In the face of a stifling economy, many companies have focused on cutting costs as a means to improve profits. Such measures, however, don’t stand the test of time. Inevitably, quality goes down, as do sales over the long haul.
In the technology realm it is more important than ever for business leaders to invest in new platforms and cater to customers’ needs. According to Steve Carter, president and CEO of ii2P, the market has spoken and they are asking for small and medium-sized businesses (SMB) to provide self-service platforms.
“Our clients that truly have self-service platforms are seeing overwhelming results,” he says.
Smart Business spoke with Carter about issues SMB leaders currently face, the importance of investing in self-service models, and the rewards that can be reaped.
What main issues do SMB leaders face as it pertains to surviving in the marketplace?
First, I want to emphasize that the issues are not limited to small and medium-sized businesses. They face many of the same challenges that larger enterprises face — they need differentiating innovation such as a self-service platform. However, SMB leaders do have more difficulties adapting to the self-service platform. If they don’t embrace this new model and are unable to remain competitive from a cost and convenience standpoint, it will affect their ability to retain their company client base. Every decision that is made within a small business environment has an immediate and dramatic effect. Whereas with a large enterprise, although the results may be the same, the consequences show up in a longer time frame — it is not so immediate.
What should SMB leaders be investing in?
It is paramount to be market driven and keep pace with where your market needs are today. Today’s market — end users, clients, etc. — have changed dramatically. The demographics of the end user today are not in line with current service models. The service models of today, for the most part, don’t embrace self-service. Yet the behavior and desire of the end user is all about self-service. If you embrace innovative solutions and are able to provide a competent gateway to self-service you will reap the benefits.
What innovative solutions do you believe SMB players should take advantage of?
Many technology developments have been tailored to larger enterprise environments. A good example is something as straightforward as password management. About 30 percent to 35 percent of all IT service-related calls, whether it is in an enterprise environment or a small to medium-sized business environment, have to deal with this matter. Password management is becoming more of an issue today because, as security needs grow, the need for well-disciplined password management solutions becomes more pressing. While password management has been geared towards larger enterprises, this is an area ripe for small and medium-sized businesses as well.
How can this be funded?
The secret sauce is creating a formal strategy and approach for bringing innovation to the SMB, not just reacting. Over the past 15 years or so a lot of businesses have been plagued with what I call “drop off the technology and run syndrome.” The technology as a standalone looks good and accomplishes what it’s supposed to do. But unfortunately, that’s where a lot of companies have left it. They’ve made the investment in capital, but haven’t been able to realize the benefits because the solution really wasn’t a business solution, it was more of a technology solution.
In order to improve the existing platform you should first look at the inefficiencies within your end-to-end platform. Examine the platform and change it to make it more efficient and more effective. I have not yet experienced an engagement where there wasn’t significant amount of monies being spent on ineffective end-to-end support solutions. In most cases, the money saved by optimizing the environment is more than enough to support the investment for self-service. There is no magic or big bucket of money sitting out there, but there is a methodology to determining how to begin investing in a self-service platform.
Where should the recovered excess money be spent?
You should invest those dollars in creating a platform that is going to be more market-driven. Then you will be able to take the return on those monies and spend them on growing your business. It is important to invest in growing your business so you can become more competitive in the marketplace.
If this strategy is applied correctly, what are the outcomes to the SMB?
In today’s existing model, business is driven by using the platform less. In other words, providers are hoping that their end users, their B2B clients, etc, are using their existing model less because every time they use it, it costs the service provider. The paradigm shift is when you develop the self-service model; the more they use it, the cheaper it is. We’re talking about a complete reengineering that will affect not only the behavior of the end user, but the provider as well. When you adopt the model that your end users prefer, you will benefit because, the more they use it, the less it will cost you.
Steve Carter is president and CEO of ii2P. Reach him at (817) 442-9292 or firstname.lastname@example.org.
If you have ever read “A Tale of Two Cities,” you may recall the opening line of that book: “It was the best of times, it was the worst of times … ” And if you were seeking a commercial mortgage in 2006, it may well have seemed like the best of times. No guarantee. No problem. There were institutions seeking your business that were willing to offer non-recourse credit.
“It seemed like there were folks lining up to lend you money: the local bank, the regional bank, the multinational bank, the life insurance company, the finance company — each one had a hitch to make its deal enticing,” says John Guarini, second vice president, commercial lending, First State Bank.
Smart Business spoke with Guarini and Michelle L. Smith, first vice president, commercial lending, about how the real estate lending climate has changed over the past five years and the new realities of the commercial mortgage market.
How would you describe the real estate lending climate in 2006?
Guarini: Money was flowing from Wall Street to Main Street, and your local banker may have brought someone from the investment side of the bank to show you how to use an interest rate swap to obtain a payment lower than that on a standard bank-offered, fixed-rate deal. You signed that commitment letter, then all you had to do was pay your commitment fee — or maybe not — and an appraisal fee. Your loan was subject to the findings that would be set forth in that appraisal, but there was no way a 100-page report would hinder your loan because your building was fully occupied and rental rates were climbing.
After six weeks, your lender notified you that your appraisal had arrived, and the value indicated was even higher than he or she had thought, allowing you to borrow more money than you requested, and you said yes. Now, if you have to refinance, it may seem like the worst of times. You return to the institution that made the loan five years ago, and you may find it no longer wants to be in the commercial mortgage business.
How should a business go about refinancing in today’s climate?
Guarini: Get an early start, especially if the property you seek to refinance tends toward the more unique or single purpose. Occupied properties that fit this definition include restaurants, gas stations, car washes and hotels.
That means initiating a dialogue with your existing lender. A lender may want to exit a market segment or geographic area, so much so that a borrower may be able to obtain a discounted payoff without further recourse. Much depends on where your existing loan balance is in relation to the current property value. If your loan balance is 75 percent or less of the value of the property, you stand a better chance of refinancing.
Smith: It can take two to three months to navigate through the loan/appraisal processes, which starts all over if the first bank says no. We can’t emphasize enough — start early.
How is a property’s value determined?
Guarini: If you paid for an appraisal when your loan was written, contact the appraiser and update him or her on the status of the property. The appraiser may be able to give you a rough estimate of value based on current rental rates in the area and sales of comparable properties. Know your property, and the rental rates and prices area properties are commanding. What are vacancy rates? Are other property owners poaching your tenants? Are you willing to ask your tenants to sign early extensions of their leases to satisfy a possible requirement of your new lender?
Why is it important to understand the market?
Smith: Appraisal valuations are still driving loan transactions. However, many loans are limited by the sales and income approaches. Sales comparables reflect discounted and foreclosed sales, depressing price-per-square-foot values. Appraisers will mark the square footage of your property to average market rental rates to determine gross rent on an income approach. The higher of market or actual vacancy is then subtracted, less expenses, to determine net operating income. Appraisers are applying 9 to 10 percent-plus capitalization rates to net operating income to derive appraised value, and loan advances are more conservative, generally 75 percent maximum.
What else should you consider?
Smith: Cash flow is still king. Besides loan-to-value ratio, the lender will review the historical cash flow of the property based upon the last three years of tax returns. Be sure to explain why income was inconsistent or expenses spiked. Did you reduce rent to retain a good tenant? Are your taxes being reassessed? Minimum cash flow coverage is 1.2 times after factoring in a 10 percent or market vacancy factor, 5 percent management fee and possibly a structural reserve. Rates are low, a big advantage when calculating cash flow coverage. Use a maximum 20-year amortization when you pro forma the new loan payment; 30-year amortizations are a thing of the past.
Also, know thyself. What is your credit score? What is your global cash flow? Know the total of your business and real estate property rental income, minus expenses and debt obligations. Are you positive or upside down? Look at your portfolio cash flow holistically. Banks want to know if there is a dog that will take down their new loan.
What are the new realities of the commercial mortgage market?
Smith: More information may be required. Be prepared with tax returns, not only for the project you wish to refinance but also others in your portfolio. The lender will look at your other properties; the global cash flow must demonstrate the ability to service related debt at a minimum of 1.2 times also. Have full copies of leases, along with a rent roll that ties back to the latest tax return on the property.
Navigating shifting financial tides can be challenging. By investing time and expertise, you can aid the lender in finding equitable solutions. Savvy real estate investors find a way to make it rain in good times, and bad.
John Guarini is second vice president, commercial lending, at First State Bank. Reach him at (586) 445-1022 or email@example.com. Michelle L. Smith is first vice president, commercial lending, at First State Bank. Reach her at (586) 445-4762 or firstname.lastname@example.org.
The cornerstone rule of discovery in civil litigation is that parties to a lawsuit must preserve, gather and produce relevant documents.
However, “it is becoming increasingly difficult and expensive to carry out this basic obligation, given the staggeringly high volume and informal nature of our electronic communications in the workplace,” says John Shonkwiler, a partner at Novack and Macey LLP. “Discovery obligations are not going away, and so it is important for employers to improve e-mailing habits by teaching discretion and organization.”
Smart Business spoke with Shonkwiler about the importance of forming better e-mailing habits and how to get started organizing e-mail.
What are some ways to improve e-mailing habits?
Stop ‘reflex’ e-mailing. Too often, we give in to the almost reflexive urge to respond to e-mail immediately, as if we were talking to someone. This is the texting culture invading the workplace, which is an environment that demands better judgment and discretion.
It is not inconsiderate or unprofessional to deliberate before responding to e-mail. Sometimes just waiting 10 to 15 minutes can make a big difference. Except in those rare instances where an urgent response is called for and cannot be made by phone, people should not fire off immediate responses. Stop and think about what you’re sending and whether you need to send an e-mail at all.
Why is ‘reflex’ e-mailing problematic from a litigator’s perspective?
We create so much e-mail. And as the volume increases, so does the cost of electronic discovery. Reflex e-mailing exacerbates the problem by creating more e-mail unnecessarily. Hasty e-mail responses so often can be inconsequential. For example, a response of, ‘I’ll check on this and get back to you,’ is unnecessary unless you know you are not going to be able to respond to an e-mail within the time required or expected by the person who sent it. And you don’t have to be a physicist to understand the laws of ‘e-gravity’: When you send more e-mail, you receive more e-mail. So, carefully consider whether each e-mail you compose has a purpose.
Also, e-mails that are carelessly or informally prepared are more likely to reflect poor judgment, convey inaccurate information, or contain sarcastic or flippant remarks on serious topics that don’t translate well on paper. These things make for bad documents in litigation. You want to think of every e-mail like a potential trial exhibit. Ask yourself, if you were on the witness stand, would you like to be confronted with this? Almost invariably, the worst documents that we see as lawyers as we’re gathering documents in discovery — the ‘smoking guns’ — are careless e-mails.
How should employers teach employees about using better discretion?
Formal training should not be necessary. Just ask employees to place a higher value on their e-mail correspondence. Cut out the reflex e-mailing and start treating e-mail like paper. Apply the same care and consideration when you’re sending an e-mail that you would if you were sending a letter on your company’s letterhead. And remember to consider that your message might be better delivered in person or over the phone.
How does organizing help reduce exposure and litigation costs?
E-mail can be organized like paper correspondence. This means deleting the e-mail you don’t need, and organizing the messages that you keep into folders.
This helps in at least two ways. First, it makes it far easier and cheaper to find and gather relevant e-mail in response to discovery requests. When e-mail is not organized, a litigant often has no choice but to dump massive quantities of e-mail from the server and then use electronic term searches to cull through the data to identify potentially relevant documents. This is an expensive process that can be avoided when e-mail is organized like paper.
Second, when every e-mail must be accounted for and filed, or deleted, the sender tends to place a higher value on each e-mail, give greater care to the contents and more carefully consider whether a message needs to be sent in the first place.
That is the culture you want to instill.
For people who have never organized their e-mail, how can they get started?
When implementing new habits, it is easiest to start with a clean slate. If the task of sorting through every e-mail in your inbox is too imposing, just move the entire contents of your Inbox into a folder titled ‘My Inbox as of [date].’ You can do the same with your sent items. This way, you can start clean and use your new habits going forward, and still have easy access to your old e-mails if you need them.
Have there been any recent developments in the law concerning e-mail discovery?
Plenty. Electronic discovery is probably the single hottest topic in continuing legal education courses, and has been for years. The courts have been very active in this area, too. In fact, the Federal Rules were amended in 2006 to more fully address e-discovery, and the United States Court of Appeals for the Seventh Circuit has its own e-discovery pilot program.
Recently, the Federal Circuit adopted a Model Order designed to reduce the scope and expense of e-mail discovery in patent cases. The order has attracted considerable attention from other federal jurisdictions, some of which have adopted similar orders. It is interesting, however, that for all the attention given to the issue, there has been relatively little discussion about addressing the root of the problem, our e-mailing habits. I think this is going to change as employers continue to learn about the significant costs of housing massive amounts of unorganized e-mail.
John Shonkwiler is a partner at Novack and Macey LLP. Reach him at (312) 419 6900 or email@example.com.
When you think of project management, you tend to think of massive IT implementations, construction projects or enterprise-wide endeavors. Or, you think of meetings, bureaucracy and headaches. But truthfully, almost any change you implement in your professional life can be broken down as a project. The Project Management Institute’s definition of a project is “a temporary endeavor undertaken to create a unique product, service or result.”
“Through the use of project management techniques, companies have found a new and exciting culture change that can drive project and organizational success,” says Ed Siurek, director of Quality for Corporate College.
Many Fortune 500 companies have successfully incorporated this methodology into their way of doing business. But how can every organization take advantage of this opportunity? The key to understanding what is necessary and how to achieve those goals may lie in providing project management certification opportunities for employees.
Smart Business spoke with Siurek about project management and the importance of certification.
Why do projects fail?
The Bull Survey (1998) was conducted to understand how and why IT companies in the UK had project failure. It showed three primary causes: breakdown in communication (57 percent), lack of planning (39 percent), and poor quality control (35 percent) as the primary reasons. Given that most companies think they do these things well, it gives reason for pause. How can we do these things better and what are we doing wrong? The secret may lie in what we think project management really is. Companies typically rely on individuals rather than methodology. If everyone is not on the same page as the project manager though, problems can and often do arise.
What are the benefits of formal project management?
It is process based and allows everyone to work from the same philosophy. Creating organizational standards, templates and procedures helps increase productivity, communication and employee understanding of the task at hand. Most employees involved in a project know what needs to be done but too often the lack of control and ability to manage all project details can be overwhelming. Using a formal approach keeps everyone on the project team on the same page and moving in the same direction. They know each step of the process and the expectations, and it forces everyone to think about risk and unforeseen obstacles. Planning for these obstacles can keep them from becoming project derailments.
Why is certification so important?
Certification in project management is not for everyone. It takes training, experience and using proven methodology to be successful. The certification process requires not only up-front training, but documentation of past experience, testing and continuing education. Those that gain certification understand the importance and have the skill set to drive all aspects of a project to successful completion.
Certification to any of the project management standards is a great opportunity. Individuals can apply the skills learned across most industries and professions. It is a methodology that is highly valued by employers because of its success rate and discipline.
How does a certification impact your business?
Assigning a certified project manager to a project helps minimize risk. Projects are managed in a highly effective and efficient manner that produces on schedule, on specification and on budget results. Project managers understand that not every variable can be accounted for in a project, but they have learned how to manage and mitigate those risks before they become larger problems. Success in projects typically yields higher return on investments (ROI) and a better end product.
There is also a cultural benefit to providing a consistent approach. Employees understand their responsibilities and spend less time away from daily tasks while still being able to focus on the project. Highly engaged employees and successful projects will both contribute to a better working environment and higher returns for any organization.
What about the cultural aspect of project management?
When projects work properly and employees see success, confidence grows in the methodology. They begin to incorporate some of the tools into their work. Everyone wants to succeed, so what better way to do it than by using something that is proven? Soon, it becomes a way of doing business. Not only does this create commonality in practices in the company, but it also makes projects more successful. Project management can influence many aspects of an organization. Take, for example, a customer complaint. Using project management methodology, the complaint can be taken, evaluated and processed in a systematic manner. The reason for the complaint may lead to other projects to correct the product, process or system. The initial documentation from the first project will help to ease each subsequent project.
Who needs to get certified in an organization, and what certifications should they seek?
Certification is available ranging from the Certified Associate in Project Management (CAPM) to the Project Management Professional (PMP). Which certification is best for a particular employee? It depends on that individual’s experience. Experienced project managers will seek a PMP credential while those just entering the work force will seek the CAPM. Both provide valuable insight and training and can be assets to any project team and organization. As CAPMs continue to progress and gain experience, they can take on more responsibility and more complex projects. Ultimately, this leads to seasoned project managers. Once the CAPM has gained the necessary experience, they can gain further certification by means of the PMP.
Ed Siurek is director of Quality for Corporate College. Reach him at (216) 987-2838 or Edward.Siurek@tri-c.edu.
Managing working capital and cash flow can be a complex endeavor. However, utilizing your financial institution’s treasury management resources can help you streamline the process.
Your banking partner can help you manage cash resources, accelerate collections, manage the payment cycle, reduce administrative concerns and mitigate fraud risk. Identifying how to accelerate collections and reduce expenses and disbursements by electronic means can even help you invest idle balances or pay down credit facilities.
“Businesses do not have to invest in software packages to accomplish this,” says Kerri Werschky, treasury management specialist at First State Bank. “Exploring the technology that banks have invested in to bring information to their clients quickly and accurately will not require companies to hire additional staff or make investments in technology.”
Smart Business spoke with Werschky about how technology can help businesses better meet their banking needs.
How have advances in technology improved the ways that businesses can handle their banking needs?
Through advances in technology, businesses are able to quickly communicate financial information to and from their financial institutions. With the advent of remote deposit capture, many companies are taking advantages of later deposit windows, simplified deposit creation and better record keeping.
How can remote deposit capture accelerate collections?
Companies are now operating with fewer resources and oftentimes are not able to drive to the bank daily to make deposits. Checks sitting in a drawer don’t help cash flow and availability of funds; those checks need to be in the account and quickly processed through the system for collection.
Remote deposit capture allows extended deposit cutoff times for same-day ledger credit and the convenience of scanning and depositing checks electronically from your office. This eliminates the need for your employees to drive to a branch in inclement weather and the liability of an accident, as well as unproductive time away from the office. In addition, a company with several locations can consolidate its banking relationships even if a bank is not located in the same geographic area.
Remote deposit capture provides quality control and data can be exported directly into your accounting system. With this image technology, businesses also have access to previous copies of transactions. Time and paper are saved because deposit tickets are not needed and a one-page report identifying the day’s deposit is available.
How do electronic payments reduce expenses and increase efficiency?
Reducing the cost of printing checks and the manual processing of paper items by using electronic, or Automated Clearing House (ACH) payments, can save money, as well as time. The most common use is for direct deposit of payroll, but there is an increase in the number of businesses that are focused on ‘going green’ and reducing costs associated with check stock, envelopes and mailings.
In addition to a robust ACH system, banks also offer an online bill payment service. Bill payment offerings in the past were reserved for consumers, but now commercial clients are becoming more comfortable with the service and leaving ACH or check issuance to the bank. As long as the business understands that the input date and settlement date are different and allows for a three- to five-day payment, the cost savings are significant.
While the three- to five-day payment settlement is at first of concern, once the business understands that the same delay applies by sending out checks, this becomes an obvious solution.
How can the bank and business work together to mitigate fraud?
Companies need to review their internal security and checks and balances policies. The bank puts control in the hands of the business — banks provide information through a highly secure website to a system that accommodates an unlimited number of users, and an administrator at the business can establish access and permission levels. By creating different access levels, the accounting staff has the ability to enter transactions so managers can review and approve them online. Each user’s identity is verified and companies can instantly add or delete employees when needed.
Positive Pay is a service whereby the company provides a check issue file to the bank with check number, payee and dollar amount when the checks are released. As those checks clear, the bank matches the items to the issue file the business sent.
If an item does not match, this is considered an ‘exception item’ and an alert is sent to the business advising it that it needs to review the check online and make the decision to pay or return, usually by 1 p.m.
Typically, the default is to return the item if the company does not give direction: It is presumed the item is fraudulent because the business did not advise it issued that check. In this manner, the business and bank work together to catch fraud before it hits the account.
These services can be implemented by your bank’s treasury management professionals and will most certainly help your organization operate efficiently and decrease costs.
Kerri Werschky is a treasury management specialist at First State Bank. Reach her at (586) 863-9485 or firstname.lastname@example.org.
Insights Banking & Finance is brought to you by First State Bank
On July 23, 2010, Attorney General Eric Holder signed final regulations revising the Department of Justice regulations under the Americans with Disabilities Act (ADA). These new regulations address general nondiscrimination requirements relative to people with disabilities and adopt new Standards for Accessible Design that are consistent with the minimum guidelines published by the U.S. Architectural and Transportation Compliance Board (Access Board). These new design standards align the ADA’s requirements with other federal standards, as well as with model building codes, and reflect the experience gained in the 20 years since the first design related regulations were adopted.
The general nondiscrimination requirements became effective on March 15, 2011; however, the Justice Department delayed the effective date until March 15, 2012, to allow sufficient time to plan for implementation. Design professionals and businesses needed time to understand the effects of these new rules and evaluate how to incorporate the modifications into their future plans and projects, says Dale Hermeling, a partner with The Stolar Partnership LLP in St. Louis.
“With the nondiscrimination standards already in effect and with the upcoming March 15, 2012, compliance date on the design standards, now is the time for businesses to review their overall compliance with the ADA,” he says.
Smart Business spoke with Hermeling about the ADA and how the changes could impact a business’s compliance obligations.
Who is affected by these new rules under the Americans with Disabilities Act?
As with the previous rules, these modifications deal with Title II and Title III of the ADA. Title II addresses public entities, which include state and local governments and their various departments and agencies. Title III addresses private entities that operate public accommodations, places such as hotels, restaurants, bars, theaters, retail stores, doctors’ offices, etc. There is no limitation on the size of the business, and each is required to modify its business policies and practices in order to serve customers with disabilities.
These policies and practices need to address considerations for the expanded use of service animals, different types of wheel chairs or other power-driven devices such as Segways, seating requirements in assembly areas and effective ways for communicating with persons with disabilities.
What are the requirements relating to removal of barriers?
Public accommodations have been required under previous regulations to remove architectural barriers where the removal is ‘readily achievable’ or can be carried out without much difficulty or expense. Examples include the installation of ramps, making curb cuts in sidewalks, widening of doors, creating designated parking spaces, etc. All of these types of modifications should already be in place under the previous regulations.
Will building owners be required to modify existing facilities to make them more accessible?
If a building has failed to follow the previous regulations and hasn’t addressed barrier removal under the 1991 standards, it needs to address those now and can use either the 1991 or the 2010 Design Standard until March 15, 2012. If a building has already addressed these issues under the 1991 Design Standard, it is protected by a safe harbor and doesn’t need to take immediate steps, but if it embarks on other alterations to the building or facility, it will need to utilize the new 2010 Design Standards. Any new construction after March 15, 2012, will be covered by the new standard.
Who is responsible for compliance with ADA regulations in a lease arrangement?
Both the landlord who owns a building with a public accommodation and a tenant who owns or operates a business with a public accommodation are subject to the requirements. You may see provisions in the lease that impose the obligation on one party or another, but under the law, both parties are responsible.
Are there any tax benefits available for complying with these new requirements?
Section 44 of the Internal Revenue Code allows a tax credit for small businesses with 30 or fewer full-time employees or total revenue of $1 million or less in the previous tax year. This credit can cover 50 percent of the eligible access expenditures in a year, with a maximum credit of $5,000.
The tax credit can be used to offset costs associated with barrier removal and alterations to improve accessibility, or providing accessible formats for communication such as Braille, or large print signs or audio tapes. Section 190 of the code allows a tax deduction for all businesses, with a maximum deduction of $15,000 per year for costs associated with barrier removal or alterations .
What advice would you give a business owner about complying with the new standards?
The ADA has a variety of components. Whether it’s issues of general non-discrimination and dealing with the new Design Standards or the employment elements under the EEOC, business owners need to stay on top of these matters as they develop. They need to evaluate their policies and procedures to make sure that they comply with the new requirements and train their work force to help accommodate people with disabilities as required.
It is important that you have a policy in place that addresses how to respond to a person who might lodge a complaint and to document what happened during the course of the discussion. We can anticipate increased enforcement by the Justice Department, which could result in fines and other penalties.
Dale Hermeling is a partner with The Stolar Partnership. Reach him at email@example.com or (314) 641-5135.
If your business has been injured by another party, your first reaction may be to sue for damages. But by first taking reasonable actions to limit your losses, you can increase your odds of recovering those damages. In most situations in which a business has been injured — whether by theft of trade secrets, a contract breach, etc. — it can take steps to prevent damages from worsening.
For example, say that a supplier is unable to deliver a crucial part to produce your products.
“Rather than halt production and lose all profits that your business likely would receive from selling its products, you could try to find another supplier,” says Courtney D. Tedrowe, a partner with Novack and Macey LLP. “You might pay a higher price, thus reducing your overall profit margin, but you would not be out all of your profits.”
That mitigation of damages, sometimes referred to as the doctrine of avoidable consequences, can be crucial in the event of a lawsuit.
Smart Business spoke with Tedrowe about a plaintiff’s obligations and what courts deem reasonable mitigation efforts.
What obligations does a business have in the event it has been injured?
Frequently, courts and attorneys say that a plaintiff has a duty to mitigate damages, but that characterization is inaccurate. Strictly speaking, a plaintiff does not have an obligation to take steps to limit losses after it has been injured, and will generally not incur liability for failing to do so.
However, if some or all of a plaintiff’s damages could have been avoided had it taken reasonable steps to mitigate them, it might not be able to recover that portion of damages from the defendant. Thus, it is in the plaintiff’s best interest to determine what steps it can reasonably take to avoid unnecessarily increasing damages after injury, and then take those steps. In many cases, the plaintiff can recover from the defendant the cost of making reasonable attempts to mitigate damages.
How does a court decide which actions are reasonable?
First, the defendant must prove that the plaintiff could have taken certain reasonable steps to avoid unnecessarily increasing its damages. What constitutes a reasonable step is determined on a case-by-case basis. However, a plaintiff is not required to take extraordinary measures, and a defense of failure to mitigate is not a basis for a hypercritical examination of the plaintiff’s conduct.
The plaintiff need not assume any undue risks or burdens in an attempt to mitigate its damages. Further, the law does not require the mitigation efforts to be successful; all that matters is that the plaintiff made the attempt.
Second, the defendant generally must prove the amount by which the damages increased because of the plaintiff’s failure to take reasonable steps. The defendant should have evidence not only showing that the plaintiff failed to take reasonable steps to avoid increasing damages but also evidence showing by how much that failure inflated damages.
Under what circumstances is this legal concept most commonly seen?
Mitigation is a defense in almost every case in which the award of monetary damages is claimed. It is usually raised as an affirmative defense in litigation, in which the defendant claims the plaintiff’s damages should be reduced because either the plaintiff actually did mitigate its damages, or, had the plaintiff taken certain actions, its damages would have been less.
In most states, there is an exception to mitigation, sometimes referred to as the lost volume doctrine. In cases in which the plaintiff does a volume business — handles or could handle multiple contracts of the same kind simultaneously — and has lost sales as a result of another’s wrongdoing, the plaintiff might not be able to mitigate its damages by finding a replacement contract. Because the seller is capable of handling multiple contracts simultaneously for little additional marginal cost, it could have had the benefit of both the repudiated contract and the subsequent contract at the same time. Therefore, even if the plaintiff could have obtained another contract after the first was breached, it would not replace the lost contract.
For example, say a fencing company contracts to build a fence for $10,000. The buyer breaches that contract. Shortly thereafter, the company contracts with someone else to build a fence for $10,000. If the company can prove it could have taken both jobs, its damages are based on the net profit it would have made on the breached contract, without regard to its ability to get a subsequent contract. However, although this has been adopted in most states, it hasn’t been in all, and the burden is on the plaintiff, not the defendant, to prove the doctrine applies.
How can a business be affected by the responsibility to mitigate damages?
If a business has been injured and is contemplating litigation, it should be aware of the possibility that the defendant might assert a mitigation defense which, if proven, would reduce the awarded. Thus, as soon as the business learns of an injury, it should take all reasonable steps to prevent damages from unnecessarily increasing. Employees should be asked to analyze all of the possible harms to the business including losses due to business interruption, lost business opportunities and harm to reputation. Once specific potential damages are identified, consider whether there are reasonable means of minimizing or stopping these harms from occurring.
It does not usually matter whether your efforts are successful, only that you took reasonable steps to try to mitigate. Moreover, the law generally does not require you to take undue risks or burdens to try to mitigate damages. If you follow these basic principles, you likely will stand an excellent chance of defeating a mitigation defense.
Of course, you should consult an attorney as to whether mitigation applies, as it will depend on the particular facts in your case and the law of your particular jurisdiction.
Courtney D. Tedrowe is a partner with Novack and Macey LLP. Reach him at (312) 419-6900 or firstname.lastname@example.org.
Mobile cloud computing, where applications are driven from the “cloud” and not from the handheld device itself, is becoming a vital part of the business landscape. Is your company positioned to take advantage of this emerging and potent technology? Mobile apps powered by the cloud will include productivity applications that accentuate collaboration, data sharing and multitasking. Now is the time to adopt cloud computing strategies as there will be a seismic change in how information is distributed and applied.
“A lot of companies are dipping their toes into this new environment to see how their customers react,” says Toni Paoletta, Corporate College’s IT Program Manager. “Eventually mobile devices will replace desktops.”
Smart Business spoke with Paoletta about the shift to mobile and how business owners can take advantage of the new frontier.
What are some of the driving forces behind the shift to mobile devices?
Mobility is the key word. Mobile devices allow companies to take their products and services and place them directly at their customers’ fingertips. We have seen Internet-based tools and services reformulated to work on smaller devices. For example, customer relationship management and inventory control can now be managed remotely through the use of a mobile application on a smart phone. In the past, you had to log on to an Internet browser, connect to a Web site and log in credentials to access a company’s services. Now you can have a mobile application on your smart phone that is able to access the same software, services and data instantaneously.
How big will the shift be?
The shift will be huge. Being able to control everything from the road is the wave of the future. The convenience factor of smart devices — they’re small, portable and have excellent battery life — will drive the need for customized mobile app development. The emergence of new smart phones and tablets has created a huge explosion in the mobile device market and a need for new, innovative apps that can function on these various platforms.
How does the mobility and prominence of the cloud impact the IT industry?
All IT industries will need to know how to deploy, support and maintain their company’s intellectual property that is made available through these mobile apps. Not only will companies have to support their current physical infrastructure, but they will also have to support and secure their cloud infrastructure. This will mean investing in increased storage and additional servers.
Besides infrastructure considerations, companies need to consider the deployment and sustainability of mobile devices and the applications that reside on these mobile devices. If a company develops a mobile application for its customers, it must consider platform issues, interoperability, updates and security.
How does the shift towards mobile devices affect a company’s IT personnel?
IT personnel will need to become familiar with mobile devices and understand the capabilities of those devices, how to keep these devices updated and identify how they are going to fit within the company’s current IT environment. For example, an Apple iPad utilizes wireless Internet. If you have employees accessing data with an iPad from within the office you need a wireless infrastructure within your corporation that will support that access. Other considerations are software and operating system updates. How will your company manage these operating system updates on mobile devices? Are you providing a public cloud to your customers; meaning your software and services are available through a mobile app? If so, your security infrastructure will be critical to protect other applications, data or services available within the cloud. If you use a private cloud, how will you maintain access when there is a change in human capital within your organization and the app to connect to that private cloud resides on the employees’ personal smart phones? All of these questions need to be considered.
In order to address these issues, IT professionals need to expand their current skill set and become familiar with smart devices and how to access information in new ways.
What opportunities are available for application developers?
The sky is the limit for application developers as it relates to mobile app development. I think everyone who has a smart phone today has thought of an application they would love to write, whether it is a game they think would be cool, or a business app that would provide a solution to fix a problem. For instance, our college recently launched a mobile app called ‘Tri-C Mobile’ that provides students with information about courses, events, campus news, sports schedules and even the campus directory all through their smart phone. It is vital for people to start thinking about how they can transfer their business knowledge to a mobile device so people can access that information from anywhere.
How can business owners take advantage of and plan for these developments?
They need to think about what work they wish they could do if they were stuck at home, in traffic, or waiting in a line at the airport. They need to ask themselves how they can take advantage of these smart devices — these mini-handheld computers. They need to find software developers with business knowledge that can translate into innovative mobile apps. Every day you hear about companies launching their new ‘app.’ Whether it’s American Greetings’ ‘Ecard’ app, or Benesch, Friedlander, Coplan & Aronoff and its ‘Benesch Apportunity’ app to recruit new attorneys, mobile apps are going to change the way we do business. Businesses across the globe are leveraging the cloud to bring their business to their customers via mobile apps. It’s time to say goodbye to being tethered to a box; and say ‘Hi’ to mobile computing.
Toni Paoletta is Corporate College’s IT Program Manager. Reach her at email@example.com or (216) 987-2962.
At some point, nearly all small business owners will need to borrow money, whether it’s to purchase, expand or renovate commercial real estate, finance the purchase of an existing business or grow organically. One viable option for small businesses in need of financing is to apply for a loan backed by the Small Business Administration.
While the SBA doesn’t provide direct loans, it does provide guarantees on loans that originate from the agency’s partnering lending institutions, says Angela Freeman, second vice president at First State Bank.
“If you partner with the right bank, preferably an SBA Preferred Lender, the bank will complete the application for you and make the process as painless as possible,” says Freeman.
There are several common misconceptions about SBA loans. The first is the belief that they require a lengthy application process and that it takes too long for funding to be secured. In reality, because loans are handled through lending institutions, the process isn’t much different than applying for a conventional loan and, in some cases, can be even easier.
Smart Business spoke with Freeman about SBA loans, the common misperceptions associated with the program and the benefits of working with a preferred partner.
What are some of the most common myths associated with SBA loans?
There are many misconceptions about SBA loans that might prevent business owners from inquiring or applying. Some mistakenly believe that SBA loans are only for the smallest of small businesses. However, the maximum amount of a loan has increased from $2 million to $5 million.
While it is true that the SBA used to have a very structured definition of what a small business is, it has now expanded the definition and opened the parameters so that more businesses can apply. Government data show that 98 percent of all businesses in America would qualify for an SBA loan under the current definition.
Another common misconception is that because the SBA is a government program, all SBA lenders are the same. In reality, each lender has its own credit philosophy. For example, credit criteria such as historic cash flow, collateral loan-to-value percentages and management experience vary from lender to lender.As a result, it is important to build a strong relationship with a top SBA lender, again preferably an SBA Preferred Lender, in your market to learn about its credit parameters.
Another myth is that SBA loans take forever to be credit approved and funded. Over the last several years, the SBA has worked hard to speed up processing times, reduce paperwork requirements and, in general, make it easier for banks to provide small business customers the capital they need. Many of the myths and rumors about the SBA are rooted in previous bad experiences that simply don’t hold true today.
While in the past, the agency has struggled with slow processes and arduous requirements, a great deal has changed. The SBA is now investing in people and technology to create an agency that is more efficient and responsive.
How can working with a preferred SBA lender help expedite the loan process?
A preferred lender is an institution that the SBA has designated as its agent. Most of these lenders have dedicated staff who specialize in SBA loans and can process these loans as efficiently as conventional loans. There are a number of rules involved with SBA loans, which cover who is eligible for financing, what can be financed and what interest rate can be charged.
A lender who is not intimately familiar with SBA loans might not know all of the stipulations, or not have necessary processes and procedures in place to comply. You can go to www.sba.gov to find information on your local SBA district office and the top lenders in your market.
How would you address the myth that an SBA loan is a last resort for financing?
The SBA program is designed for credit-worthy borrowers who have difficulty getting access to financing at reasonable terms. It is true that there is a requirement that stipulates you are unable to get a conventional loan. However, it is also true that many times a bank can’t consider a request for a conventional loan but may be able to look at an SBA loan differently.
Take, for example, a company that needs a $200,000 loan, but the equipment is only valued at $150,000. In this instance of a collateral shortfall, a business won’t be eligible for a conventional loan, but through the SBA 7(a) program, 75 percent of the loan is guaranteed by the government, and the bank only has to rely on the 25 percent on the collateral remaining.
What are the fees and up-front costs associated with SBA loans?
The SBA program is resolute in the fact that small businesses are not to be charged an application fee, or a bank management fee. Guarantee fees — typically 2 to 3.5 percent of the guaranteed portion of an SBA loan — allow the program to operate at an efficient cost for taxpayers. Fees are not usually a barrier to borrowers because they can be financed over the term of the loan, which may be longer than a conventional loan.
In addition, SBA loans have flexible interest rate policies and can be made at fixed or floating rates, and pegged to a prime, LIBOR or SBA peg rate. SBA rates are competitive with other forms of financing and are a much better value than credit cards and other alternative financing mechanisms that many small businesses use when they are unable to access conventional credit.
Angela Freeman is second vice president at First State Bank. Reach her at (586) 498-7465 or AFreeman@thefsb.com.
A competitive compensation package is essential to attracting and retaining high-performing executives. In addition to base salary, such a package ties performance to bonus and incentive awards as well as supplemental retirement packages, and includes provisions for severance pay.
Understanding the principles of compensation packages is critical when competing for top-level talent, says John Klevorn, a partner with The Stolar Partnership.
“From the company standpoint, hiring the right executive is incredibly important for the lifeblood of an organization,” says Klevorn. “You want to make sure that you have the right leader in place.”
Smart Business spoke with Klevorn about executive compensation, how to benchmark benefits and how recent reform has impacted executive compensation policies.
Where should a company start when negotiating executive compensation?
Executives come with hefty demands in terms of salary, benefits and other perks. Before you initiate a talent search or begin compensation negotiations, it’s important to establish a benchmark so that when you do begin to negotiate, you have a point of reference. Next, determine the level of proficiency and performance you’re seeking. With this information and the compensation benchmarks, it will be easier to search the marketplace, look at databases and understand the market value for the position.
There will be ranges with regard to market value so you will want to land somewhere inside those market value ranges. In some instances, a company will want the right person to grow into the job, so it might pay at a lower salary level within that range. In other cases, a company might want a star, and that star may only commit if he or she receives compensation at the high end of the market range.
How should a company benchmark benefits?
Make sure you’re compensating your executive fairly relative to the market. At the same time, make sure compensation is not so far askew internally that the incoming executive’s compensation compared to the next level below is out of whack. You don’t want to create such disparities within the company to cause employees to say, ‘Not fair, not fair.’
There is also an external aspect. Take financial services, for example. If you look at the compensation of CEOs of major financial institutions, you’re going to see symmetry. Company X does not want to pay its executive three times the amount that Company Y across the street is paying.
There is no collusion, but they do look at external matrices and metrics to remain competitive. Executive benefit companies monitor this information and keep their eyes on the latest figures.
You also want to make sure that the package you’re offering is not so diverse compared to other companies that the shareholders become concerned that the value of the company is being diminished.
What types of compensation programs are most effective at attracting and retaining executives?
First, the base salary has to be competitive. Second, executives want to know about bonuses. Are bonuses performance based? What standards will apply? Will bonuses increase over time? Stock options are also a key consideration.
Also, executives are often interested in longer-term plans. For example, add-on 401(k) plans allow those at the top to contribute more into the plan than other employees. Additionally, supplemental executive retirement plans (SERP) are designed to provide enhanced benefits to corporate executives and some are insured through life insurance programs and policies.
Are there laws to be considered when setting an executive’s salary?
You have to follow the standard array of laws. You can’t discriminate on the basis of race, age or gender. You can’t retaliate. Tax rules tell you that any compensation must be consistent with the ordinary and necessary business needs of the company. For example, if you manufacture widgets and employ 15 people, it would be difficult to justify paying your CEO $5 million per year because it would not be deemed ordinary or necessary by the IRS. Also, you need to make sure you’re not diluting the value of the shareholders’ interests, as they have a say in making sure their rights are protected.
Other than these basic rules, however, executive compensation is fairly unregulated.
How has the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 affected executive compensation policies?
Dodd-Frank imposes new executive compensation rules and appropriate governing requirements on publicly held companies in the United States. The government is taking the stance that, for the protection of companies, employees and shareholders, it is necessary to monitor executive compensation.
Executives have negotiated multimillion-dollar compensation deals both during their tenure and after they leave their companies. Dodd-Frank is designed to provide better disclosure regarding these. There are now nonbinding shareholder votes at least every six years with respect to regular compensation and golden parachute arrangements.
Because the votes are nonbinding, there has been discussion about the possible impact. If shareholders overwhelmingly state that they do not believe the compensation paid to their CEO is the correct amount, boards of directors will be inclined to listen. The Dodd-Frank Act also includes rules that deal with the independence of compensation committees and their ability to hire legal counsel and consultants. The independence clauses are a result of what happened with Enron, Tyco and others. Nobody was independent; they were all part of the company, and their subjectivity was high and their objectivity low. The result: no one was able to blow the whistle.
The Dodd-Frank Act was designed to provide better information about what’s going on inside companies.
John Klevorn is a partner with The Stolar Partnership. Reach him at (314) 641-5179 or firstname.lastname@example.org.