John Burnell

Wednesday, 25 April 2007 20:00

Connecting with Wall Street

Capital needs change as real estate development projects and strategic property acquisitions transition into stabilized operations. Many permanent and long-term financing vehicles are available to meet these needs. Conduit lending is a common option, but there are variants within conduit lending and a growing number of features and options.

 

Conduit lending helps connect Main Street businesses with Wall Street financiers and funding options.

For guidance on navigating the process, Smart Business spoke with Larry Silberman, group regional president of commercial real estate for MB Financial Bank, to learn the options that owners and investors have for long-term fixed-rate financing and how to match their needs to options.

How does an investor get access to long-term fixed-rate financing?

Most community banks don’t offer permanent debt options for long-term fixed-rate financing, so businesses usually go outside their main commercial bank. The primary options are through an insurance company or a conduit, at times accessed through correspondent mortgage brokers. Conduits typically package these loans into a portfolio securitized by selling bonds.

Commercial banks can add a lot of value as an intermediary, even if they don’t offer the desired funding vehicle. They already have a close relationship with their customers, an understanding of the properties and investments, knowledge of customers’ financial performance, and relationships with multiple mortgage brokers and insurance companies. The bank has the flexibility to match its customer with the most appropriate funding source, and the customer benefits from the convenience of working through his or her regular banker. There’s usually no cost premium to working through the bank as an intermediary. In fact, terms are often favorable to the customer.

How does funding through an insurance company differ from funding through a conduit?

Conduit loans tend to be more structured, and therefore less flexible for the borrower. Flexibility includes prepayment terms, provisions for the partial release of collateral, guidelines on rebuilding the property in case of fire or other damage, plus various interest and financing terms.

Because conduit loans are pooled and securitized, there is less flexibility for individual borrowers. The tradeoff is that they often have a better price. Conduit loans are also available to more borrowers, because insurance companies tend to be more conservative in their underwriting and more selective in their potential borrowers.

Are there any new long-term financing options?

The basic options remain the same, but there are several new variations. For example, now there are interest-only options for permanent long-term financing. Life insurance companies are starting to provide complete funding for projects right from the start of construction. Historically, insurance companies have gotten involved after construction was complete and the property was generating stable cash flow. Some lenders are also offering flexibility on non-recourse provisions, which allow the borrower to buy down the rate.

Negative arbitrage situations are also becoming more common. Say you need $5 million to fund construction of a project that will take 10 months to complete. Typically, you would draw $500,000 a month for 10 months and pay interest only on the outstanding amount. The new alternative is to be advanced the entire $5 million. The borrower takes the amount it doesn’t need immediately and invests in a short-term interest-bearing vehicle, such as commercial paper. ‘Negative arbitrage’ refers to the difference in the interest rates between the loan and the investment.

What advice do you have for businesses seeking long-term financing?

Be prepared with information, and be patient. Prospective lenders will want to see at least three years of financial data. This includes normal operating expenses, documentation of capital improvements, tax records, utilities and other fixed expenses, rent rolls and the leases for major tenants.

How does a company choose what type of loan is most appropriate?

It really depends on how much flexibility is desired, and the nature of the business or project being financed. If the financing is for a single, stable, long-term asset, such as a big-box retailer or outlot pad for a bank, then there is less need for flexibility, and the borrower can get better terms.

If the financing is to develop a property that will have multiple tenants, with less predictable cash flow, more flexibility will be needed over the long term. It can be hard for a business to know what flexibility it needs, so this is an area where there is value in using the commercial bank as an intermediary. The intermediary doesn’t have a vested financial interest or profit incentive in the option that’s chosen. This independence can help bring clarity to a potentially confusing decision.

LARRY SILBERMAN is group regional president for commercial real estate at MB Financial Bank. Reach him at lsilberman@mbfinancial.com.

Wednesday, 28 February 2007 19:00

Multiple banks or not?

Consumers can easily compare banks based on checking account fees, interest rates and the convenience of ATM locations. Business banking needs are more complex, so it can be difficult for business owners to understand the range of services available from banks and the value they provide. In fact, companies are much more likely to work with multiple commercial banks than they are to work with multiple providers of other types of financial services, such as securities firms and investment banks, according to data from the Business Banking Board. But does that need to be the case?

Smart Business spoke with MB Financial Bank senior vice president Steve Towne, who heads the bank’s business banking and retail lending operations, to learn about the value of business banking services and how companies can develop a more productive relationship with their bank.

What are some ways a bank can help businesses that owners might not be aware of?

Banks add value to businesses by helping them understand their financial requirements. Take, for example, someone who wants to borrow $100,000 to expand a small business. After the banker sits down with him/her and goes through what the funds will be used for and how it can produce a return, the banker and the owner often determine there is a different need. This also comes up when companies want to borrow money to buy a piece of equipment. A good banker helps match the need to the debt structure.

When companies get turned down for a loan, they go to another bank. It often takes conversations with several bankers before the owner realizes that he or she isn’t just being told ‘no,’ it’s that the loan or requested structure is not right for the business. Businesses should consider their banker a trusted adviser, like their attorneys and accountants, to guide them to the appropriate product and structure.

Bankers also help make owners aware of all their options. Banking has changed in the last 20 years in that products that used to be available only to the largest companies are now readily available to small and mid-size businesses. For example, a whole range of credit and treasury management products — such as international letters of credit, foreign exchange service, ‘positive pay’ checking for fraud prevention, automated sweep accounts and more — weren’t available to smaller businesses or were very expensive. There are also more information and reporting services available. As technology changes, these services become more cost-effective and available for all businesses.

How can a business compare banks?

Location is a prime consideration, but it really is about convenience. With the online banking and electronic services available today, location is not the only thing that defines convenience.

You should look for a banker that comes to you with ideas and shows some understanding of your business. No one knows everything, and that applies to banking services. Entrepreneurs tend to be strong personalities, so often they’ll give the bank a list of services they need. You do not want your banker to be an order-taker. The banker should look deeper and be prepared to recommend other services or products that you may not have considered.

Flexibility is also important. If problems come up in your business — and they will if you’re in business for any length of time — can your banker make changes to your services to help you address the problems? You need to ask yourself: ‘How can this bank help me make money and/or save time?’

What are the common misperceptions about business banking?

Small businesses shouldn’t be overwhelmed with preparing voluminous presentations for their banker or other advisers. They should expect their banker to sit down with them and talk through the potential opportunities and pitfalls that the company could face and what actions they would take.

Generally, companies can only borrow against an asset. With small businesses, banks are looking for business or related assets to cover the loan. Conversely, businesses can borrow against an idea and get a loan for more than assets; however, they need to show a track record of performance and potential.

Another is that companies want a loan so they can hire more people to increase sales. That can be OK, but a lot of times the company is actually dealing with an issue other than revenue. If the business keeps trying, it can probably find someone who might loan money, but often it’s not the right thing for the business. That’s why it’s important to work with a banker who is a trusted partner.

As the financial expert on your team, he or she will help you grow your business, reach out to new markets, invest wisely and manage your money.

STEVE TOWNE is senior vice president at MB Financial Bank in charge of business banking and retail product lending. MB Financial Bank offers a wide range of commercial banking, business banking, treasury management and wealth management services. It has $7.9 billion in assets and is one of the largest locally-operated banks in the Chicago area. Reach Towne at stowne@mbfinancial.com.

Sunday, 31 December 2006 19:00

Responsible retirement

About a quarter of the U.S. population will retire in the next 15 years. The transition is already affecting small businesses. One survey found that 40 percent of CEOs of family businesses are retiring between 2004 and 2008. According to another study, the number of owners who want to sell their businesses is predicted to increase 500 percent from 2004 to 2009.

After careers spent competing to win business, many entrepreneurs will face a new type of competition; to sell the business. The skills and strategies that help build a successful business over time are not necessarily the same ones needed to manage the transition and protect the revenue from the sale, according to Jeffrey T. Dunn of SunTrust Bank.

“My advice is to start thinking about the business the way a buyer would think about it,” Dunn says. “One of the most common mistakes is not employing advisers early in the process.”

Smart Business spoke to Dunn about the pitfalls of selling a business or transferring it to the next generation of the family, managing the transfer of wealth, what to expect from the sale process and how to maximize the gain.

What should business owners expect from the sale process?
It really takes one to two years of focused activity to sell a business. The first step is gathering a lot of information about the business and about what the owner will do after the sale. For example, answering questions like: What exactly do we have? Is there a succession plan? Is there a will and an estate plan? How detailed are the business’s financial statements? If the finances are regularly audited, the business is much closer to being ready to go through the sale process than if things aren’t recorded consistently or audited.

The next step is planning, both strategic for the business and financial/estate planning for the individual. These plans may take a year to develop.

Is all this necessary for passing a family business to the next generation?
A study of more than 3,000 wealthy families found that 70 percent of the wealth did not pass to the third generation. Family businesses typically have too much wealth concentrated in a single asset — the business. Entrepreneurs themselves tend to be risk-takers, and that’s often why their businesses were successful. But retirement is not the time to be taking risks. You’ve taken the risk and created the wealth. Retirement is the time to protect it.

How do you assess the value of the business?
There is a lot to consider, but it really comes down to cash flow. A banker, a valuation firm or the buyer look at the cash flow and apply some multiple to determine what they think the business value is. Asset value doesn’t tell you what the business is worth. The buyer is really buying cash flow. Specifically, they’re buying the expected future cash flow.

Companies with capital-intensive business need to be careful about decreasing asset investments too much to try and make the cash flow look better. It’s dangerous for the company, and a sharp buyer will see it.

Companies also need to understand that illiquid assets take longer to sell. This is especially true with real estate. Most people really don’t appreciate the illiquidity of the real estate market. If a stock dips significantly and falls to $1 a share, you can still sell it tomorrow, albeit at a loss. That’s not so with an illiquid asset.

What will be the impact of so many business owners nearing retirement age at the same time?
There’s a bigger issue than what’s happening with small business owners, it is the true transition of wealth that’s going to occur. It is going to be unprecedented. There will be 77 million people retiring in the next 15 years, and retirement isn’t going to be the same. Retiring workers aren’t going to leave their money in company pension plans. They’re going to cash out and invest the money.

That’s why preparation to sell a small business has to include estate planning and retirement planning.

There are three phases of wealth management: accumulation of wealth, which we do in our working years; protection of wealth; and transition of wealth. Each phase is different, and business owners shouldn’t manage the transition and protection the same way they managed their business to accumulate wealth.

Information provided in this article is intended to be general in nature. SunTrust Bank and its affiliates, directors, employees and agents do not provide legal advice. Securities, insurance and other investment products and services are offered by or through SunTrust Investment Services, Inc., an SEC-registered investment adviser and broker/dealer, and a member of the NASD and SIPC.

JEFFREY T. DUNN is the executive vice-president of private wealth and investment management at SunTrust Bank in Tampa Bay. He is a registered representative of SunTrust Investment Services, Inc., and responsible for more than $3 billion in assets under management. Reach him at jeff.dunn@suntrust.com.

Tuesday, 29 August 2006 11:41

Sharing the wealth of knowledge

Organizations that prefer employee retention to employee recruitment, that want to strengthen from within and encourage leadership should promote employee mentoring.

Mentoring is an excellent way to assimilate new employees into the organization, and to help current employees quickly become more productive in new positions. It also provides many opportunities to improve communications and other interpersonal skills for employees of all experience levels. Mentoring also promotes continuity and helps ensure that specialized knowledge and organizational values remain after individuals leave for retirement or other opportunities.

Mentoring can also help prevent employee isolation that can lead to dissatisfaction and turnover. Having a confidante or adviser was the biggest benefit cited by professionals who have been mentored, according to a 2006 survey by Accountemps, the world’s first and largest specialized staffing service for accounting, finance and bookkeeping professionals.

Smart Business spoke with Chuck Cave, vice president of Accountemps’ Cleveland Region, about the benefits of mentoring and how readers can take advantage of it for their own careers and organizations.

What are some of the benefits of mentoring?
Mentoring is an excellent way to transfer knowledge and foster development within an organization. For example, many companies and departments develop best practices, and mentoring is a way to help best practices get firmly established and grow throughout the company.

A mentoring relationship also helps establish important contacts in the industry and to develop an insider’s view of the business. Professionals whose contacts are primarily other people within their own department don’t always develop a full perspective.

Are there benefits to being a mentor?
Most mentors get significant personal satisfaction from the experience. It is quite an honor to be selected as a mentor, which is recognition that you’re highly respected.

Mentoring also provides opportunities to enhance your interpersonal ability, such as communication, teamwork and diplomacy.

It’s important to realize that a mentor isn’t always a long-time or experienced employee who is working with someone new. There shouldn’t be any prerequisite for years of experience. The mentor and ‘mentee’ can be the same age or in the same peer group and may have the same overall experience. The key is having a mentor who can help someone who may be new to the company, the industry or the specific position.

In fact, a person can be a mentor and mentee at the same time. A mentor doesn’t necessarily have to be in the same company. Many industries and professions have networking groups, which provide great opportunities to find a mentor.

How can companies establish a good mentoring program?
Mentoring can be formal or informal, for a set period or project or somewhat open-ended. Mentoring programs are not just for large organizations — there is value to mentoring regardless of the size of the company or the industry it’s in.

Formal programs that facilitate knowledge transfer are extremely valuable to the organization as a whole. The more successful programs tend to formalize goals and put program parameters in writing.

What are the potential pitfalls?
The foundation for the success of any mentoring program is trust. Employees have to trust their mentor and feel comfortable discussing their frustrations and asking advice for delicate situations, such as how to handle an office politics situation. There has to be absolute trust that the conversations will be kept confidential, so confidentiality safeguards should be built into mentoring programs. Mentoring should never be set up where the mentor is in a supervisory position over the mentee.

Can mentors go too far?
There’s a very fine line between mentoring and managing. Mentors have to remember that they are not the employee’s supervisor. The mentor’s efforts need to be focused on providing support and guidance, versus micromanaging the person’s career or day-to-day activity. That can be a real challenge for many managers who make the transition to mentors.

What should someone who’s being mentored do to make it a productive experience?
A person should be prepared with questions to get the relationship with their mentor off to a good start. It can be a challenge to discuss a new job, company or industry, so there should be some preparation.

Of course, people can get more out of it by putting more into it. A formal company program isn’t necessary. Ultimately, people have to take responsibility for their careers, which could mean reaching out to people and asking them to be mentors.

CHUCK CAVE is vice president of the Cleveland Region for Accountemps, the world’s first and largest specialized staffing service for temporary accounting, finance and bookkeeping professionals. Accountemps is a division of Robert Half International (RHI). For more information visit www.accountemps.com or reach Cave at chuck.cave@rhi.com.

Monday, 25 June 2007 20:00

Be alert

Businesses must balance the information needs of their customers, suppliers and employees against responsible security and privacy policies. In fact, they are at risk for variations of many of the same identity theft risks that plague individuals and must protect themselves against these internal and external threats.

To help put external threats in perspective, 2006 information losses cost U.S. companies an average of $182 per compromised record, an increase of about 31 percent from 2005, according to a study by the Ponemon Institute. The average business loss for identity theft was measured at $49,254 in 2004, according to the Identity Theft Resource Center. Internally, a National Retail Federation (NRF) study found employee theft costs retailers much more than shoplifting. Employee theft is responsible for 30 percent of all business failures, according to U.S. Chamber of Commerce estimates.

“We’ve seen a fair amount of businesses that had fraudulent activity happen to them, when they had no idea that their accounts had been compromised,” says Michelle Mercer, a fraud prevention manager at MB Financial Bank.

Smart Business asked Mercer and Linda Ray, a loss prevention manager at MB Financial, about the types of fraud threats businesses face and what can be done to help prevent them and protect businesses.

What are some of the leading fraud risks in business today?

The leading sources are check scams, employee embezzlement, and wire or Internet fraud. Recently, the industry has been seeing an especially high number of counterfeit check frauds, such as lottery scams, Nigerian funds stories, secret-shopper offers and other Internet scams.

How do counterfeit check scams work and how can businesses protect themselves?

One of the most common tactics is to steal legitimate business checks from the mail. Criminals use a solution to wash out the payee, then type in a new one. Many times the criminals don’t change the amount of the check, to lessen the chances of detection. Businesses often don’t know this is happening to them until a vendor calls to check on a late payment.

Criminals can use account and bank numbers to create their own counterfeit checks. Sometimes they scan the logo and signature from a stolen check to create new ones. To help prevent these kinds of frauds, companies should review their statements and canceled check images promptly and carefully. Physical checks and blank check stock should be kept in a locked location with restricted access.

In addition, businesses should consider adopting other banking services, such as Internet banking, to monitor activity more frequently, or Positive Pay, an automated fraud detection tool, to reduce the possibility of counterfeit checks being presented and paid by the bank.

How else can businesses protect against wire fraud?

Again, it’s important to review transactions and statements promptly. Many times the wire fraud amounts are small, so the transfer doesn’t attract special attention and the money may not be missed. There often will be repeated, fairly small transfers, and the fraud can go undetected for a long time.

Companies should be very careful not to divulge their account numbers and ACH routing numbers to unauthorized parties, and should notify their financial institution any time they suspect information has been compromised. There needs to be secure computer and communications systems in place, with firewalls and Internet security on all computers. Passwords are not enough. We recommend multifactor authentication, which adds another layer of security beyond passwords by requiring users to be identified and validated in a variety of ways.

Can you characterize risks posed by employees?

Employee fraud tends to happen to those business owners who don’t manage their own business finances and don’t have time to monitor them. They have a trusted employee whose job it is to pay bills and manage accounts. It often starts when a person needs money for an emergency and thinks it will be a one-time thing. When the person doesn’t get caught, it becomes a habit.

One of the warning signs is when a key employee never calls in sick or takes a vacation — he or she could be afraid of getting caught if absent and someone else may need to look at the work.

A good deterrent to this situation is to have a system of checks and balances in place. For example, have a policy so the person who issues checks is not the same person who balances the accounts. One of the ways embezzlers have found to get around this is to use bookkeeping software where accounts are reconciled to it rather than the bank statements, which reflect the true account activity. The embezzlers can claim that since the software does not match the bank statement, there is no need to check the bank statements. Businesses should carefully review their statements. A lot of people think they don’t have time but, when you consider the consequences, it is extra time well-spent.

MICHELLE MERCER is the BSA/AML/Fraud manager at MB Financial Bank. Reach her at (847) 653-1009 or mmercer@mbfinancial.com.

LINDA RAY is a loss prevention manager at MB Financial Bank. Reach her at lray@mbfinancial.com or (847) 653-2781.

 

 

Saturday, 26 May 2007 20:00

Private equity boom

Private equity financing is booming and reshaping corporate America, even at its highest levels. Prior to the current boom, 2000 was considered to be private equity’s high watermark, with private equity being behind an estimated 4 percent of all public company acquisitions. Last year, an estimated 18 percent to 20 percent of such acquisitions were funded by private equity. Indeed, eight of the 10 largest private equity deals of all time closed in 2006.

Smart Business spoke with Donald K. Densborn, shareholder/director at Indianapolis law firm Sommer Barnard PC who works extensively in corporate financings, buyouts and investments, to learn more about what’s driving the private equity boom and how it might impact businesses.

What’s driving the growth in private equity transactions?

In my estimation, it is a confluence of events that has brought the M&A marketplace to a tipping point. We have had a very strong economy for a long period of time. The federal tax environment has never been more favorable, but there is a rush of concern that the new Congress may close the window. The cuts in the capital gains tax, first under Clinton and then under Bush, lit a fire that refuses to burn out, even as we have confronted terror and war. At the same time, interest rates have been low, providing a ready supply of debt capital to finance these transactions.

In the public markets we have seen enormous wealth creation in the last decade, but as returns have leveled, institutional investors have taken interest in the potential for higher returns from alternative investments, including private equity. Corporate profits, for the most part, have been fabulous. Public companies have been making special dividends and engaging in stock buy-back transactions that have fueled the system. All that money needs to go somewhere.

One of the trends now is for private equity firms to buy public companies and take them private. Recent Securities and Exchange Commission rule-making has paved the way for a return of tender offer activity. This all has played right into the hands of the private equity specialists.

There is so much private equity money available for deals, that private equity firms now are often willing to pay more than strategic buyers. Traditionally, it was the strategic buyers who were willing to pay more. In addition, it is now common for private equity groups to move faster and to keep target managers intact whereas strategic buyers tend to be more cautious and immediately want to consolidate.

Are there legal advantages to a public company going private?

The regulatory response to the Enron fiasco, particularly Sarbanes-Oxley, has made it even more burdensome for companies and dangerous for corporate executives to operate in public-company mode. Mix in the growing criminalization of business for example the Justice Department’s ‘Thompson Memo’ that essentially says they’ll throw the book at companies that don’t have a strong corporate governance system, the SEC rule-making and listing requirements aimed at curbing corporate fraud and abuse, the Supreme Court's Caremark decision, activist state attorneys general, and all of private securities litigation going on — and you see that, beyond financial considerations, the regulatory environment is a factor in some ‘going private’ transactions.

Will these trends involving Wall Street firms impact the private company marketplace?

If you are asking whether the KKR’s of the world will start to train their sights on smaller companies, I expect so. Today there are many large private equity firms chasing a finite universe of publicly-held companies. I am sure they will continue to look to public companies for opportunities, but I predict they will seek smaller deals, especially if you consider add-ons to platform companies, as time goes on.

If a private company is interested in exploring a buyout, what should it look for in a financial adviser?

An investment banker or financial adviser is essential. If a capable adviser can be found locally, then all the better as personal relationships count, close interaction is required and the focus tends to be more intense. Some advisers specialize by industry. Special industry expertise may be indicated, even if the adviser is remote, but I tend to worry a bit about loyalty, confidentiality and priority with the distant specialist.

Does all the private equity activity dim the outlook for strategic acquisitions?

Strategic buyers have not gone away and don’t count them out. Corporate boards and CEOs want growth. Record profits have generated cash that needs to be deployed. If their prospects for internal growth decelerate, strategic buyers, especially in regulated industries, will continue to seek growth by acquistion. These are heady times.

DONALD K. DENSBORN is a shareholder/director with Sommer Barnard in Indianapolis. Reach him at (317) 713-4402 or ddensborn@sommerbarnard.com.

Saturday, 26 May 2007 20:00

All in the family

If you’re a Walton, inheriting part of the family business will probably work out well for you — four of the 10 richest Americans on Forbes magazine’s annual list are Waltons — but the odds are against most of us. A study of 3,000 wealthy families found that 70 percent of the wealth did not pass to the third generation. Eric Papenhagen, vice president of asset management and trust for MB Financial Bank in Rosemont, said the majority of family businesses experience some problems as they transfer ownership and operations from one family member to another.

The upcoming retirement boom will trigger the transfer of thousands of family businesses in the next few years. Smart Business spoke with Papenhagen to get continuity and transition tips for family businesses.

Do most transfers of family businesses go well?

Statistically, most family-owned businesses struggle and do not survive the transition to the next generation. Two common reasons for failure are liquidity issues and family issues.

Liquidity is an issue because most family firms have most of their wealth tied up in the business. When a business is inherited or sold from one family member to another, significant taxes and buyout obligations may be due, not to mention the capital required to continue operating the business.

Family issues that need to be resolved center around conflicts among family and non-family employees in the business. Many owners and partners are very focused on running their business today, and they neglect or wait too long to think about succession issues that could be addressed with family discussions and planning.

What are the keys to making a smooth transition and keeping a business in the family?

First is to ensure adequate funding. When a family business transitions to the next generation, additional liquidity may be needed to fund a retirement package and pay taxes. These businesses need to review their transition options, create a plan, anticipate their capital needs and fund the plan appropriately.

Family issues can be more difficult. Sometimes the second generation does not have the same passion, knowledge or experience as the founder. It is really important to have discussions with the family and develop long-range plans to bring out these potential issues. Many owners do not look five, 10 or 15 years down the road and do not have the same enthusiasm for long-range planning as they do for running the business.

In addition to key employees and family members, most successful businesses also have key advisers, such as accountants, attorneys and bankers. During most transitions, it would be wise to maintain the same advisers. These key advisers are familiar with the business and its success, which will likely increase the chances of a successful transition.

What are some of the errors and oversights you commonly see during business transitions?

Planning is the leading shortcoming.

Planning tends to get put off, and when plans are done, they are not thorough or updated. One reason is because businesses may use their regular accountants or attorneys for the planning, instead of someone with specific expertise in estate and succession planning. We often see plans that are outdated or not very applicable to the specific business.

How can insurance help business transition?

Insurance is a commonly used vehicle to fund transition costs. Three main insurance strategies include: ‘key man’ insurance, buy-sell agreements and irrevocable life insurance trusts.

Businesses can take out a key man insurance policy on the owner or perhaps a salesperson that generates a majority of the revenue. The business owns the policy and pays the premium. If the insured unexpectedly dies, the business is the beneficiary and will receive the policy payout. The proceeds can be used to operate the business until a qualified replacement is found.

Buy-sell agreements are used when a business is owned by partners. The agreement details what happens upon the death of one of the owners, and it is funded with a first-to-die policy ensuring funds are available for a buyout. A properly funded buy-sell agreement can provide assurance to the surviving owner that the business can continue and it can also provide the deceased owner’s heirs with funds to meet their ongoing needs.

Lastly, family business owners that wish to pass their business to the next generation upon their death should consider an irrevocable life insurance trust. If they have a taxable estate, the proceeds from an irrevocable life insurance trust can be used to cover significant estate taxes and expenses. This vehicle can prevent an unwanted sale of a family business by providing liquidity at a time when the business is not liquid and cannot obtain sufficient financing.

ERIC PAPENHAGEN is a relationship manager and vice president of asset management and trust at MB Financial Bank. Reach him at epapenhagen@mbfinancial.com or (847) 653-2138.

Wednesday, 25 April 2007 20:00

On the move

“Location, location, location” is more cliché than constructive when it comes to office leasing decisions. Finding the right location, negotiating terms, designing and building the space and moving in typically takes nine to 18 months in the best of circumstances. The process can easily take much longer, especially in a tight, active market like Tampa Bay where appropriate space can be difficult to locate, contractors are overworked and landlords are in a strong negotiating position.

That’s why an estimated 75 percent of Fortune 500 companies use tenant representative brokers to manage the space selection and negotiation processes, according to Jeffrey Lanning, office specialist with Colliers Arnold Commercial Real Estate Services in Tampa.

Lanning spoke with Smart Business about factors to consider in a lease, potential hidden costs and the role of tenant representative brokers.

What are some important lease considerations that businesses may not be aware of?

A main reason businesses move is dissatisfaction with their landlord/building management. Landlords are differentiated by how quickly management responds to maintenance requests; whether there is on-site management that can respond to emergencies, maintenance of the building’s appearance and mechanical systems; and their aggressiveness in charging tenants for routine maintenance. Management fees and operating expenses can vary significantly among similar properties.

Lesser-known factors include how much debt the facility is carrying, whether critical maintenance and improvements have been performed or deferred, the makeup of the current tenant base, security and construction in the area.

Why isn’t base rent a true indicator of lease cost?

Landlords structure their leases one of three basic ways:

Full service, which covers everything for the tenant except their phone and

Modified gross, in which the tenant also pays his or her own electric bill and janitorial fees

Triple net, which has the lowest base rent, but the tenant pays separately for all operating expenses including, but not limited to, building insurance, property taxes, maintenance for common areas, electric and janitorial.

There are still a lot of variables within these categories. For example, if it is a full-service lease, there may be a separate charge for electricity and air conditioning used after normal office hours. There may be separate charges for parking, overtime for certain types of maintenance and other operating expenses. Other items that lead to the overall value of the lease are rights of refusal on expansion space, renewal options, repairs, improvements and replacement clauses, termination clauses, etc.

Traditional office buildings are full service, but even that doesn’t make it simple for the tenant. Full-service leases still have pass-through costs that change every year. Pass-through costs are for all operating expenses such as building insurance, property taxes, maintenance for common areas, electric and janitorial.

Recently, insurance has become a big variable. In the last year-and-a-half, it has increased 200 percent to as much as 1,000 percent.

Pass-through expenses can be capped and negotiated.

What role does a tenant rep broker play?

The tenant rep broker is there to protect your interests. He or she will find appropriate properties, further investigate the buildings, negotiate the lease, and can manage renewals because they know various conditions and terms in different submarkets. He or she also knows which landlords are more willing to negotiate. Tenant rep brokers make sense for leases of 2,000 square feet or more.

If a business is thinking about moving, the tenant rep broker should be involved very early. He or she will provide a detailed analysis of the client’s needs and can immediately rule out some buildings and landlords. The broker will also save the business a lot of time in lease negotiations. We tell our clients to expect the moving process to take nine to 18 months. They often think it won’t take that long, but that is a realistic number.

What should businesses look for in a tenant representative broker?

Expertise in both the geographic area and the product type. A firm that did a great job for you with industrial leasing in Atlanta isn’t necessarily good at finding office space in Tampa. Local experts know about the buildings in the area, which saves time and money. They also know who the good and bad landlords are, who’s moving and what space might be coming available. In a tight market, you can’t afford to work with an inexperienced representative that slows down the process, because it could easily cost you a critical opportunity.

JEFFREY LANNING is an office specialist and tenant representative broker with Colliers Arnold Commercial Real Estate Services, which was founded in the Tampa Bay area more than 30 years ago. Reach him at jlanning@colliersarnold.com or (813) 221-2290.

Wednesday, 28 February 2007 19:00

Keeping employees healthy

This year, 75 percent of employers nationwide are offering wellness programs to their employees, according to a national survey by The Hay Group. The number continues to grow because wellness programs are both good for health and good for business. Numerous studies show they improve productivity, provide solid return on investment and are popular with employees.

The degree to which companies attain these benefits depends on the program and how it is managed. Smart Business spoke with Sally Stephens, RN, president of Spectrum Health Systems, for tips on successful program design and management.

What does a workplace wellness program entail?

In its simplest form, workplace wellness can be viewed as having two key focuses: organizational wellness and personal wellness. Organizational wellness involves managing business functions and employee well-being to allow the organization to be more resilient to environmental pressures. Personal wellness involves managing psychological and physical issues in response to environmental stress, including work environment.

Workplace wellness covers a broad range of different types of programs and services — from offering flu shots to designing benefit plans that incorporate comprehensive health risk and demand management strategies.

Do companies make common mistakes in implementing wellness programs?

One of the most common mistakes is when companies take a reactive approach. Detection and prevention activities allow the company to focus on identifying health concerns and issues before they become problematic.

Prior to the implementation of a wellness program, it is important to collect baseline data for the outcomes measurements. Having the wellness program aligned with and part of the corporate business strategy will ensure its effectiveness. The program must have short-term, mid-term and long-term goals to demonstrate sustainable value.

Organizations should approach health as an investment rather than a cost. The organization must be willing to provide a receptive environment and support for positive health and well-being.

How do employees and companies benefit from the program?

From a management perspective, wellness programs have the potential to decrease absenteeism, reduce medical claims, and improve employee productivity, recruitment and retention. For maximum impact on employee health, a comprehensive wellness program should focus on increasing awareness, supporting health management or personal change, and promoting healthy work climates.

Several researchers have studied the impact of exercise on job performance. NASA, for example, found that the productivity of non-exercising office workers decreased 50 percent during the final two hours of the work day, while exercisers worked at full efficiency all day.

This amounts to a 12.5 percent difference in productivity between the two groups.

Are wellness programs cost-effective?

Research studies consistently conclude that employee wellness programs based on sound design strategies can reduce health risk in most employee populations and result in significant economic benefits to the organization. Research also shows that the magnitude of the results is positively impacted by the extent of the programming. Barring unforeseen external events, an employer can realistically expect a cost-benefit result of 1:2 to 1:6.7 or higher.

A review of corporate wellness programs conducted by Goetzel et al. reported that comprehensive disease management programs yielded the highest return on investment. Their findings suggest the need for health education, early detection, and appropriate interventions and health programs to maximize returns from investments in wellness programs.

What tips do you have for companies that want to start a program?

  • Secure the support of top management.

  • Appoint a wellness team to oversee the efforts.

  • Collect some form of data through assessments, screenings, etc.

  • Create a simple plan and set simple goals.

  • Choose the appropriate interventions.

  • Create a supportive environment.

  • Carefully evaluate outcomes.

SALLY STEPHENS is the founder, owner and president of Spectrum Health Systems. Reach her at (317) 573-7600 or sally.stephens@spectrumhs.com.

Friday, 24 November 2006 19:00

Good works, good business

Charitable donations by corporations grew by a record 22.5 percent in 2005 (the last year for which figures are available), according to the Giving USA Foundation, which also found that 59.5 percent of corporations increased their contributions. Even after the large increases, corporations still make only 5.3 percent of all charitable contributions in the U.S., compared to 76.5 percent for individuals, with foundations (11.5 percent) and bequests (6.7 percent) accounting for the rest. Hurricane Katrina and other natural disasters motivated much of the increase in corporate donations. But it doesn’t take tough times to create good opportunities for corporate philanthropy.

“There is a direct return on investment on corporate philanthropy,” says Dan Mahurin, chairman, president and CEO of SunTrust Bank Tampa Bay. “Your business benefits by investing in your community to make it a better place to live, work, play and grow.”

Smart Business asked Mahurin how philanthropy provides ongoing opportunities for businesses to help themselves in a variety of other ways and how companies can manage successful programs.

What does corporate philanthropy mean to business development?

With proper planning and forethought, philanthropy can have a direct impact on how you grow your business. It leads to improved standing in your community, improved stature with people you’d like to hire, and it provides many networking opportunities.

Do you have any tips for targeting and narrowing opportunities?

We recommend investing in interests related to your company, your employees, customers or others that you want to influence. Business is all about relationships. When you find common interests with employees and customers, it gives you a chance to build relationships. Philanthropy may start with an employee volunteering for an organization, which could evolve into the employee gaining corporate sponsorship, and a long-term relationship between the employee’s company and the organization they volunteered for.

You have two primary choices: direct donations or corporate sponsorships. Often you can manage your sponsorship, which means you have more control over your involvement and investment. These sponsorships also provide many opportunities for relationship-building but require your time and involvement.

In these tough times, what is a priority?

First, really get to know the organization you’re dealing with, understand exactly what they do and make sure it aligns with your company’s values and philanthropy goals. It’s also important to look for organizations that give a good return on what they’re providing. Expense ratios are an important indicator. The United Way, for example, gives back 87 percent of what it collects, which is very good.

What are the pitfalls of a company philanthropy program?

The biggest is not planning the program and setting goals for what you want it to accomplish. Planning is more than setting a budget and then responding to requests as they come in. It’s much better to play offense than defense, meaning go after what you want to do versus responding to what others want you to do. Corporate philanthropy should have a guiding philosophy and should be managed according to the philosophy.

Another big mistake companies can make is not getting involved. They may think they don’t have the time or budget to make a difference, but that is a mistake. They can make a difference. And don’t forget what a little bit of money can do with a lot of involvement from your employees.

A third common mistake is not doing enough work on the front end to learn about the organizations you’re getting involved with.

How will a business owner know that this effort is paying off?

Deep in your heart, you know philanthropy is worthwhile because it’s the right thing to do.

Sometimes there is a direct correlation. I’ve seen examples where new business could be traced back to sponsorships, at a ratio of about $4 in business for every $1 spent on sponsorship.

The impact of philanthropy is usually not so clear. You may see it when clients say ‘thank you’ for supporting something that’s important to them. You may see it when prospective employees want to work for your company, because it is known for being a good corporate citizen. You may see it with your existing employees, who feel good about coming to work for a company that helps their community.

Frankly, sometimes it can take a long time for philanthropy to pay off. If the community grows because of your support of it, the pie is bigger and you’ll get a bigger slice of it. You build your business by building your community.

DAN MAHURIN is chairman, president and CEO of SunTrust Bank Tampa Bay. A 30-year SunTrust veteran, he recently started the SunTrust Forum, which makes expert financial advice and insight available free to the community. Reach him at (813) 224-2021.

Page 1 of 3