Kristen Hampshire

Proposed lease accounting rules could have a serious impact on businesses that have significant leasing activities.

A draft standard for lease accounting developed by the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) will affect any business that enters into a long-term lease and result in significant accounting changes for both lessees and lessors.

“There is a lot of controversy over this new draft standard for lease accounting,” says John Helmuth, a director in the Audit & Accounting group at Kreischer Miller, located in Horsham, Pa.

The current accounting guidance has been criticized for not requiring all lease commitments to be recorded on a company’s balance sheet, resulting in inconsistency for banks and other third parties that require a business’s financial statements. Under current standards, companies aren’t required to include operating lease commitments as liabilities on their balance sheet unless they meet certain criteria to be treated as capital leases, and some users of financial statements are seeking a more black-and-white approach.

Smart Business spoke with Helmuth about the proposed lease accounting rule changes, what businesses should know and how they can prepare for the impact that it may have on them.

How did the proposed lease changes come about?

Mainly, there has been feedback from users of financial statements, such as banks, that they are not getting a clear financial picture of a company’s leasing activities. Balance sheets don’t show the complete picture in some cases.

For example, companies are required to include  capital leases on their balance sheets, but operating lease commitments are only included as a note disclosure to the financial statements. A company could be committed to paying a lease obligation, but that lease might not have been recorded on the balance sheet. Essentially, certain leasing activities could have been left off of the balance sheet, making the financial statements inconsistent with reality.

In reaction to this, the FASB and IASB created an exposure draft of proposed lease accounting changes. The proposed rules affect lessees and lessors, and there are significant changes for both parties. For now, there is still discussion, and a revised exposure draft is expected to be complete in the next several months.

How could the proposed changes impact businesses that lease space?

The new model would result in the elimination of off-balance-sheet lease financing for lessees. The proposed rules require that lessees record leasing arrangements based on a right-of-use model. Under that model, lessees would recognize an asset representing its right to use an underlying asset during the lease term and a liability representing its obligation to make lease payments during the lease term.

Additionally, there will be no distinction between operating and capital leases, and therefore, no ability for a lessee to leave a lease obligation off of the balance sheet. Depending on a company’s lease portfolio, this requirement could have a serious impact on the balance sheet.

For example, consider corporations that lease large facilities across the country. Under the new proposed guidance, these companies will be required to record assets (right-of-use) and liabilities to make lease payments. Interest expense will be recognized on the liability to make lease payments and the right-of-use asset will be amortized over the shorter of its estimated useful life or the lease term. It will change the income statement from a budgeting standpoint, because rent expense will be essentially replaced with interest and amortization expense.

Essentially, the proposed changes will result in assets and liabilities being ‘grossed up’ because all leasing transactions will be recognized on the balance sheet. This could deteriorate key leverage and capital ratios. Also, the proposed rules will require a system for gathering and tracking lease data, which could be extremely cumbersome.

How will lessors be affected by the proposed rules?

There are proposed changes to accounting by lessors also. The FASB and the IASB introduced the receivable and residual approach.

Under this approach, lessors would derecognize the underlying leased asset and initially measure the right to receive lease payments at the present value of the lease payments, along with a residual asset measured at the lease commencement.  This model does not apply to short-term leases or leases of investment property.

How can businesses best prepare for these proposed lease accounting changes?

For now, the proposed lease accounting changes are still under debate. But it is prudent to consider how these rules will impact your business if they are put into effect tomorrow. How will this change your balance sheet? How could the rules impact budgeting?

Businesses of all sizes will see a definite difference in their financial statement presentation, so it’s important to get a handle on the lease commitments you currently have. Quantify those and project the potential financial impact on financial statements. And begin tracking and keeping careful lease records that will help you make business decisions about leases down the road. Now is the time to discuss with your banker any debt facilities that require financial covenants that could be revised based on lease accounting changes.

And businesses should consult with a trusted accounting adviser, who will help them implement any processes. An experienced accountant will guide you through these lease accounting changes and make recommendations to ease the process.

John Helmuth is a director in the Audit & Accounting group at Kreischer Miller, located in Horsham, Pa. Reach him at (215) 441-4600 or

Insights Accounting & Consulting is brought to you by Kreischer Miller

Business owners take great care when it comes to running their companies, including attending to details to assure everything is running smoothly.

When it comes to selling or purchasing a business, however, too many owners fail to get an experienced transactional attorney involved early enough in the process.

“Acting early, when both sides are more open to negotiation, can lead to a dramatically better result,” says Charles W. Ormsby Jr., chairman of the corporate department of Semanoff Ormsby Greenberg & Torchia, LLC. “During courtship, both parties are more forgiving and flexible, and you can obtain significant benefits early in the process, rather than waiting until each side feels they have a deal. Interject the experienced transactional attorney into the deal-making process early and it will pay huge dividends.

“Clients who wait until the last minute to involve a business attorney (usually to save on fees) ultimately regret that decision. Waiting to negotiate certain terms after both parties have ‘agreed’ to move forward with a deal is more challenging and sometimes even impossible, and oftentimes it causes ill will.”

Smart Business spoke with Ormsby about how a business attorney can improve a deal early on but becomes handcuffed later in the process.

How early in the process should the transactional attorney be brought into the negotiations?


There are several stages in the negotiations of a purchase and sale of a business. The first stage usually involves a term sheet outlining the bare bones of the deal. Prior to putting anything in writing, this is the best time to bring an experienced transactional attorney into the process. Many times, those bare-bones terms can include things that will be quite advantageous to one side or the other.

After a term sheet, the next stage typically is a nonbinding signed letter of intent. Although it is better to have an attorney involved in that document rather than waiting until the last step, I cannot emphasize enough that the best time to involve an attorney is prior to putting terms in writing. Finally, there is the Agreement of Sale. Once that is to be drafted, the negotiations are nearly completed.

What benefits will the parties realize when they bring a transactional attorney into the process at an early stage?

There are many terms that are better dealt with sooner rather than later, that is, before a deal is established. The sooner an attorney is involved to advise on terms and make recommendations, the better the outcome is for either a buyer or seller.

A business owner may do one or two deals, but an experienced transactional business attorney who is deeply involved in these types of transactions on a day-to-day basis probably has done hundreds of deals and that experience is critical for a buyer or seller. The insertion or deletion of a single word can mean the difference of hundreds of thousands, or even millions, of dollars.

What are some examples of terms that can benefit a client when addressed early on in the negotiations?

For one, ensuring there will be no personal guarantees can provide great value, but even limiting the personal guarantees has tremendous value. Purchase price is not everything. A personal guarantee can result in personal assets being subject to execution if the business person is sued.

Along the same lines, the attorney will want to address indemnification and establish parameters of that indemnification such as caps (usually a percentage of the purchase price), thresholds so that claims need to exceed a certain amount before a claim can be made, and joint and several liability of various buyers or sellers. These terms are hard to negotiate after the business owner sends a deal to the attorney to draft a formal Agreement of Sale.

It is also important to address warranty work. Who is responsible for paying for, or performing, customers’ warranty work? Simple employee-related issues are sometimes forgotten. What about accrued sick and vacation time? As a buyer, are these things that you really want to inherit?

Another reason for bringing in an experienced transactional attorney is knowledge of potential problem areas. Federal tax liens, state tax liens, UCC filing statements, judgments, litigation and other claims can disrupt a deal and need to be investigated thoroughly.

What information should a buyer and seller prepare for an attorney?


First, aside from purchase price, an attorney will want to know the reason for buying or selling. Sometimes the reason for doing a deal may result in not doing the deal or structuring it differently. Once, one of my clients called because he wanted to buy a business, but by the time we were done analyzing the transaction, he decided he could achieve the same results he wanted by offering a job to the general manager rather than buying the business. From a buyer’s perspective, the attorney will want to know the location of the business to be purchased and its size. What is the ownership structure? How many owners are there?

Also, the timing of the deal is important. How fast do the parties want to close? Is there a reason to delay it to the following fiscal year? Additionally, financing is a key component, whether the buyer will require bank financing or the seller will take back some financing. From the seller’s perspective, the questions are similar. Who are you selling to? Where is the buyer located, and does it expect you to take back some financing at closing? Will you be paid over time or in full at the closing?

The role of an attorney during these initial phases of structuring deals is to plant seeds that will germinate later and be beneficial to the buyer or seller down the road. All deals can benefit from an experienced transactional business attorney who is focused on mitigating risks for the client, considering potential pitfalls and obtaining significant advantages beyond purchase price so the client can avoid aggravation and save money in the long run.

Charles W. Ormbsby Jr. is chairman of the corporate department of Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-2045 or

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

Too often, business owners view their bank as simply a bank. But when they partner with their bankers and treat them as part of the company’s management team, they can receive valuable guidance to help their businesses grow and succeed, says Earl Martin, business banking sales executive at First Commonwealth Bank.

“By planning and having open communication with your banker, putting objectives in place and measuring success with benchmarks, business owners can heighten the stability of their operations and continuity of employment,” says Martin.

Open communication will set the stage for a rapport that’s mutually beneficial: Businesses gain financial support to help grow their operations and bankers can stand with businesses with confidence, using their vast market insight to help owners navigate through the muddiest of waters.

Smart Business spoke with Martin about how to assess and enhance your current banking relationship to get the most out of it.

How does a true banking partner work with a business?

To get the most out of your banking relationship, rethink how you communicate with your banker and consider this adviser as part of your management team. By doing so, your banker can offer you deeper insight and provide the tools necessary to reach your short- and long-term goals.

Your banker should understand your objectives, because these greatly impact how a business is financed. He or she should also have access to regular financial reports, which are essentially a numerical interpretation of past management decisions. Because banks review and interpret those financial statements when making lending decisions, they need that deeper relationship with you to understand the engine that’s driving the performance. In other words, they need to understand your story.

So the closer you can bring a banker into your operation, the better. Include the banker in quarterly meetings with other advisers, invite him or her into your offices regularly and have frequent discussions addressing performance to goals. Don’t lose touch with this critical player on your team.

How can businesses position long- and short-term objectives with a banker?

If all a banker sees is the numbers, there’s little insight into the ‘why’ and ‘how’ that are important for structuring the best financing scenario for a business. The more a banker understands the direction and objectives of a company, the more that person can assist in positioning the business for the future.

With a deeper understanding, the banker can analyze the balance sheet and consider how goals and objectives will affect current and future cash flows and how the direction of the company will affect future operational investments. Also look at how any financing arrangements fit into the bigger picture of your long-term aspirations.

When the banker knows exactly how a business is managed through its respective unique cycles, it helps that person position the company moving forward. For example, a business that wants to grow 10 percent could have self-sustaining growth based on reasonable gross profit margins.

However, a company that desires a 40 percent growth objective will have different leverage requirements, experience different cash flows and administrative challenges and, as a result, will require different financing arrangements.

Ultimately, a banker must understand where your business is today and where you desire it to be in the future. That way, he or she can provide guidance and appropriate financing opportunities that align with your objectives.

How can a business enhance communication with the bank?

The business and its banker should meet on a regular basis. Certainly share the good news, but don’t be afraid to share the bad, as well. Don’t wait for a quarterly or biannual meeting with your banker to discuss financial performances that aren’t meeting projections. And recognize that a banker has the resources to help grow your company in ways other than providing leveraged capital. For example, a banker can get you on track with succession planning or assist in reducing intrinsic risk, minimizing administrative expenses associated with banking and retaining employees.

Ideally, you should include your banker in regular meetings with other trusted advisers, such as an accountant and an attorney. Each of these professionals comes to the table with a different perspective on key business decisions. If your goal is to maximize personal wealth — and that’s the goal of most business owners — an accountant will consider the tax implications of your decisions.

However, the minimization of taxes can be in conflict with what a bank looks at when analyzing the solidity of cash flow and the impact on a balance sheet. So it is critical that the accountant and banker, especially, understand your goals and objectives so the best financial strategies can be implemented in the most appropriate manner.

What key benchmarks should a business review while working toward its objectives?

Many businesses look at revenue growth as a measure of success. But one should look more closely at gross profit margins and the business’s ability to control expenses as a percentage of revenue. Also important are a company’s liquidity, capitalization and cash flow. These benchmarks will vary depending on the industry in which a company operates, the company’s history, current economic situation, as well as where an owner wants to position the business moving forward. That is why having these discussions with a banker is so critical. Go deeper than numbers when working with your banker. Let him or her see the real picture of your business, where you are today and where you want to be tomorrow. This insight will go a long way toward positioning your business for the financial backing needed to meet your goals.

Earl Martin is business banking sales executive at First Commonwealth Bank. Reach him at (724) 926-1332 or

Just because there’s a dotted line on a contract does not mean a party is required to sign there, says Karen Ludden, a commercial and business attorney with Garan Lucow Miller.

“Many business owners feel they have to agree to certain terms because they are already printed on the page, but a contract is just a written version of an agreement between parties,” says Ludden. “The terms of a contract are meant to be negotiated.”

Contracts can be intimidating. The format is formal. The terminology is precise. And a deadline could be looming. There’s that line where you are expected to pen your signature.

But before you do, consider whether the contract contains all the necessary terms and contingencies. Will it protect your business if the contract doesn’t play out as expected? Or will you end up footing a hefty bill if a dispute arises later?

Smart Business spoke with Ludden about common trouble spots in contracts and what measures a business owner should take before entering into any agreement.

Is it ever alright to sign a contract without consulting an attorney?

Law is a lot like medicine in this way. You don’t need a doctor to treat every common ailment, but you do need to know the difference between a common ailment you can treat yourself and a serious one that requires professional help. And like medicine, an ounce of prevention is worth a pound of cure, and it is certainly less expensive.

Along those lines, you might sign a contract without an attorney if the stakes aren’t high, if you understand and agree with everything in the contract, and if the contract considers all likely outcomes, not just the one everyone hopes will take place. It also helps to have a strong working relationship and history with the other party.

Conversely, you should never sign a contract without legal counsel if the stakes are high, if you don’t understand all of the terms of the contract, or if the contract does not address the possible complications that could arise.

What contractual issues commonly cause problems for businesses?

One costly element of many business contracts is a defense and indemnification clause. This clause essentially holds one party harmless and the other responsible for paying damages, attorneys fees and other costs in the event of  a dispute. Often, this clause is boilerplate language or ‘fine print’ that parties, intent on closing a deal, skim over. If a dispute arises, the party that agreed to defend and indemnify can be faced with stiff legal fees and judgments that they never really considered.

Another common trouble spot is an agreement to litigate a case in another state. For example, a company in Michigan might sign a contract with a New York supplier that states that all disputes will be litigated in New York under New York law. Litigation in New York tends to be expensive compared to the Midwest, and it is rarely advantageous to lose the home court advantage, unless the law of another state is more favorable.

Also make sure that there are adequate contingencies. A contract should address what happens if the desired outcome does not occur, or if some, but not all, of the intended outcome falls short.

How can a business owner effectively read a contract?

The law assumes that you both read and understood every part of any contract that you sign. With very few exceptions, you are not excused because you did not have the time to read it, you read only the key parts, or you did not understand all of it.

The most important thing a business owner can do, then, is to sit down and take the time to read the contract carefully, line by line. Flag areas of concern. Even if the contract is 100 pages or longer, do not be tempted to skim it. That’s when you open the door to trouble.

How can you ensure that a contract is tight, and that it considers all of the what-ifs?

First, consider your goals for the contract. What do you hope to accomplish, and how?  Is there a time frame that is important to you? Who is involved, and why? Can substitutions of services, labor, parts or equipment be made?

Then consider what could possibly go wrong. Do you want to scratch the whole agreement if every aspect is not performed, or can you agree upon a contingency plan?

While this seems like a negative approach, reviewing your contract with a critical eye is essential for creating a contract that performs. It’s a good idea to enlist the expertise of an experienced commercial attorney to troubleshoot your contract because, ultimately, if the contract does not consider these issues, you might end up in costly litigation.

And when there is a clause that you do not want to agree to, a skilled attorney can negotiate on your behalf so that you and the other party can constructively address the issue without costing you the deal.

How can you write a contract that is thorough, yet concise?

Contracts have come a long way since the early days, when it seemed like lawyers were deliberately using language that no one else could understand. Today’s contracts should be clear and concise, but they should still be comprehensive.

Stick to the keep-it-simple language rule and be smart about including contingencies to ensure the contract offers you adequate protection.

Karen Ludden is an attorney specializing in commercial and business law at Garan Lucow Miller. Reach her at (248) 641-7600 or

For many executives, their eyes glaze over and their minds wander to other, more pressing, issues when the topic of enterprise risk management (ERM) is broached.

But yet the topic is getting considerable attention these days from regulatory bodies and many of the world’s most successful companies. So where’s the disconnect?

“Risk management practices have been around as long as businesses have been around,” says Ted Flom, member in charge, Risk Advisory Services, Brown Smith Wallace, St. Louis, Mo. “But as businesses have grown  and the world has become more interconnected, risk management approaches need to evolve. While many companies are already ‘doing risk management,’ there are typically   opportunities to enhance longstanding approaches and elevate the discussion in order to keep up with today’s business environment. Companies with a solid understanding of and approach to risk, and how it affects the whole organization, are more successful, more profitable and ultimately better able to manage through difficult times like a recession.”

ERM focuses on developing thoughtful strategies that address risks in a variety of areas, including strategy, finance, operations and technology. While it is not a new concept, it is an evolved way of approaching risk management, where a company proactively looks at risk from the strategic, enterprise level, versus taking a siloed approach. ERM acknowledges that risk is not good or bad, but rather that it needs to be recognized and understood so a company can most effectively prepare and react.

Smart Business spoke with Flom about ERM and how companies can implement some simple risk management principles in their organizations.

What is enterprise risk management, and how is it different from what companies have done in the past?

ERM is a continuous process that seeks to identify, analyze, mitigate and monitor potential events that create uncertainty to the achievement of a company’s objectives.  An effective, integrated ERM program can help an organization identify and take action on risks that may be affecting the achievement of its core strategic objectives.

ERM should align with a company’s goals and objectives. It’s more than just a program or process: It’s a cultural shift. ERM should approach risk from a wide-angle view of a company, rather than homing in on specific activities or areas. ERM is becoming more than just a way of managing risk but also a way of doing business.

Why should companies consider adopting ERM?

In 2010, the Corporate Executive Board Co. conducted an analysis of the root causes underlying market capitalization declines of 50 percent or more in a single year. This analysis found that more than 80 percent of these significant declines were tied to strategic and operational risks. The potential consequences of these risks are considerable and highlight the need for comprehensive ERM programs.

No one likes surprises, especially ones that overturn your market share or competitive advantage. ERM takes into account silo risks, such as IT systems security or finance department checks and balances, and integrates them into the big picture of the business and its long-term goals and objectives. A company that has this comprehensive understanding of risk is likely to be less volatile and more successful in the long run.

What benefits can a company realize through ERM?

Companies that understand their risks have a greater ability to prevent or react to events that can impact goals and objectives. Ultimately, this can translate into less volatility and a competitive edge. A good grasp of risk can also open up a company’s perspective on opportunities it may want to pursue.

ERM enables management and the board to have a more consistent view of and approach to risk. Management and the board often have different perspectives on a company’s most important risks, such as implications of a disaster or a business disruption.

Often, a company’s ability to respond is not truly understood until an event such as a tornado or earthquake occurs. Considering that 50 percent of companies experiencing a major disruption or disaster are out of business within five years, a company’s preparedness can make all the difference.

How can a company begin implementing ERM?

Several recognized frameworks can be leveraged when considering ERM. COSO’s ‘Enterprise Risk Management — Integrated Framework’ and ISO 31000 ‘Risk management — Principles and guidelines’ are widely recognized information sources and good places to start.

Start small to get a feel for what ERM is, its benefits, and what it can and should be. Most companies start by doing a risk assessment and then deciding what to do with the results — e.g., which risks should be focused on, where and how should discussion occur on those risks, and who is responsible for monitoring this information and keeping it relevant.

A successful ERM program should be customized to integrate into a company’s existing organizational framework and culture, as opposed to being set up and managed as a standalone program.

What kind of culture shift can occur when ERM practices are adopted?

Ultimately, a company should seek to be more aware of risk at all levels, and to make decisions and set goals utilizing that understanding. ERM helps make risk part of the everyday agenda; it’s a way to bake it into the culture. That is when you begin to see the real benefits.

Risk management then becomes less bureaucratic, less resource intensive and more focused on implementing strategies that help a company reach its long-term goals.

Ted Flom is member in charge of Risk Advisory Services at Brown Smith Wallace, St. Louis, Mo. Reach him at (314) 983-1294 or

No business owner wants to think about what would happen to the business if circumstances prevented him or her from running the company. Confident, hard-driving owners have a vision for the future, and accidental death, terminal illness or disability are generally not in the picture, says Howard N. Greenberg, a managing member at Semanoff Ormsby Greenberg & Torchia, LLC.

“To succeed in business, principals often  have a belief of their own invincibility. But if there is no emergency plan in place and the principal dies or is disabled, the results can be catastrophic. If suddenly the ship is rudderless, like any ship without a captain, it will crash,” he says.

If your company doesn’t have an emergency plan in place, now is the time to develop one.

“It’s always the right time to develop such a plan,” says Greenberg. “In doing so, you will gain useful insights into your business as you examine your management team and put together a group of outside advisers.”

Smart Business spoke with Greenberg about how to develop an emergency plan for when the principal can no longer lead the organization.


What key components should an emergency plan include to ensure a smooth transition of leadership?

An emergency plan involves identifying a group of successor managers, determining what role each key manager should play in the business and then putting in place incentives to ensure that they stay on board. Additionally, the principal must assemble a team of outside advisers, which would include an attorney, accountant, close experienced business associates, a spouse or other family member, and possibly a trusted and experienced friend. The outside board will ensure that the emergency plan is properly executed by the successor managers.

What considerations should a principal evaluate during this process?

The principal must determine how vulnerable the business would be if he or she were not in the picture. Who would step up and take over as head of sales, manufacturing, finance, or the other key functions? Who on the leadership team would drive the business forward toward predetermined set goals? And, critically important, what are the ultimate goals for the business? Is it to be sold? To be liquidated? To be sold to the inside management team? Will the business need to attract outside investors so the organization can function as it was before the principal was gone?

These what-if scenarios need to be worked out by the principal, then discussed and strategized with a team of outside advisers.

How does the principal begin assembling a next-generation management team?

The first step is to identify a team of leaders that will replace the principal, slotting managers in key positions such as sales, operations and finance. It’s critical to groom this team before an emergency occurs so the principal can determine who will fill his or her shoes. Outside advisers can provide insight on future leaders and offer perspective on what roles will be critical to carrying the business forward according to its strategic plan.

When you are ready to present the plan to your managers, be sure to consider who the No. 1 leader will be and consider reviewing the emergency plan with that person before unveiling it to the team.

What if the sales director you plan to push into the role of president says he cannot possibly work with the operations leader you want to choose? You need to be aware of internal politics so you can tweak your plan as necessary.

How does a principal motivate and reward leaders so they stay on board?

How valuable is a team of leaders if they jump overboard once the principal is gone? They’re not. You need them to stay. An owner can choose and groom his or her successors, but if they leave the company, then that effort has been a waste.

Principals must put in place incentives to motivate both inside leaders and outside advisers to stay on task. A priority is determining how to compensate the internal managers.

Incentives can include salary hikes or performance-based bonuses, generally tied to a commitment to stay during a transition in leadership. Or, a company can be recapitalized so the new leaders can be rewarded with certain stock or stock rights and thereby obtain equity in the company. Inventive stock options, phantom stock plans and stock appreciation rights are useful tools.

Also important is a commitment to the key managers of continued employment so they are assured that they can stay on board during a transition and participate in the good they have done for the company. All of these tools incentivize managers who are being groomed for leadership roles.

What important role do outside directors play in executing the plan?

The plan should be coordinated among the principal and the outside advisers, including an accountant and attorney, who can provide direction from a business and estate planning perspective. Outside directors should meet at least quarterly to review what is going on in the business, and to ensure that the goals that have been set are appropriate, realistic and are being achieved. Outside directors are critical because, in the event of a principal’s unexpected exit from the business, they must provide direction to the internal managers and ensure that the principal’s emergency plan is executed.

None of us can control sickness, accident or death. And unfortunately, many of us do not plan for these life events. Our businesses can suffer as a result.

Creating an emergency plan is not a task to leave until tomorrow. The process should be initiated now. You never know what can happen in life.

Howard N. Greenberg is a managing member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-0200 or

Businesses that thrive in today’s competitive marketplace recognize that the data they collect on a daily basis can be a valuable asset.

But just collecting data isn’t enough. It’s critical to organize this business intelligence so that it is accessible and can be analyzed to improve an organization’s performance by driving innovation, spurring fresh ideas and giving managers the tools to make smarter business decisions, says Sassan Hejazi, director of the Technology Solutions Group at Kreischer Miller.

“Having the ability to analyze data and use it as a benchmarking tool internally and against competitors can change the culture and character of an organization,” says Hejazi.

Smart Business spoke with Hejazi about how to centralize business intelligence and how that data can be harvested and used to make key business decisions.

How can data be valued as assets in today’s business environment?

Companies are capturing valuable data in numerous ways — from clients who make online purchases, from sales calls and even through daily business practices.

Consider the volume of electronic documents that your business creates and files away each day. Now, ask yourself, ‘Is this information easily accessible?’ Businesses collect enormous amounts of data that are tucked away, often in disparate locations, during the regular course of business. However, all of this collected data is not effective if it cannot be accessed and analyzed and acted upon.

More businesses are working toward going paperless and storing their data in a centralized repository versus in file folders and boxes. When data is uniformly formatted and accessible on a centralized system, the business intelligence that can be gained is incredibly valuable. Businesses should aim to implement systems that allow them to harvest this data so they can make better decisions.

What are some common missteps that businesses make with collecting and accessing data?

Often, companies need to capture data quickly, so they settle for a quick fix. For example, a salesperson visiting with a potential client transfers information into an Excel document, then presses ‘save’ on his tablet. Another member of the sales team gathers information from a phone call and enters it into a spreadsheet on his desktop computer.

There are countless pieces of disparate data floating around that don’t connect; therefore, the information cannot be linked, harvested and analyzed to make business decisions. The answer to this problem is to centralize all data so that managers in your organization can build reports and analyses of this data, making decisions based on the whole picture.

What are the first steps to centralizing data so they become uniform and accessible?

The first order of business is to design a data collection system and decide how that data will be managed. That is called creating a data map, a system of how data will be merged, uniformly formatted and accessed within an organization.

This requires an understanding of what data currently exist by taking an inventory of an organization’s data assets. Then, a plan is configured to migrate toward an integrated data management system.

This process requires a multidisciplinary approach involving business process owners and technology staff. These players must all work together to ensure that the data map addresses the business and technology objectives of the company.

From there, information systems can be designed to add capabilities for allowing a business to capture data in a more integrated fashion. With this, a company is in a position to maximize its technology investment and use reporting tools to gain a competitive advantage.

What is the best way to present data to managers so they can use them to make key business decisions?

Once a centralized data system is in place, a business can implement dashboards, which are the most effective way to present all of this collected data to managers and other stakeholders. Dashboards are displays that can appear in different user-friendly formats, such as a speedometer or graph.

Dashboards are the new way to report information because they can capture and analyze selected data. They are able to give managers a picture of what’s going on inside and outside of the organization. Dashboards create a link between day-to-day activities in the business and long-term goals, plans and objectives. And, they’re simple to view on a computer screen and understand.

How can companies harvest data for a competitive advantage?

Data can lend insight into opportunities and risks. For example, a sales and marketing team can use collected data to benchmark performance against targeted sales goals. The team members can learn from high performers and track sales trends. Access to sales data can change the culture of sales management in an organization.

The same goes for operations. Operations managers can understand where bottlenecks, as well as efficiencies, exist in their processes and then compare those to industry benchmarks. This gives a business the spirit of continuous improvement.

Having data at your fingertips to analyze and compare how you stack up against the competition can aid in evolving your company’s culture, better managing risks and moving it toward being a more performance-oriented organization.

Sassan Hejazi is director of the Technology Solutions Group at Kreischer Miller. Reach him at (215) 441-4600 or

Anew IT development giving companies the ability to adopt generic top level domains (gTLD) could be a real game-changer in how companies are represented and found on the Internet. On Jan. 12, companies could begin applying for their very own domain — .apple, .coke, .sony — .you-name-it.

The ability to acquire a gTLD has never been a reality until now.

“The possibilities are endless,” says Heather Barnes, a partner in the Intellectual Property Group at Brouse McDowell, Akron. “There are some restrictions, but not many, and the Internet Corporation for Assigned Names and Numbers (ICANN) believes this expansion will create a new age for the Internet with limitless opportunities for creativity and imagination.”

Consider how a gTLD could work in an open registration enterprise where a company acquires the domain “.car.” Dealerships and manufacturers of cars would want a site with this domain. Or, a company like Microsoft or Ford could acquire a gTLD for their brand (.microsoft, for example) and leverage the domain in its marketing efforts.

“Ultimately, a gTLD represents another potential asset for a company’s intellectual property portfolio, but the value attached to this opportunity will depend on a number of factors,” Barnes says, noting that the cost of applying for a gTLD and maintenance fees are a barrier for some companies. And the concept is not for every business.

For now, most businesses will take a wait-and-see approach. “Most companies need to be aware of this change and develop a strategy for protecting their intellectual property and especially their trademarks,” Barnes says.

Smart Business spoke with Barnes about what this development in domain ownership could mean for companies, and how all businesses should respond during this first application process.

What are the potential benefits of applying for a special generic top level domain?

There is some thought that a gTLD would give consumers greater comfort that they are dealing with an authentic product when they search online. For example, someone searching for Nike shoes online would know that a website with the domain .nike belongs to the brand. Another possible benefit is search engine optimization: a greater ability to be found and ranked higher on search engines such as Google or Yahoo. However, the extent of this potential benefit is unknown. For the most part, a company can look at their gTLD as one more asset in their IP portfolio that will allow them new opportunities to market their brand.

What are some barriers to applying for a generic top level domain?

First, the application fee for a gTLD is $185,000 with an annual maintenance fee of $25,000. Also, there is no general consensus among large companies that are in the financial position to adopt a gTLD. In other words, not every corporation is jumping on this opportunity. Most companies will wait and see what happens and who participates in this first application process. And until the application process closes on April 12, no company will have complete knowledge of who applied for a domain. However, at that point, there will be an extensive examination process during which all companies can gain access to the applications to see if their competitors have applied and to determine whether any applicants are compromising trademarks or misappropriating intellectual property. ICANN is allowing 1,000 applicants to file for a gTLD on a first-come, first-served basis until April 12.

What IT infrastructure must a company have in place to take advantage of this new development?

There are many layers of infrastructure that are required, and they all interact. First, and most importantly, is the financial infrastructure and associated business plan. The costly application fee and maintenance costs must be figured into a company’s budget, and the company needs to ensure this is a good investment, which will require a plan to ensure its success. Second, the marketing team must be prepared to educate consumers about its domain, and website traffic must be directed to the domain for it to be a success. Third, the technical infrastructure in terms of managing day-to-day operations must be in place. Finally, a legal team should be involved in this process to ensure that all aspects of the infrastructure are in place and to advise on interactions with other companies and the consuming public. The legal team will also assist in developing offensive and defensive strategies for protecting a company’s intellectual property.

How can all companies prepare as the first application process for a gTLD is rolled out?

For companies that want to apply for a gTLD, the time to start the process is now. The information and financing required to complete the application is substantial. For companies taking a wait-and-see stance, be on the look-out in late April when those applications will be available for review. Be prepared to file commentary or objections if any trademarks are misappropriated by third parties. Consult with a legal team in advance on a strategy to protect intellectual property.

In the meantime, all companies should evaluate their search engine placement as this new IT development will likely affect placement. In other words, if a competitor already has a higher search engine ranking, how would a gTLD potentially advance this competitor’s ranking? What can you to do protect your ‘status’ online when a potential customer searches for the products or services you sell?

Now is the time to seriously evaluate the way you go to market online and to discuss with trusted advisers and your legal team how gTLD could affect your positioning.

Heather Barnes is a partner in the Intellectual Property Group at Brouse McDowell, Akron, Ohio. Contact her at (330) 535-5711  or

With each day, companies are becoming more dependent upon their systems and data. While these changes offer significant opportunities and benefits, they also carry many new and significant risks, including cyber security risks that business owners and management need to be aware of.

To protect your business from cyber security threats, it’s time to start thinking like a hacker. What sensitive or confidential data do you collect, store or transfer that could be compromised? And how vulnerable is that data to attack?

The risk is significant for businesses that do not make cyber security a priority. Failing to put security measures and infrastructure in place can affect a company’s reputation, productivity and bottom line, says Christopher Byrd, manager of Security & Privacy, Risk Advisory Services, Brown Smith Wallace LLC.

“Exponential growth in the access to and use of data can give organizations a competitive advantage, but with that comes increased vulnerability for cyber attack,” says Byrd.

The types of organizations being targeted are becoming more varied, says Tony Munns, member, Risk Advisory Services, Brown Smith Wallace LLC.

“Several years ago, the primary targets were financial services and similar organizations, but we are now finding that other companies with a high dependence upon technology are becoming targets for attack,” says Munns. “The size of the company doesn’t seem to matter, as hackers often choose their targets based on ease of attack and availability of data.”

Smart Business spoke with Byrd and Munns about the cyber threats businesses face and how they can maintain data security.

What cyber security challenges are companies facing?

While companies are not purposely exposing themselves to cyber security risks, many have limited resources to understand and address their vulnerabilities. Today, companies are doing more with less at a time when the number and severity of attacks are on the rise. Companies often focus on keeping systems up and running, while information security drops down the priority list. The greatest challenge is that this is a complex area that is constantly changing, requiring expertise and resources that often aren’t readily available to companies. So, increasingly, they turn to a third party that specializes in cyber security to perform a security audit and testing to identify weak points that can be invitations for hackers.

What impact will companies face because of these issues?

There are many potential impacts if sensitive information is not adequately protected, including direct costs such as fines, investigation, notification and legal fees, and indirect costs, including lost business opportunities due to reputational harm. The impact can also depend on applicable laws and regulations, such as:

  • HIPAA — The Health Insurance Portability & Accountability Act, which addresses the protection of personally identifiable health information.
  • PCI DSS — The Payment Card Industry Data Security Standards, which is aimed at protecting payment (credit, debit) card security.
  • GLBA — The Gramm-Leach-Bliley Act, which is designed to protect personal information collected by financial institutions.

Many industries have regulations in place to enforce data security, and there are more regulations being enacted at every level. In addition, virtually every state has adopted data breach notification laws that companies must adhere to. Exposure of personal information can result in hefty repercussions — cost estimates exceed $200 per record lost. For organizations with hundreds or thousands of records, the financial impact can be significant.

Often, as a result of a security breach, company executives find their time and attention consumed by the response, similar to other types of major incidents.

It is critical today for businesses to establish security measures and an infrastructure that protects data so that if security is breached, there is a record of compliance with laws and regulations. Across the board, there is an emphasis on urging companies to get their house in order on matters of cyber security.

How do cyber security breaches occur?

There are generally two basic types of security incidents. First, there are unintentional situations, such as an employee losing a laptop computer containing company data. In these cases, data security is generally not top of mind, as no one plans on these incidents.

The other security threats are very much intentional. There are cyber criminals who make money by hacking into systems and mining data. Once a system is compromised, the attacker can siphon off data or steal money directly, for example by initiating large bank account transfers.

Recently, there has been a resurgence of ‘hacktivists’ — ideologically motivated hackers that attack an organization to damage its reputation because of a political or social stance. Additionally, there have been a number of recent breaches involving industrial espionage, some purported to have been sponsored by other countries.  These attackers can stay embedded in a company while compromising information that provides a competitive advantage.

What can businesses do to protect their interests?

The key is to identify security risks and put an appropriate security program in place. A company’s security program should include a comprehensive security policy with assigned responsibility, risk assessment, security control framework, independent assessment and employee awareness. And, for when all else fails, there should be a response program, which should be tailored to meet regulatory requirements and be regularly tested.

Reach out to an expert to get a security risk assessment and begin developing a plan to protect information from cyber threats. When — not if — a security breach occurs, you want to be prepared with a plan to protect your business interests.

Christopher Byrd is manager of Security & Privacy, Risk Advisory Services, at Brown Smith Wallace in St. Louis, Mo. Reach him at or (314) 983-1374. Tony Munns is member, Risk Advisory Services, at Brown Smith Wallace. Reach him at or (314) 983-1297.

With no sign that the volatility in today’s marketplace is going to change any time soon, organizations need to focus on long-term investment goals and objectives to avoid making imprudent decisions based on short-term fluctuations.

An Investment Policy Statement (IPS) can keep an organization on track, serving as a roadmap for the organization and its investment manager(s). An effective IPS outlines the responsibilities of the parties involved and defines the investment strategy based on the objectives and constraints of the organization.

“Having a well-structured Investment Policy Statement in place provides direction from an investment strategy perspective and can add a lot of value in volatile times,” says John E. Comello, CFA, senior vice president and chief investment officer for First Commonwealth Advisors.  “It is a living, breathing document that should be reviewed at least annually to ensure that the investment strategy remains appropriate given the potential changing needs of the organization. Markets evolve, as do client circumstances, so this document should adjust to changes that may impact the organization and its investment strategy.”

Smart Business spoke with Comello about the components of an effective IPS and how to get the process started.

How can an IPS benefit an organization?

If structured properly, an IPS provides a systematic approach to documenting the investment objectives and constraints of an organization. An IPS is customized and should articulate the investment goals of the organization and formalize an investment strategy to achieve those goals. This document is especially important today, as volatile markets can result in rash investment decisions. An IPS can help refocus an organization on its long-term investment goals. It can also help an organization administer the portfolio through the departure of key personnel or board members. An IPS spells out the responsibilities of the parties involved and provides all parties with a mechanism to understand what the investment strategy is, and why it is in place.

What key components should an IPS include?

There are six key elements, starting with clear identification of the assets that will be governed, as well as specific language addressing the roles and responsibilities of all parties involved. This might include defining the role of a board-assigned finance committee, a CFO or an investment committee.

Second, the IPS should identify the primary investment goal(s) of the organization. Third, it should document investment constraints that would influence the investment strategy of the portfolio. For example, understanding how long the assets are to be invested, if there are liquidity needs, understanding tax, legal or regulatory issues tied to the assets and understanding any unique circumstances or preferences that the organization would like taken into consideration are critical.

After outlining investment constraints, an IPS should define the institution’s overall risk and return objectives. With return objectives, institutional investors tend to have specific obligations or spending policies that help determine the required rate of return. Factors such as the expected rate of inflation or estimated fees tied to the management of the assets should also be taken into consideration.

Regarding the identification of risk tolerance, acknowledgment that the portfolio will be exposed to risk is prudent. The IPS should address both the organization’s ability and willingness to take risk. A review of the goal(s), constraints and return objectives of the portfolio can provide a basis for determining the ability of the organization to take risk.

However, conversations with representatives from the organization are needed to determine the willingness to take risk and to identify potential disconnects between the risk/return profile of the organization. If it is requiring a high rate of return but is not willing to assume a comparable level of risk, that needs to be rectified prior to moving forward.

Fifth, the IPS should define the asset allocation policy, defining the portfolio’s broad asset allocation targets and ranges, as well as the targets and ranges of eligible sub-asset classes. This should support the goals, constraints and risk and return objectives documented in the IPS.  Finally, it should address accountability and risk management issues, identify the frequency of the portfolio review process and establish consistent and reliable benchmarks to help evaluate the investment performance of its manager(s). The organization may also specify risk metrics to review. For example, the IPS may require that, during a review, the hired manager provide a review of the allocation mix of the portfolio to ensure compliance with the stated asset allocation policy, or inclusion of manager attribution information.

Who should be involved in creating an IPS?

The organization needs to clearly define the individual or committee/board responsible for overseeing development. If the responsible person does not have the experience or expertise to create an IPS in house, seek out assistance from a financial institution that can help construct the document. Also, because there may be legal considerations tied to an IPS, it could be prudent to include legal counsel.

The hired investment professional will need a thorough understanding of the organization’s circumstances, which will most likely require time and an open dialogue with representatives of the organization to ensure the appropriate language is embedded into the IPS.

What review measures should be in place to ensure the IPS stays relevant?

An IPS should evolve if the objectives and constraints of the organization change over time. Review document no less than annually to ensure relevancy. During reviews, any changes in the organization’s circumstances should be noted and discussed to determine what, if any, adjustments are needed.

Ultimately, the investment strategy identified in the IPS needs to address the changing circumstances of the organization and accommodate its investment goals.

John E. Comello, CFA, is senior vice president and chief investment officer of First Commonwealth Advisors. Reach him at (412) 690-4596 or