Adam Burroughs

Cash is still king. In 2008 and 2009, many companies failed because of a lack of liquidity, and as the economy declined and sales trended south, many saw their accounts receivable days lengthen out. Combined with overleveraged balance sheets, it resulted in the tragic end of many companies.

“Cash flow is the lifeblood of any company, and managing it is the key to a company’s longevity,” says Edward L. Wood, CTP, regional vice president of commercial lending for National Bank and Trust.

Smart Business spoke with Wood about cash flow management strategies that can prevent companies from becoming overleveraged.

What are the areas of cash flow that a company can control?

The key component to managing cash flow is managing the inflow and outflow of money. A company needs to focus on three areas: accounts receivable, inventory levels and accounts payable. You want to shrink your turnaround days as much as you can for your accounts receivable and inventory levels. The shorter the turnaround on your receivables, the quicker you are collecting cash and putting it back into the company.

For payables, an outbound form of money, the strategy is the opposite. If you are paying your vendors in 10 days, you want to lengthen those payment periods to 30 days. This creates cash in the company because you are slowing down the outbound flow of money from the company.

Every industry varies somewhat on its payables strategy. Have a discussion with your lending officer because he or she can give you a benchmark of your payment strategies compared to your peers to give you an indication of where you should be. But generally, getting your payables out in 30 to 35 days is not unreasonable.

On the inbound side, you need to keep your receivables at the same levels. Less time is better on the inbound side and more time is better on the outbound side.

How should cash flow be tracked?

The main issue is that it needs to be a process that is focused on consistently, not just at the end of each quarter. You need to manage your accounts receivables turn, inventory turn and payables on a consistent, daily basis to know where they are. That is information you can get by using accounting software, or your community bank can take your financials and give you benchmarks.

What are some common cash flow management mistakes?

Particularly on the inventory side, and especially for manufacturing companies, you have to be careful of the inventory you are purchasing and how quickly you turn it around. Buying an expensive piece of inventory and not selling it quickly can tie up cash flow. It is important to buy inventory that you know will have a quick turnaround, not something you have to sit on while you look for a buyer.

On the accounts receivable side, the mistake is not monitoring your how quickly your receivables are turning over. When you make a sale, the faster you collect on your receivables, the faster you put cash on your balance sheet. Making a sale doesn’t do anything for your company until you are paid.

Customers need to focus in on methods that make receiving payments faster. To encourage faster payment, you can increase the cost for transaction types that are slower or offer discounts for faster methods.

On the outbound side with accounts payable, you can have a conversation with your customers about when they should expect to be paid. Vendors will often work with you, which will help to better manage your cash flow.

How can a company improve its cash flow?

Depending on your lender, it is always a good idea to make sure you are using cash flow effectively.  If you have a commercial line of credit, consider a loan sweep that allows you to automatically apply your excess cash against your loan. If you need money, it automatically pulls liquidity from your line of credit so you are not manually moving money back and forth between your loan and deposit account. A lot of financial institutions will charge significant fees for those, but if your bank is doing so, you need to find a bank that is not.

You can also look at your billing cycle in terms of when you are sending out invoices. If you are not offering discounts on accounts receivable, doing so can be an incentive to get paid quicker.

How do you determine what impact capital assets will have on cash flow?

With purchase of any capital asset, the company needs to look at the value it brings to the bottom line. When you buy a piece of equipment, it produces some benefit over time, which is where financing becomes attractive.  If you pay for the equipment in total today, you are putting all of that cash into a physical asset that offers a return over several years. Financing defers the payment of the asset over time to match the revenue coming in from the asset to its debt payments, so you are leveling off the payment structure to match revenue generation.

What products can a bank offer to help improve a company’s cash flow?

Utilizing electronic deposit for deposit transactions is a big plus rather than taking deposits to your bank. You can do this from your office through a check scanner, allowing you to accelerate the collection process, and this lets you know more quickly if you have a problem with a payer.

A lock box is another option. It eliminates the option of having something mailed to company and the need for someone to physically make the deposit. It also accelerates collections.

Edward L. Wood, CTP, is regional vice president of commercial lending and the HCDC (Hamilton County Development Corp.) 2011 lender of the year. Reach him at (800) 837-3011 or

Insights Banking & Finance is brought to you by National Bank and Trust

People are approaching how they use office space differently than they have in the past, says Ronald J. Gantner, CPA, a partner with Plante Moran CRESA. And this has changed how buildings are designed and renovated.

‘The generation coming up in the work force wants more collaborative space, with fewer walls and greater technology infrastructure,” says Gantner. “Some buildings and landlords have adapted, some have yet to catch up, and others may not be able to create the environment today’s tenants are demanding.”

Finding the right building for your needs and determining which is the most affordable — and that is not necessarily the one with the lowest rent — can be challenging and time consuming. But you don’t have to go it alone. An experienced tenant representative can assist you through the process.

Smart Business spoke with Gantner about tenant representatives and how they can help you navigate the real estate market while you stay focused on your business.

How have the changing needs of businesses affected office real estate?

In the real estate business, we used to talk about price per square foot. Now buyers are looking at the cost per person or the occupancy cost per employee. This creates an opportunity to accommodate more people within more flexible spaces and reduces tenants’ demand for square footage. We’re seeing more maximization of space or greater efficiency in the way space is used, which will drive down cost.

From a landlord’s perspective, buildings need to adapt and be smarter to recapture rent. A significant cost of space build out is related to the technology that our new wireless, high-tech workers demand. Existing buildings with a strong technology backbone are going to command a higher rent as this offsets improvements that would need to be made to bring another space up to par. More flexible and collaborative space will create a higher demand. Everything from WiFi in common areas and cafeterias to flexible space with lots of parking sets the best buildings apart.

Some market areas don’t have a lot of quality buildings that can be easily retrofitted to accommodate what today’s tenants are looking for. Tenants may discover the list of great opportunities is shorter than the recent high vacancy rates may imply. Rent is only one component of your total occupancy costs. Ultimately, tenants don’t want to put much capital into a nonperforming asset. Instead, they want to invest it into their core business because it will result in a higher rate of return.

How can a tenant representative help?

A tenant representative is an advocate for the tenant. Often tenants can get hung up on a great real estate deal and fail to analyze whether it is a good business deal. A representative will show you all of the options that make sense to your business from a real estate, financial and strategic perspective. It might seem attractive to only pay $15 per square foot for the real estate, but it could cost $100 per square foot to upgrade the space to work for the client. They look at aspects beyond rent, including the cost to move and build out a space, as well as the surrounding amenities to present you with the top options based on your needs and budget.

How important is the tenant representative’s ability to be independent?

It is extremely important to work with someone who is not incentivized by a landlord to lead you in a particular direction. Using an independent tenant representative will avoid conflicts of interest and show you all the options that make sense for your business. Having an advocate sitting only in your corner is also valuable in negotiation.

What are the dangers of conducting the search for office space on your own?

Tenant representatives are involved in numerous transactions on a daily basis. They have extensive knowledge about the market and what to look for in a real estate contract, and even help ensure your lease has flexibility for expansion or contraction. Tenant representatives have learned best practices over hundreds of transactions and years of experience, while comparatively, most business owners will be learning as they go while deflecting efforts away from their business’s core functions. And if you make a mistake, it can be very costly for a long time to come.

Can working with a tenant representative lead to a better deal?

Absolutely. Tenant representatives know the market, the transactions that are happening and what capital dollars landlords are spending to entice tenants. They also know the capital structure of the landlords who own the building you’re considering.

In the past years of the economic downturn, landlords have lost buildings or remain troubled financially. Tenant representatives can educate the client on these situations, which may range from a decline of property maintenance services or even foreclosure.

Once you are into a building and the property and facilities are not tended to properly, it impacts a company’s ability to do business. So it is not only pricing, it is making sure you are in a suitable location where you can conduct your business relatively worry free.

How do you select a tenant representative?

The important thing is to begin the process early — at least two and a half years before your lease expires. Also, talk to two or three providers. Look for firms that have independence or that work only on behalf of tenants. Talk with them about their process, look at their financial capabilities and work to understand the P&L impact of these real estate transactions. You want a firm that can handle your space planning needs while working to get the best pricing for the property.



Ronald J. Gantner, CPA, is a partner with Plante Moran CRESA. Reach him at (248) 603-5257 or

Insights Real Estate is brought to you by Plante Moran CRESA

In multi-jurisdictional litigation, a client faces multiple lawsuits in more than one jurisdiction, asserting substantially similar claims arising from a common alleged event, transaction or practice.

“You have litigation going on in several jurisdictions raising the same set of issues, which can lead to duplication of expenses and the risk of inconsistent verdicts; defendants must manage that risk,” says Fredrick S. Levin, a member at Dykema Gossett PLLC.

Smart Business spoke with Levin about strategies one can employ to manage multi-jurisdictional litigation.

Why does multi-jurisdictional litigation need to be handled differently from routine litigation?


Multi-jurisdictional litigation needs to be treated specially because of the greater potential exposure. Take, for instance, a dispute over a small fee. Using a traditional cost-benefit analysis, it may seem to make sense to let your internal claims department handle it, or to employ the firm regularly retained for routine, lower-dollar cases.

However, ‘routine’ treatment may not be best. For a single, routine case, it may not make sense to spend the money to bring a motion to dismiss or take significant discovery. It may be less expensive to have a short trial. But, if the case goes to trial and the result is an adverse judgment, that judgment might be used against you in similar cases being heard across the country. The issues decided adversely could provide the seeds for a class action on a state or nationwide basis. If a claim challenges an allegedly common practice or has been or may be raised in more than one jurisdiction, there are a number of techniques for managing multi-jurisdictional litigation.

How can defense counsel work effectively across jurisdictions?


When facing multi-jurisdictional litigation, it is essential to create a defense that is consistently applied across jurisdictions. There should be a common approach to marshaling the facts, documents and other evidence, analyzing the legal theories and determining the most appropriate defense, and assuring that the strategy can be successfully applied across jurisdictions.

For efficiency and consistency, there is great value in appointing a lead firm to implement the overall strategy. In selecting a lead firm, look not only for substantive expertise but also experience managing multi-jurisdictional litigation, including experience managing other lawyers and law firms nationwide.

Lead counsel may also need to hire local counsel. Select local counsel based on:

  • Experience participating in coordinated, nationwide efforts;

  • Knowledge of the judge and local custom and procedures; and

  • A working relationship with opposing counsel, if possible.

What are some strategies for defending against multi-jurisdictional litigation?


The key to an effective defense is an early and thorough diagnosis of the problem. Is there potential merit to your adversary’s claim? Are the facts or practices easily explained and defended? If not, what is the best means for resolving the claims efficiently? Is the problem multiplicity of suits such that the cost of litigation poses a greater threat than the claims? Does such multiplicity impede a global settlement? What is the best forum for litigating, trying or resolving the claims? Is there an opportunity to consolidate all suits in one forum? The answers to these questions will drive the strategy for extricating your business from the problem.

For example, if your adversary’s claims are legally deficient, a motion to dismiss may be appropriate. Lead counsel will want to examine the law and a host of other factors for each of the pending cases and then push forward in the jurisdiction where you are most likely to prevail. The victory in that jurisdiction can then be presented in other jurisdictions.

If the problem is multiplicity of suits, various techniques can be used to obtain some or all of the advantages of single proceeding. For example, if several cases are pending in the federal court system, you can apply to the Judicial Panel on Multidistrict Litigation for an order consolidating the cases into a single court for pre-trial purposes. Some states have similar procedures for consolidating into one court multiple cases pending in different counties within a single state. In some rare situations, if the paramount objective is eliminating multiplicity of suits or achieving a global settlement, you may consider consenting to class action treatment, which, if allowed, will resolve in one proceeding all — or nearly all — similar cases.

Even without formal consolidation:

  • The involved courts can enter orders: (a) setting similar schedules for conducting discovery and motion practice; (b) requiring the use of a centralized document ‘library,’ so that evidence need not be produced more than once; (c) allowing depositions taken in one proceeding to be used in others, so you and your colleagues do not have to be deposed more than once; (d) imposing uniform written discovery forms; and/or (e) limiting the scope of discovery. Courts may also appoint a common ‘Special Master’ to hear and resolve discovery disputes so that the same rules apply across the board. Usually, such coordination will require motions to the involved courts. However, it may be possible to obtain agreement from opposing counsel; although litigation is adversarial, it need not be nonsensical.

  • In a multi-jurisdictional case, there will often be others in the same line of business who are being challenged for the same or a similar practice. Your lead firm can coordinate with its counterparts using a defense steering group.

  • Your lead firm can host a secure, password protected ‘extranet’ to facilitate communication among you, your lead firm and your local counsel. The extranet site can be used to host pleadings, depositions and discovery materials.

  • Your lead firm can (and should) help you to manage the selection of expert witnesses. To reduce expenses, these experts can be made available across jurisdictions.

Fredrick S. Levin is a member at Dykema Gossett PLLC. Reach him at (313) 568-5372 or

Insights Legal Affairs is brought to you by Dykema Gossett PLLC

Many employers are beginning to cope with the realities of the Patient Protection and Affordable Care Act as its mandates, confirmed as constitutional by the Supreme Court, begin to take effect. Still, many questions exist, as some of the law’s major provisions have yet to apply.

“Complying with the new regulations might be frustrating and confusing for the first few years and employers will have to rely on their trusted advisers and insurance carriers for assistance and guidance,” says Paul Baranowski, Director of Account Management at Benefitdecisions, Inc.

Smart Business spoke with Baranowski about the impending reforms and the effects they will have on your employees, their benefits and your business.

What are the key concerns employers will face regarding health care reform?

The immediate concerns for most employers are the mandates that will go into effect with this next benefits renewal cycle. The primary mandates include women’s health preventive care amendments, uniform summary of benefits and coverage statements, W-2 reporting requirements and a reduction in the maximum amount an employee can put into his or her health flexible savings account (FSA).

Regarding the women’s amendment, the mandates require that plans cover 100 percent of expanded services, including preventive screenings for HPV, sexually transmitted infections, HIV and gestational diabetes. Additionally, counseling for these services will be covered. Finally, commonly used contraceptive methods will be covered, as well. Some services related to these categories have been a part of plans for some time but are now covered at 100 percent. By expanding the definition of covered services, the act will increase costs to insurance carriers in the short term, which will then be passed on to employers as premium increases.

The Uniform Summary of Benefits and Coverage is required for group plans with open enrollment periods after Sept. 23, 2012. This is a new, separate benefit coverage document that attempts to explain coverage in a standardized format. It is intended to make plan comparisons easier and to illustrate what an employee’s costs under the plan will be. However, due to design and content restrictions, employees may get confused and potentially misunderstand what their own expenses will be for their health care services. As a consequence, employers will have to be more thorough, cautious and deliberate in their open enrollment meetings and education to employees. Most employers are fully insured, so their insurance carriers will produce the Uniform Summary document. Employers that are self-funded, however, will be required to assemble these themselves. Some claims administrators will charge fees to produce the summary on behalf of a self-funded employer.

The mandate that requires employers issuing 250 or more annual W-2s to include the annual value of health coverage on the W-2 is pretty straightforward and most, if not all, employers are ready to comply for W-2s issued in January 2013 for the 2012 tax year.

Regarding health FSAs, the maximum amount an employee can contribute is being capped at $2,500. Previously, there was no stated limit to these tax-favored plans. Not many employees currently contribute more than $2,500, so this new provision primarily affects higher paid employees.

What provisions of the act will employers need to deal with in 2014?

2014 is the year that many of the big changes required by the reform act will take place. The state insurance exchanges, where smaller firms and individuals can purchase medical coverage, will be in place in 2014. Also, the requirement that employers ‘pay or play’ will take effect. This means that employers with 50 or more full-time employees are required to provide coverage that meets the ‘affordability’ and ‘coverage’ rules or face penalties. However, companies with fewer than 50 employees will not face these penalties. Employees will also face a tax penalty if they do not purchase required coverage.

Assessing the impact, determining the best strategy to navigate through these reform changes and, at the same time, maximizing an employer’s benefit spend can be very  complex. Determining the exposure and risk depends on an employer’s size, industry, location, the mix of part-time employees, the company’s core values and other factors. The law will have a greater impact on employers in certain industries (e.g. retail, hospitality) in which the number of hours that employees work changes frequently. To avoid penalties, many employers in these industries will likely need to offer some form of health benefits to employees who didn’t have them previously. Because there is no universal answer as to what an employer should do, employers should partner with trusted advisers to help them strategize through this process.

Are there parts of the legislation that can ease an employer’s pain?

Yes, some new regulations are being released that give temporary relief, particularly for companies facing the largest penalties for not offering ‘adequate and affordable’ coverage. For example, recent notice was given that allows employers to take up to 13 months to offer coverage to employees who do not consistently work an average of 30 hours a week. Previously, the legislation was interpreted to mean that coverage had to be offered to these employees in 2014.  For companies that have a large variable-hour work force, this notice has delayed millions of dollars in potential costs.

How might reform play out in the long term?

Regardless of the November election outcome, we expect that the major features of this legislation will remain, albeit with delays and changes. Employers can best prepare by relying more heavily on consultants and advisers to handle the significant changes over the next few years.

Paul Baranowski is Director of Account Management at Benefitdecisions, Inc. Reach him at or (312) 376-0436.

Insights Employee Benefits is brought to you by Benefitdecisions, Inc.

Human resources departments provide two kinds of services: administrative and strategic. Russ Elliot, senior vice president, human resources director at Bridge Bank, says initially, it’s critical to develop effectiveness and efficiencies on technical aspects of human resources. The next step is to develop an understanding of the core business and use your combined knowledge of HR technical competencies, the business and its employees to influence the business direction, its goals and ability to perform.

“The key initially is listening to understand that each area of an organization is slightly different, requiring an unique set of resources and support,” Elliot says.

It’s important to understand the culture and subcultures, the direction the business leaders want to go in and the vision of the CEO so that the HR employee can assist in the journey to get to that vision.

“It’s a lot of listening at all levels, one-on-one with employees from across the organization, and taking all of that in to really understand the patterns,” he says.

Smart Business spoke with Elliot about developing your HR department to have the greatest impact on your company.

What makes HR effective?

It’s a complex role because you have to pay attention to the company’s needs and goals while ensuring employees’ rights and needs are met. The department’s responsibilities vary from benefits and compensation to training and organizational effectiveness.

HR is most effective when run by a skilled and well-rounded staff with a reputation of being trusted with important confidential information. An effective HR department helps the company culture grow with the business and becomes the path to honest and valuable feedback from the employees to the leaders of the business. HR directors need to understand the whole business and deliver approaches on attraction and retention to meet business needs. Finally, an effective HR department must look ahead. With knowledge of the whole business, it can use that to contribute to the growth and strategic direction of the entire company.

What are good sources for finding qualified candidates?

Employee referrals are often the best source because employees understand the demands and culture of the organization to know good candidates. It’s a wise recruiting approach to have employees network with industry peers, so if there is an opening they can find a good fit. There also are posting resources such as the company website, LinkedIn, CareerBuilder and Craigslist. The key is to identify the best resource for each job because IT candidates will likely not be looking at the same websites as sales employees. Also, college recruiting is important for entry-level professional positions. Regular presence on college campuses helps to develop the company reputation.

How can human resources become a strategic business partner?

Only after HR has shown it can handle, with little or no issues, the administrative side can it begin to influence the strategic side of the business. An HR professional must first develop consistent trust and confidence with the leadership over time. Then, HR professionals can work with executives on the business direction and performance expectations and actively contribute to deciding what tactics are required for managing talent to achieve those goals. They also must offer C-level executives different strategic solutions. HR has a unique perspective of the entire organization and best offers ideas involving all departments and divisions. Becoming a strategic business partner requires a high level of competency on the HR issues and a strong understanding of the business issues.

What are the keys to an effective and efficient business?

It’s critical for organizations to understand how they’re different from other businesses delivering similar products. In other words, organizations need to know and utilize their unique culture to maintain a competitive advantage. Other critical aspects of organizational effectiveness that HR can impact are:

  • Hiring employees who thrive in that culture.

  • Ensuring there are common systems that provide honest and valuable feedback to all levels of the organization.

  • Creating methods of engaging employees to use their best talents.

  • Ensuring employees understand the company goals with regular updates and how the employees can affect those goals.

  • Providing an environment of continuous improvement, collaboration and teamwork.

For service businesses, it is important to ensure every employee understands the importance of being customer centric.

What can HR do to assist companies in becoming more innovative and leading edge?

HR needs to partner with leadership on innovative programs that could include:

  • Leadership development programs  combining theory and practice with assignments.

  • Finding opportunities to give visibility to CEOs from the employees’ perspective, such as a monthly lunch with small groups.

  • Culture and internal customer service surveys that regularly measure effectiveness and progress.

  • Cross development and continuous development teams that solve real problems in effectiveness and efficiency.

  • Mentor programs.

  • New hire onboarding that provides new hires with a clear picture of company culture, history and goals of the organization.

Cultural surveys help depict the work environment. Ask employees a series of standard questions, repeated every two years, to see what has improved and what hasn’t. When employees rate something low on a survey,  work to understand the meaning behind the words. Pull a group together to understand why it rated low and then you’re able to tackle the real issues and make an improvement in the culture.

Russ Elliot is senior vice president, human resources director at Bridge Bank. Reach him at or through LinkedIn.

Insights Banking & Finance is brought to you by Bridge Bank

If you are a business owner, key manager or employee of a company going through an organizational transition, such as a merger or leadership change, it is likely you will experience performance disruption caused by confusing messages, speculation or lack of information. And you are not alone.

Often the planning for these important events happens behind closed doors with only the owners and advisers, leaving everyone else to speculate about the future.

Ricci M. Victorio, CSP, CPCC, managing partner for Mosaic Family Business Center, says business owners can avoid these challenges by being more transparent about upcoming changes and engaging everyone in the process.

“The key is communication, communication, communication. It’s important to identify what you can control and learn how to be flexible with all the rest. When you’re getting ready for a transition or succession, you might feel like you’re surfing a tidal wave. There’s an art to keeping your balance in an ever-changing world,” she says.

Smart Business spoke with Victorio about how to prepare yourself and your company for major business transitions.

What are the most common stumbling blocks that occur when a company is heading for change?


The most common stumbling blocks typically center on communication. Today’s older generation grew up learning to keep financial affairs close to the vest. So sometimes even a spouse doesn’t get involved in the planning until asked to sign papers.

Other times, people don’t feel comfortable sharing their ideas and concerns during shareholder meetings because they’re afraid of disrupting the artificial harmony that’s been established. They may have private conversations outside of the boardroom, but during meetings there’s often a fear of disrupting the delicate balance.

Further, business owners involved in a transition can be so overwhelmed by either the fear of confrontation or the lack of planning, the project begins to loom large and they’re stopped in their tracks. They feel as if there’s no way they can get through it; it becomes so daunting they often just hope it goes away.

How can these stumbling blocks be avoided?


Instead of keeping all conversations behind closed doors, when appropriate include key players such as family members, managers and those who will be most involved in the strategic design of the transition plan before you start actually planning. In these conversations, ask the group, ‘If we could do anything without worry of failure or confrontation, what would be best for our family and company?’ At this stage, there should be no pressure of commitment; it’s just brainstorming and idea building.

Engaging a succession coach can help facilitate dialogues that are creative, innovative and energizing, and potentially serve as the foundation of solutions to what might seem like an impossible endeavor.

Once you have a vision, you can develop an implementation plan. Break it down into a timetable and get key players involved to determine who spearheads specific initiatives and what the outcomes should be. Document the vision and itemize each step to be executed on a schedule for all involved.

Owners and other decision makers in a business likely won’t find it easy to facilitate these discussions, so consider using an experienced adviser to guide and focus the conversations and break the task into manageable segments. It can be difficult and even intimidating for groups to internally identify and discuss their own problems, but it’s helpful to have someone from the outside keep discussions open, comfortable and inclusive.

It’s also important to reach out to the overall organization, including employees, clients, customers, franchisers and vendors to communicate the vision of the plan — not the intricacies, but the expectation of the fulfillment of the plan and how it affects each party. This will help clarify what each can expect and what their roles will be.

What are the red flags that tell you a transition is going badly or not as planned?


Confusion or dysfunction within the management team is one of a few signs of difficulty that typically arise during a transition. Often it’s revealed that management is unsure where the company is going or what the plan is. Additionally, departments that are not cooperating well with each other — also called ‘silos’ — can typify dysfunction.

If management isn’t confident that the transition will include them, their productivity will slow and they’ll likely start looking around for something more stable and secure as a backup plan. A high level of turnover in management might prompt others to start abandoning ship.

When is a good time to seek outside counsel?


The best time is when you know or others are imploring you to consider that it’s time to begin succession planning. For any business owner between the ages of 45 and 75, if you have a business that is worth perpetuating, you need a long-term strategic succession plan and a short-term contingency plan to protect it. It’s worth bringing in an adviser who can help you with both kinds of plans. You’ve got to think beyond your own needs because your business has so many people tied to it who count on its success.

All of the planning responsibility doesn’t have to be on you. You can pull people into the transition process and get them enrolled so you’re no longer alone in the endeavor. If or when you do step aside, you can do so knowing you have people there to maintain and even grow the business. The hearts of those involved in the company might be broken when a founder passes or moves on, but that creation, built lovingly, does not have to crumble.

Ricci M. Victorio, CSP, CPCC, is managing partner for Mosaic Family Business Center. Reach her at (415) 788-1952 or

Insights Wealth Management & Family Business Consulting is brought to you by Mosaic Financial Partners

There are several methods of design and construction that can be used on a project. Each determines who produces the designs, who performs the construction and who is liable in the event of litigation.

The type of project, whether public or private, its level of technical sophistication and the time frame in which it needs to be finished determine the preferred method.

Smart Business spoke with T.G. Davallou, partner and head of Alfa Tech’s San Francisco office, about the different methods, what they entail and which is better for a given situation.

What are the differences among the methods of design and construction?

Traditional design-bid-build features a consultant who will design the mechanical, electrical and plumbing (MEP) systems for the building, the construction of which is put out to bid. The contractor with the winning bid then performs the construction.

Design-build means the MEP consultant writes the performance specifications, which provide the design criteria for the project, then hires a design-build contractor who finishes the design based on the specifications and performs the construction.

Design-assist entails a MEP consultant who realizes the design and draws it up to 50 percent completion before bringing the contractor on board. The contractor becomes the owner of the documents and completes the designs. The MEP consultant in this arrangement remains the engineer of record.

Are each of these practical in different situations, or should one always be chosen over the other?

The most sophisticated or innovative projects are either full design-bid-build or design-assist through integrated project delivery. Even though design-build contractors are getting smarter and have greater resources than before, they can’t compete on the engineering side with traditional consulting. If you look at simple tenant improvements that don’t have any design elements, design-build makes sense. But if it’s an innovative design or a complex project, like one with renewable energy or façade natural ventilation, these resources need a true consultant and not just a contractor, so design-assist makes better sense.

Business owners are getting smarter and are looking at overall life cycle costs of buildings instead of just the initial costs of the building’s design. They consider initial construction, utility, maintenance and replacement costs over the life of the building, which means design-bid-build or design-assist is more appropriate.

The schedule also has a big impact. There’s no way traditional design-bid-build would do a proper job with no issues on a high-rise building that needs tenant improvements in two months. Design-build would be better in this case. Scheduling has a large impact on which method should be used.

Who should a company appoint to serve as a liaison between the contractor and itself to stay on top of the process?

Typically an owner will recruit a project manager or construction manager first if he or she is not sophisticated enough to oversee the project. That person is the conduit between the business owner, the architects/engineers and the contractors. The construction manager is a third party who manages the whole process for the owner and has input on who is hired, such as the architect and engineers. Scheduling and costs also come into their recommendations to the owner.

Which method is used more often today?

Design-bid-build was the traditional method from the 1970s until the mid-1980s. Contractors weren’t very sophisticated or knowledgeable enough to handle entire projects from designing the specifications to completing the construction, so they relied on architects and consultants for design and to be liable for any issues. Beginning in the mid-1980s, the method shifted because numerous legal claims came out against contractors constructing public properties, such as state/county hospitals, institutional facilities, educational facilities and libraries, after the projects ended.

The problem is that public jobs are awarded to low bidders, as state law dictates. This often resulted in changes to the design or materials used during construction so the contractor could keep the project on budget. The owner of the building didn’t want to spend money on litigation, which is why the design-build concept arose because it reduced or eliminated change orders. The contractor in this method is the owner, designer and builder so legal discrepancies are reduced because there are fewer change orders.

Design-build contractors, it was later discovered, were not really giving top quality because the interest from public entities is low initial costs, so contractors were cutting corners, which led to systems not performing as they should. Thus, design-build declined as the preferred method of construction.

Now ‘big campus’ designers have found other ways to get a better design. With so much interest in Leadership in Energy and Environmental Design, projects are getting more sophisticated, so property owners are looking at how to get the most efficient systems without claims or lawsuits against the contractor at the end. This led to the establishment of the design-assist method, where a consultant can introduce the most innovative design and then become a partner with the contractor. The consultant brings the design up to 50 percent, meaning all the design elements are there, and it’s just a matter of coordination to make sure ductwork fits, etc. The contractor can’t change the specifications by, say, undersizing the ductwork, because he’s the engineer of record and the designer stays involved though the project’s completion.

When does litigation become a greater concern?

During a construction project, all parties are legally liable. Litigation issues happen mostly with public contracts. For commercial jobs the construction manager has pre-qualified and negotiated with a selected contractor. However, with public projects, the low bidder gets the job, which usually results in a lot of  change orders that can lead to litigation.

T.G. Davallou is partner and head of Alfa Tech’s San Francisco office. Reach him at (415) 403-3092 or

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Intellectual property (IP) is an area regularly overlooked; however, this is a pivotal area of law, especially for entrepreneurs and mid-size businesses.

“We often get calls once a client has already landed in some sort of IP trouble, but many of these issues could have been averted through some simple diligence early on,” says Salil Bali, an Intellectual Property Litigator at Stradling Yocca Carlson & Rauth.

Bali says many people are overwhelmed by the topic and might think it to be in the purview of larger companies.

“Surprisingly, for small businesses, this is an area we have seen affect them the most, and often this impact is significant,” he says.

Smart Business spoke with Bali about the importance of protecting your intellectual property, regardless of the size of your company.

What types of businesses are most at risk when it comes to IP?

Most people, when they think about IP, assume it pertains just to tech-based innovations. However, at some level, every company has IP rights to protect. In today’s world, fewer companies have tangible assets such as equipment, manufacturing facilities or real estate. Instead, the vast majority of companies today have most of their assets based on IP rights. This includes the ‘mom-and-pop’ yoga studio that needs to protect its name, all the way to the biotech company that has inventions to protect. No matter what type or size company you have, there are aspects of IP law that touch your company and those rights need to be protected.

What are some common intellectual property issues entrepreneurs should recognize?

The four main areas of IP affecting business today are trademarks, copyrights, patents and trade secrets. Companies need to be aware of all four areas and how to protect themselves with regard to each.

Trademark law deals with the protection of a word, name, symbol or device used to indicate the source of the goods or services. The purpose is to distinguish from other similar goods or services and prevent public confusion. When determining your brand or company name, you should perform trademark clearance to ensure you don’t infringe on pre-existing marks and that your desired mark is strong and protectable. Discussing such issues with a trademark attorney early on can minimize exposure and create IP assets for a company right out of the gate.

Copyright law deals with the protection and permissible uses of original works of authorship, including photographs, videos and written documents. These issues often arise with hastily launched websites, when companies start loading copyrighted images or text without first getting permission or the appropriate licenses. This could lead to cease-and-desist notices and claims for damages. Similar issues can arise with the use of personal likenesses, especially those of celebrities.

Patent law grants an inventor the right to exclude others from making, using or selling his or her invention. If you have an innovative idea, it’s important to talk with an attorney to determine what is patentable and whether or not your idea infringes on other patents. Doing this early diligence can protect your idea from being abandoned to the public domain or help you sidestep and minimize potential litigation exposure.

As far as trade secrets, companies need to be mindful about how they manage information to make sure secrets stay protected. Early-stage companies often aren’t careful about employment contracts and what information is being divulged to whom. This lack of discipline can adversely affect the company’s ability to claim trade secret protection. If you share sensitive information without outlining the recipient’s duties to hold it in confidence, you can lose the ability to protect your trade secrets.

What are the potential consequences of ignoring intellectual property issues?

The risk of not protecting your mark is that someone else assumes a similar name and thus limits or destroys the value of your brand. Though there may still be recourse, it becomes an uphill battle. An infringement lawsuit by a trademark holder for your use of a confusingly similar mark could cost your company its brand and/or logo, the goodwill associated with them and subject you to potential damages.

The risk with copyright infringement is financial penalties. Unlike patent and trademark laws, there are express damages written into the copyright statute that can be considerable.

The consequence for infringing on a patent is litigation, which may result in an injunction preventing further sales or use of the infringing product. Damages and costs in such cases can quickly add up. Conversely, if you fail to seek patent protection for your innovation, you could permanently lose your ability to protect your invention. When you have a new idea, there are key timelines you should be aware of that can be impacted by public disclosure and sale. You must act quickly to secure your idea or you could lose your rights, even if your invention is otherwise patentable.

With trade secrets, it’s simple: If you don’t protect them, you lose them. As soon as a secret enters the public domain, it’s gone.

How could these problems be avoided?

Often, talking with someone who is knowledgeable can help you understand how to protect yourself from infringement. The costs associated with protecting yourself are proportionately low and can have a big impact on your company’s valuation when you’re looking for funding. The stronger your IP portfolio is, the stronger your company is. However, if these issues are ignored, it can become a costly distraction for you and your company. Taking steps early on to make sure your IP house is in order can pay dividends.

Salil Bali is an Intellectual Property Litigator at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4278 or

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China’s economy is growing at a fast pace and its government has worked to attract foreign companies, which is opening opportunities for them to get involved in the country’s market.

“There is a demand and need by so many Chinese companies that have capital and want to expand their business but don’t have the technology a lot of U.S. companies have,” says Julia Zhu, senior counsel in Dykema Gossett LLP’s corporate finance group.

There are lots of matching opportunities for U.S. companies that have great technology but don’t have a market or the capital to expand their business, which she says creates a good environment for U.S. companies.

Smart Business spoke with Zhu about how to enter the Chinese market.

What do business leaders need to know about doing business in and with China?

First, it’s about the business structure you want to set up. Choosing a physical presence in the country or a procurement strategy depends on whether the company wants to produce goods or services in China for the domestic market. If the foreign company’s focus is on exporting, it might consider using China as a manufacturing base for finished goods or do production outsourcing, which means a straightforward procurement strategy. This can be good for foreign businesses new to Chinese markets while keeping the option open to setting up local production later.

What are some options in regard to business strategy and structure?

If the foreign business wants to set up a physical presence in China, two of the most popular choices are wholly foreign-owned enterprises and joint ventures.

Having a wholly foreign-owned enterprise means you have the sole responsibility for profits and losses. It takes less time to establish because the foreign company doesn’t need to find a local partner or enter into a joint venture contract. Also, this structure gives the foreign owner greater control over company operations, training and recruitment of employees, and better protection of intellectual properties.

With joint ventures, there are two types — an equity joint venture is typically used for long-term projects, and a cooperative joint venture is better suited for short-term projects.

Generally, joint ventures are preferred when a foreign company wants to enter industries for which the Chinese government has restrictions on investment. The government has a list of all the industries in which companies can invest only through joint venture structure.

A joint venture can also be preferred when a company needs a partner to share its capital burden. Chinese companies can have certain technological or distribution advantages, making a joint venture an attractive choice. Successful joint ventures are imbued with clear rules and clear strategy between partners.

There are some disadvantages, such as statutory features where Chinese law requires unanimous approval from a company’s board of directors for major issues, including capital changes and mergers and acquisitions.

How should location factor into a company’s strategy?

Location can be very critical to the success of foreign investors. They need to look at the nature of their business, as well as incentives offered by the local government, their logistical needs, import and export requirements, and government inspections and restrictions.

The theme now is to go west. The Chinese government has implemented tax policies as a strategy to encourage investors to go west. In some cases, qualified foreign investors can have tax holidays.

When people talk about investing in China, they often talk about first-tier cities, such as Beijing, Shanghai and Guangzhou. However, investors should consider second-tier cities such as Nanjing, Dalian, Wuhan and Chong-qing that have cheaper labor costs, greater government support and less competition.

What protections exist for intellectual property?

Intellectual property (IP) is a big concern for foreign investors. The government has taken measures to improve the IP environment. Although China’s IP environment is risky, many foreign businesses have found a way to work in it. The key is to take a proactive, strategic approach rather than a purely legal approach. Businesses should engage the legal system while reducing dependence on it. While traditional legal methods of protecting IP may not always be effective, copyrights, trademarks and patents should still be registered as an important starting point.

Some companies avoid manufacturing innovative, high-margin products in China and instead focus on mature commodity products with lower margins. Others might develop products in countries with better IP protection and bring them to China to guard certain proprietary details. You can also protect yourself with thorough investigation. Watch markets for products like yours, educate suppliers and employees regarding enforcement, and execute agreements to retain key employees.

How else does the Chinese legal system affect business?

Legal compliance in China is different than in the U.S., where one has the narrow task of following existing laws. In China, legal compliance should not be viewed as a standalone legal requirement removed from corporate activities and results, but as a key driver of project completion and investment returns. For business planning, it’s helpful to divide those compliance issues into several categories, such as actions that cause a project not to be approved; internal operating issues, such as those pertaining to labor; external laws, such as bribery and breach of contract; and investment exit issues. By taking a broad view of compliance and conceptualizing compliance issues as a vital part of business performance, it is possible to formulate a compliance strategy that substantially increases the likelihood of success of foreign business.

Julia Zhu is senior counsel in the corporate finance group at Dykema Gossett LLP. Reach her at (213) 457-1830 or

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For business owners and entrepreneurs, wealth management and planning is not a project, it is a process.

“It’s something you never complete; it’s ongoing in nature,” says J. Harold Williams, CPA/PFS, CFP, president and CEO, Linscomb & Williams, an affiliate of Cadence Bank.

He says that too many people approach wealth management erroneously, thinking, “I’ll get a financial plan done and check that off my list.” However, financial planning is much like designing a blueprint for a house, building it and maintaining it — a process that never ends.

Smart Business spoke with Williams about how to lay the foundation of your financial future while transitioning out of business ownership.

What actions are important for entrepreneurs before year-end in light of the expiring tax provisions such as the $5 million gift and estate tax exemption?

There is a unique condition in 2012 where you can gift, during your lifetime, tax free, just over $5 million. Business owners generally have some complexity to their estate planning, in that ownership of their business is their predominate asset and it is illiquid, which makes it difficult for estate planning purposes.

This special provision in 2012 allows you to transfer a significant portion of your wealth during your lifetime in a way that the future growth on the amount that you gift is not going to be counted in your estate.

For example, if you have a successful family business worth $20 million and you expect that its value will grow, it is possible to take a partial interest in that business this year, as much as $10 million of the value, and gift it into a trust for your heirs. If you gift half of it in 2012 and the business value doubles, the doubling of value in the half that you gave away would not be counted as part of your estate when you die.

There have been a lot of discussions about what the estate tax rate will be in the future. Right now, the estate tax rate is 35 percent, so if you can move appreciation to the next generation and not have it taxed, the result could be a savings of 50 percent of the amount that is transferred. That is a powerful planning concept.

If business owners are considering selling their business, how do they gauge financial security to be sure the income they had previously been earning is adequately replaced?

It is common for business owners who are about to sell, or have just sold their business and are walking away from an attractive paycheck, to begin wondering how they will replace that paycheck.

Before you sell the business, do some planning to confirm that you can sustain the lifestyle you have enjoyed while relying upon a more traditional portfolio of investments. When the business is liquefied, you pay some tax and need to invest the money.

It is likely not possible to get the same returns on an investment portfolio that you got from the business, so it is important to run the numbers and recruit someone who can help you determine the various contingencies. Doing this before you sell the business will allow you to engineer some things into the structure of the selling contract to enhance your ability to sustain your lifestyle.

Are Family Limited Partnerships (FLP) still being used as an estate planning tool, and what is the IRS’s attitude about this?

They are being used, and most cutting-edge estate planning attorneys recommend them as a viable vehicle. FLPs are not particularly loved by the IRS, but they are effective if done right. The main thing is to stay involved with your FLP; don’t just begin one, make a file and put the file away. The IRS could potentially scrutinize an FLP because it gives you a discount on the business interest connected to the estate or gift tax return. It will look to see if this has substance and form.

It is important to be diligent about keeping your records and following proper procedures when creating an FLP. When FLPs are not generating the estate tax savings that are desired, it’s often because the originator paid for a lot of documents to be created and didn’t live with them and make them part of the ongoing planning.

To do it properly means careful coordination with the lawyer who will draft the documents, the accountant who will advise you on tax law and other tax matters, and the wealth manager or planner who helps design the plan on the front end and maintains it on an ongoing basis.

Considering all the new 401(k) plan disclosure rules being issued on plan fees and expenses, how can a business owner avoid the risk of personal liability and make sure they don’t unintentionally violate these requirements?

For business owners, this is a bit of a minefield. In some cases, you might not realize you’re walking through it until it blows up. Generally, regulators look for a good-faith climate of compliance. The important thing is to document everything appropriately and leave a clear trail that shows you are trying to be in compliance.

The government often has a more favorable attitude if it can see you are trying to comply. It doesn’t want to see neglect, so intent goes a long way. It’s an area where, depending on the size of your 401(k) plan, you may need legal counsel to advise you on those policies and procedures.

J. Harold Williams, CPA/PFS, CFP, is president and CEO, Linscomb & Williams, an affiliate of Cadence Bank. Reach him at (713) 840-1000 or

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