO REACH: The Great American Hanger Co., (800) 400-6680 or www.hangers.com

An untaxing way to save

Perhaps the best New Year’s resolution for you and your family is to develop a plan to fund your children’s education. College financing is a changing landscape, and there are several options today that offer a tax-smart way to invest for the future.

A 529 college savings plan, although varied state to state, offers many benefits to parents looking to save for college, says Randi K. Grant, a director at Berkowitz Dick Pollack & Brant Certified Public Accountants & Consultants LLP.

Unlike custodial accounts or education savings accounts, the beneficiary does not gain control of the money at a specific age, and the account owner always has control of the funds.

Smart Business spoke with Grant about how a 529 plan works, what investors should know before choosing a plan and the benefits of a 529 plan versus other accounts to save for college costs.

How do 529 plans work?
529 plans are tax-free savings. You select a plan, and you invest in the plan on behalf of a beneficiary. You put money in the plan, and the money grows tax-free, not tax-deferred.

And when the money is taken out for a qualifying purpose, which would be tuition or any of the expenses you would associate with going to postsecondary school, that the money comes out tax-free. Some plans do have an age limit to use the money by, but income is not a factor.

How do you select a plan?
Most states offer their own plan, and your starting point in selecting a plan is to determine whether there’s a benefit to using your own state’s plan. In Florida, there’s no benefit to using the Florida plan because there’s no tax deduction, and the benefit would come in the form of a tax deduction.

My favorite way to invest in 529s is in what they call age-based plans where the younger you are, or the younger the beneficiary is, the more equity-based it is. The closer the time comes that they’re ready to go to school, it becomes more fixed-income oriented.

What are some other benefits of a 529 plan?
A contribution to a 529 plan is considered a gift under the tax code, and under the tax code, an individual can gift $11,000 a year to another individual.

A husband and wife can gift $22,000 together to a child. Their advantage with 529s is that there’s a special provision that allows you, if you wanted, to sock away a whole bunch of money to do five years of gifting in one year. But you can’t gift in years two, three, four and five. So you can accelerate, and essentially, mom and dad could put away $110,000 for each of their kids.

Typically, before 529s, people used to use Uniform Gift to Minor Act (UGMA) accounts where they’d open up accounts in the kid’s name with the parents as custodian. Those accounts are fully taxable. So, you’re saving all the tax on the 529, both on annual income and when the money comes out.

The other thing that’s beautiful about it is if you withdraw for other than qualified education expenses, the penalty is only 10 percent of the earnings.

What are some of the risks associated with 529 plans?
You do have to watch the expense ratios and the fees inside the plans because they’re not free. There are typical mutual fund fees associated with them. Some plans, if you have a low balance, there’ll be an annual fee, and there could be maintenance fees. You have to look at all that carefully.

The second thing is that you’re only allowed to change your investment options once a year. So in other words, if you decide that you want to rebalance your 529 plan, you can’t do it again for another year.

What happens if there is money left over in the account after the student completes their education?
If there’s money left over when they’re all done with school you can transfer that money to other family members. You can roll it over.

Or you can create almost what’s called a dynasty trust, which mean you can keep it in the plan for that person if it’s not one of the plans that requires you to distribute by a certain age. And then when that child has his own children, they can name their children as a beneficiary. So it’s a way to do intergenerational gifting.

Randi K. Grant, CPA, CFP, PFS, is a director of Provenance Wealth Advisors, a wealth management firm, and Berkowitz Dick Pollack & Brant Certified Public Accountants & Consultants LLP. She has more than 25 years experience providing tax planning for individuals and closely held companies and representing clients in connection with IRS matters. Reach her at (954) 712-7014 or [email protected]

An untaxing way to save

Perhaps the best New Year’s resolution for you and your family is to develop a plan to fund your children’s education. College financing is a changing landscape, and there are several options today that offer a tax-smart way to invest for the future.

A 529 college savings plan, although varied state to state, offers many benefits to parents looking to save for college, says Randi K. Grant, a director at Berkowitz Dick Pollack & Brant Certified Public Accountants & Consultants LLP.

Unlike custodial accounts or education savings accounts, the beneficiary does not gain control of the money at a specific age, and the account owner always has control of the funds.

Smart Business spoke with Grant about how a 529 plan works, what investors should know before choosing a plan and the benefits of a 529 plan versus other accounts to save for college costs.

How do 529 plans work?
529 plans are tax-free savings. You select a plan, and you invest in the plan on behalf of a beneficiary. You put money in the plan, and the money grows tax-free, not tax-deferred.

And when the money is taken out for a qualifying purpose, which would be tuition or any of the expenses you would associate with going to postsecondary school, that the money comes out tax-free. Some plans do have an age limit to use the money by, but income is not a factor.

How do you select a plan?
Most states offer their own plan, and your starting point in selecting a plan is to determine whether there’s a benefit to using your own state’s plan. In Florida, there’s no benefit to using the Florida plan because there’s no tax deduction, and the benefit would come in the form of a tax deduction.

My favorite way to invest in 529s is in what they call age-based plans where the younger you are, or the younger the beneficiary is, the more equity-based it is. The closer the time comes that they’re ready to go to school, it becomes more fixed-income oriented.

What are some other benefits of a 529 plan?
A contribution to a 529 plan is considered a gift under the tax code, and under the tax code, an individual can gift $11,000 a year to another individual.

A husband and wife can gift $22,000 together to a child. Their advantage with 529s is that there’s a special provision that allows you, if you wanted, to sock away a whole bunch of money to do five years of gifting in one year. But you can’t gift in years two, three, four and five. So you can accelerate, and essentially, mom and dad could put away $110,000 for each of their kids.

Typically, before 529s, people used to use Uniform Gift to Minor Act (UGMA) accounts where they’d open up accounts in the kid’s name with the parents as custodian. Those accounts are fully taxable. So, you’re saving all the tax on the 529, both on annual income and when the money comes out.

The other thing that’s beautiful about it is if you withdraw for other than qualified education expenses, the penalty is only 10 percent of the earnings.

What are some of the risks associated with 529 plans?
You do have to watch the expense ratios and the fees inside the plans because they’re not free. There are typical mutual fund fees associated with them. Some plans, if you have a low balance, there’ll be an annual fee, and there could be maintenance fees. You have to look at all that carefully.

The second thing is that you’re only allowed to change your investment options once a year. So in other words, if you decide that you want to rebalance your 529 plan, you can’t do it again for another year.

What happens if there is money left over in the account after the student completes their education?
If there’s money left over when they’re all done with school you can transfer that money to other family members. You can roll it over.

Or you can create almost what’s called a dynasty trust, which mean you can keep it in the plan for that person if it’s not one of the plans that requires you to distribute by a certain age. And then when that child has his own children, they can name their children as a beneficiary. So it’s a way to do intergenerational gifting.

Randi K. Grant, CPA, CFP, PFS, is a director of Provenance Wealth Advisors, a wealth management firm, and Berkowitz Dick Pollack & Brant Certified Public Accountants & Consultants LLP. She has more than 25 years experience providing tax planning for individuals and closely held companies and representing clients in connection with IRS matters. Reach her at (954) 712-7014 or [email protected]

A healthy decision

Former health care attorney Joseph Caruncho was attending an industry conference in 1996 when the conversation turned to the approval of Medicare provider-sponsored organizations (PSOs).

“Everybody was kind of falling asleep, and I was kind of jumping out of my seat because I had heard 13 years of (clients) complaining about the way that HMOs implemented managed care,” says Caruncho, founder and CEO of Preferred Care Partners. “And I came back and told them, ‘Hey, guys. This is a great opportunity for you to take control of your destiny and do this a different way.’”

Caruncho saw the value for health insurance providers to join together, set up a network and infrastructure, and consider contracting directly with Medicare instead of with health maintenance organizations (HMOs). After spending nearly six years raising capital, finding the right management team and getting licensed, Preferred Care Partners, the first PSO health plan provider in Florida, was finally born; it has been growing ever since.

The company netted $6 million in revenue in 2002, its first year in business. In 2003, it grew to $35 million, and in 2004, revenue neared $80 million.

Smart Business spoke with Caruncho about how he is able to attract and retain members while staying true to the company’s roots.

How have you grown the company?
One of our factors that we base our success on is member retention. When we get the (senior citizens), we keep them so that our growth is incremental as opposed to just replacing. A lot of the HMOs, they are disenrolling (members) at the rate they are enrolling new members.

We build alliances with what we call affinity groups, meaning, for example … Little Havana Activity Centers. They cater to and provide community services, Meals on Wheels, those types of programs and social services for about 50,000 seniors in South Florida.

We built a relationship with them. We support their activities. We attend their functions. It gets us access to large groups of seniors through a source that they trust.

Managed care, when it has been successful, it’s always been a local concept. So even though they’ve been successful nationally, it’s because they’ve gone to each community and gotten to know the community.

How do you attract clients to your PSO plan versus your competitors?
I would say a lot of it is [we] take care of the seniors and get them healthy as quickly as possible. So, if you have to, make a short-term investment. To us, if you need something, let’s get it done now and get them on their feet quick. And you can only do that if you have the seniors for a long time.

That’s why it was critical to us to know that we were going to have a very high retention. And then we could justify from a business model saying, ‘Look, this isn’t only the right thing to do, but it’s also the smart thing to do from a business standpoint’ … to make the short-term investment and focus on what we call disease management.

Instead of avoiding them, bring them in, fix them, stabilize them and get them better.

How do you stay true to your core values with such rapid growth?
We constantly mentor, constantly teach our managers and emphasize to them that they can only move up if they do the same thing down through the organization to their staff. (We) spend a lot of time teaching them not only the technical part but telling them about the company and how we work and how we got here and why this is important and what the values are.

What has been your biggest challenge with growth, and how have you managed it?
The biggest challenge is change. For example, Medicare, since we started, has changed almost every year. There’s different reimbursements. The market share changes every year. The pendulum swings back and forth between [if] hospitals have more leverage or other providers [do].

One of the things I’ve been preaching in my State of the Plan speech is we need to reinvent ourselves every year and every month. What are the external factors? And how is the environment and the landscape changing three months, six months, 12 months from now? And make sure we stay cutting-edge and stay fresh and stay ahead of the curve.

How do you do that?
You build a great management team, and they can run with things, and that frees me up to keep my sights a little further down the road in terms of the competitive environment and new reforms. One of the ways we’ve done it is we have a management meeting every Monday morning that we do religiously, and we still approach everything as if we were a start-up.

HOW TO REACH: Preferred Care Partners, www.psohealth.com