Arthur G. Sharp

Monday, 25 June 2007 20:00

The ‘new’ VoIP

In 2003, sales of traditional phone equipment amounted to $2.8 billion. They have dropped precipitously since. In fact, experts predict only $750 million in sales for traditional phone equipment in 2008. One reason for the dramatic drop is that more and more businesses are changing over to VoIP (Voice over Internet Protocol). VoIP technology has improved, costs of VoIP solutions have dropped, and some of the myths and misperceptions about VoIP have been debunked.

The evolution of VoIP technology is leading to increased productivity and cost savings for businesses of all sizes, especially smaller ones, and improving their competitive positions.

Smart Business spoke with Jeff Beller of Skoda, Minotti & Co. to learn more about the trend toward VoIP among businesses.

How do businesses benefit from VoIP systems?

The benefits are both tangible and intangible. Some businesses make the switch for the tangible cost savings. This benefit is dependent largely on call volume, and it can be a major motivating factor for a business that makes many phone calls between multiple office locations. Cost savings also come from what is known as Moves, Adds and Changes (MAC). With a traditional system, unless the business has an in-house telecom staff, there is often a cost associated with moving an extension, adding a new employee to the system or making a programming change. A company could see a cost in the $200 range to have a vendor perform a MAC function. With a VoIP system, clients can perform these tasks themselves, eliminating these MAC charges.

There are intangible benefits as well. With VoIP, an organization can be much more flexible. Phones can be moved around in a plug-and-play fashion. No matter where they are, staff members can be present on the system and can work from home or another location just as if they were in the office. In addition, with presence information, VoIP handles calls intelligently, which enhances your ability to serve your customers. For example, when a customer calls in, a VoIP system can ring to the office phone, directly to a cell phone or to the employee’s remote office location. Finally, VoIP enhances employee productivity with features such as Outlook and CRM integration, easy-to-use conference calling, four digit dialing among multiple office locations and other innovative features like the ability to attach a voicemail to an email or a document.

Has the quality of VoIP improved recently?

It has. There have been many misperceptions about VoIP and its viability as a business product, mostly concerning call quality and network reliability. In the past, poor sound quality and dropped calls were real issues, but because manufacturers and carriers have invested so heavily in VoIP research and development, quality and reliability have improved significantly. Another misperception is that all VoIP calls go over the Internet, when in fact they can go over any data network.

Why is VoIP so well suited for smaller businesses?

Traditionally, small businesses are often early adopters of such technological advances and VoIP is no exception. Manufacturers have addressed this by including product features that make VoIP particularly attractive for smaller enterprises. This includes designing new turnkey packages specifically for small businesses. Because these systems use the Session Initiation Protocol (SIP), installation is simplified and the installation timeframe is shortened. Most importantly, the costs of VoIP have dropped, which makes it more affordable for small business owners. It is important to note, however, that VoIP can be viable for businesses of all sizes.

What factors should influence a business owner’s decision to go with VoIP?

Business owners should consider timing, cost and technology. Timing comes into play as traditional telephone systems need to be replaced as they become outdated or difficult to maintain. Business owners should consider switching to VoIP when their traditional phone systems need to be replaced. From a technology standpoint, companies in the telephone industry are dedicating their R and D almost exclusively to VoIP. This means that if you are to purchase a traditional phone system, it will most likely remain technologically stagnant as your business continues to evolve. The cost factor, which was once a major concern, no longer makes the switch to VoIP unrealistic for a small business.

There are three basic VoIP system types to choose from: hosted, IP-PBX and hybrid. Finding the right one for you depends on several factors. A hybrid system can cost less and be easier to drop into an existing network with no need for re-cabling. For these reasons, hybrid systems are out-selling pure IP-PBX systems three to one.

The change to VoIP does not have to take place all at once. Instead of a complete replacement, a business with multiple locations can introduce VoIP in parallel with existing traditional services on a site-by-site basis. This can minimize any business disruptions and spread out the costs. It can also test the viability of VoIP for a business.

JEFF BELLER is an IT/Telecom Consultant with Skoda, Minotti & Co., a CPA, business and financial advisory firm based in Mayfield Village. Reach him at or (440) 449-6800.

Saturday, 26 May 2007 20:00

Recruiting recruiters

According to a major survey conducted for the American Staffing Association, “companies use recruiting and staffing firms for two principal reasons: flexibility and access to talent.” The Association revealed that “staffing companies nationwide collectively employ an average of 2.9 million workers daily across all industries, providing work force flexibility and access to talent … at competitive wages, benefits and training for millions of temporary, contract and permanent employees each year.”

Talent management, leadership development and skill acquisition means companies need to have the right people doing the right jobs. Smart Business talked with Danell Winsor of Delta Dallas to gain some insight into the due diligence criteria employers can apply when choosing the staffing/recruiting firms that best suit their unique requirements.

What criteria should employers consider when choosing the staffing/recruiting firm that can best suit their unique needs?

One criterion is to choose a firm that specializes in the employer’s industry or which has on staff subject matter experts on the type of positions to be filled. A key issue is what the firm’s services will cost the employer. Inquire about the cost of its services, fill ratios, turnover of its internal staff, benefits to temporary employees and what, if anything, it outsources to third parties. Find out how the recruiter is paid via retainer, contingent fee or team bonuses.

What are some of the questions employers should ask in the due diligence process?

The list includes questions like what the firm’s consultants know about the employer’s business, how many years it has been in business, if it has in-depth knowledge about the geographical area, industry and the people who succeed in it, whether it is a member of national, state and local professional associations, if it adheres to a standardized code of ethics, and if it is up to date on human resource and employment trends and changes. The answers to some of these questions may be available on the search firm’s Web site.

What else can employers do?

Employers should ask for referrals and references of clients the staffing/recruiting firm has worked with and visit the firm’s offices to see its operation, experience its corporate culture, and meet the management, recruiting and service team members who will be assigned to their accounts. They should learn about the search firm’s processes, see what happens when they make requests about their operations, and ask whether the firm reflects employers’ hiring needs in the most accurate and professional manner.

Employers should learn how the search/recruiting firm recruits and retains its work force and how it screens, evaluates and tests its applicant pools. This knowledge will help employers determine the quality of the candidates who will be assigned to their positions, and serve as a benchmark for evaluation of the candidates’ on-the-job performances. Moreover, employers can use the testing as a framework for technical interviews they may conduct later.

Another step is to inquire about the availability of background, criminal, credit and drug tests, and other verifications the staffing and recruiting firm may offer. There are other criteria that employers might not think about, but which are crucial. For example, they should determine precisely how the staffing and recruiting firm identifies candidates for those hard-to-find positions, and ensure that it has extensive and current databases of active and passive candidates.

Two more critical pieces of information include the typical turnaround time between the time an employer makes a request and when it is filled, and how the employer can contact the staffing firm after normal business hours in case of an emergency.

Should employers and search/recruiting personnel work together on any phase of the due diligence process before deciding if they are suitably matched?

Absolutely. The employer will have to spend some time to educate the search/recruiting firm’s consultants to review the specifics of job descriptions, salary expectations, corporate cultures and any other topics related to the search, and to make interview times available for its hiring authorities. It is important that employers provide the staff/recruiting firm’s consultants with candid and timely feedback after their interviews and confirm with them all items of offers made, including salary range and benefits.

The investment of their time and attention will pay off for the employers through the quality of temporary employees and candidates they receive and the accurate matches to their unique needs. Companies can mitigate their risks associated with making hasty and costly hiring mistakes and save thousands of dollars by adding to their core headcounts as the need arises.

DANELL WINSOR, CPC, CTS, is executive vice president with Delta Dallas. Reach her at (972) 788-2300 or

Saturday, 26 May 2007 20:00

Forensic accounting

Forensic accounting is a rapidly growing field of specialization that enables business owners to get firm control over possible financial fraud and mismanagement within their companies — and to deter it before it occurs. In fact, Parade magazine reported recently that forensic accounting is the No. 1 growth area in the United States, and an increasingly necessary area of specialization.

Smart Business spoke with Jeff Matthews, forensic accounting and investigative services director with Grant Thornton LLP, to learn more about forensic accounting and how it can benefit business owners and managers.

What is a forensic accountant?

A forensic accountant is someone who can combine and apply the better parts of accounting, auditing, and investigative skills in an effort to solve a complex financial dilemma. Some accountants may not possess the advanced levels of skills in all three of those areas.

But more accountants are developing them in response to increased regulatory demands created by Sarbanes-Oxley and other legislation. That doesn’t mean there is more fraud and misconduct today. It just means that more of it is coming to light.

Why would a company retain a forensic accountant?

There are generally two reasons: 1) A company knows they have problems with fraud and/or misconduct; or 2) They don’t know and are at risk of an ambush. A company could decide to be proactive and audit for fraud, stemming from concerns such as watching their copmpetitors suffer public humiliation stemming from incidents. Or, as often is the case, a company may have experienced their own allegations and must develope an action plan. That plan may not necessarily result in legal action.

A company may decide to handle the matter internally by terminating an employee who is found to have committed the indescretion. Further, there may not be an adversarial situation, such as a company that needs assistance calculating a business interruption loss suffered from an act of nature. The latter example suggests that companys of all sizes can benefit from the services of forensic accountants.

How do companies benefit from retaining forensic accountants?

Simply put, forensic accountants save companies time, money and effort based on their services. They are trained to investigate fraud and misconduct in a manner that produces a solid, defensible work product. They are proficient at designing effective anti-fraud controls, which can mitigate the risks of future lawsuits and deter fraud and misconduct. Forensic accountants can help CEOs and CFOs decide how comfortable they are that fraud and misconduct are minimal in their organizations, and help them to proactively deal with them. They can give managers ideas on problematic areas based on their own experience and discuss emerging trends in companies’ particular industries. Also, they can help companies develop systematic procedures to deter financial misconduct problems, and develop, implement and publicize ethics policies that theoretically make their enforcement a companywide effort. Finally, they can testify on companies’ behalves in trials.

Are there steps forensic accountants might recommend that companies can do on their own to prevent fraud and mismanagement?

One is to ‘Own the Tone.’ The tone at the top of the organization plays a crucial role in creating a preventative culture. If top managers uphold ethics and integrity, so will the employees. A second step is for top managers to become involved in the development of anti-fraud controls. Part of this responsibility is to recognize risks attributed to the human element. The controls often rely on individuals, as they are frequently manual. That recognition requires a carefully trained eye for oversight, and explains why top management should be active in the design and development of controls.

Forensic accountants can be valuable in this process. They will share schemes that have previously circumventable controls, which in turn can help companies design better controls to protect themselves against fraud and misconduct.

A third suggestion is that CEOs ask tough questions when discussing fraud and mismanagement with staff and management. For example, a CEO might ask staff members, ‘If you were going to commit fraud or mismanagement against this company, how would you do it?’ The answers to such questions help a company begin to bullet-proof itself against fraud or mismanagement.

Yet another step is to implement a written and accessible policy that specifically addresses fraud and misconduct, and communicate it often to all employees. Management has to make sure that every employee knows the company does not tolerate fraud and misconduct and enforces stiff penalties for those chosing to lie, cheat and steal. That public announcement is one of the best deterents.

JEFF MATTHEWS is forensic accounting and investigative services director for Grant Thornton LLP. Reach him at (214) 561-2420 or

Saturday, 26 May 2007 20:00

Haste makes waste

There are times when owners of small businesses (up to $10 million in annual sales or 50 employees) become overextended and lose the ability to closely monitor their companies’ finances. Often, the culprit is simply a lack of time to manage financial data. When this happens, the results can be potentially devastating, especially if they do not act quickly to regain control of their finances. Fortunately, they don’t have to do the job by themselves.

Smart Business spoke with Deborah Herr, of Skoda, Minotti & Co. Small Business Services LLC, about some of the solutions available to help small business owners control their financial issues.

What common financial issues do small business owners face?

Many financial problems result from the growing demands on the time that owners have to commit to their businesses. Additionally, owners may be unable to read balance sheets, understand cash flow management, meet tax deadlines or recognize when they are receiving delinquent payments from customers — or not getting any payments at all.

Tracking finances simply overwhelms business owners at times, especially those who are just starting companies or whose entrepreneurial skills lie elsewhere. When they get too busy, they may lose track of their backlogs, which can have a significant adverse effect on their finances.

Other concerns may include owners who do not track invoices or know which customers are tax-exempt. Or they may employ Excel or similar spreadsheets to keep financial records instead of utilizing more advanced financial software.

Some business owners get so busy they may reconcile their checkbooks only once a year. That really does not tell them anything about their companies’ financial picture and delays the discovery of problems that might have started earlier and continue to worsen.

What signs can indicate an owners’ loss of control over finances?

They include tax notices, high bank fees, increased personal workloads, and exorbitant fees and penalties paid to service providers and suppliers. These fees and penalties might include mounting finance charges for late payments to suppliers or banks, or escalating fees paid to tax preparers for increased levels of services mandated by additional oversight of companies’ financial records.

When small business owners notice these signs, it is time to consider adding staff to help track finances or working with a financial consulting firm for advice and help.

How can financial consulting firms help?

There are several ways, depending on the firm’s level of services. Some financial consultants might only offer data entry. Others might be one-stop firms that provide a wide range of services and personnel, ranging from CPAs to experts in bookkeeping, tax reporting, and accounting software support and training.

For example, the consulting firm’s financial training specialists might be able to provide business owners with assistance in identifying shortcuts to regaining financial control or suggest ways the companies can stop ‘expensing’ everything it purchases.

What criteria define a good financial consulting firm?

One significant criterion is whether the firm specializes in small business services. Financial advice that might resolve Fortune 500 companies’ issues might not work for small businesses — and vice versa.

So small business owners should be looking for consulting firms whose staff members are well trained in managing financial data and the use of software applications appropriate to their company size, or which can provide temporary staff members who can perform the functions required to upgrade cash flow reporting and accounting systems. As an alternative, business owners might look for consultants who can identify people on their own staff with the skill levels to help, and who can provide whatever training that other staff members require.

Another consideration is the level of information technology the consulting firm provides. Some firms can provide remote online data processing services to the point where they can remotely take control of your computer to handle the entry of data.

How do small business owners benefit from partnering with financial consultants?

The short answer is that the consultants save the owners money and time. They help solve cash flow issues, restore accounting/financial books in an orderly fashion, reduce fees and penalties, and even assist to resolve tax authorities’ notices.

More importantly, they can help you get back to applying your entrepreneurial skills to growing your company, which is what you probably intended to do when you started your business.

DEBORAH HERR leads Skoda, Minotti & Co. Small Business Services LLC, based in Mayfield Village. Reach her at (440) 449-6800 or

Wednesday, 25 April 2007 20:00

Beyond crimes

One of the insurance criteria that property owners and lessees often overlook when setting up their businesses is the need for taking precautions to avoid premises liability resulting from the criminal acts of third parties. That omission can affect them adversely.

There may be various reasons for not acquiring the proper liability protection. For example, property owners and lessees may not be sure whose responsibility it is to provide coverage or what part of the premises is or is not covered. Issues like these should be — and can be — resolved before business owners open their doors.

Smart Business spoke with Patricia B. Lehtola of Godwin Pappas Ronquillo LLP to learn more about property owners’ and lessees’ responsibilities for providing premises liability protection against third-party criminal acts, and how they benefit from doing so.

Are landowners under any obligation to protect people from criminal acts committed by third parties while on their premises?

Ordinarily, premise owners have the responsibility to protect people from such criminal acts if they retain the right of control for the safety and security of the premises. Premises owners can, however, relinquish this control to another party, such as an independent security company or a business owner who is renting space and has assumed the right of control according to the lease terms.

Does that protection include warnings to people on the property about the possible harm caused to them by third parties’ criminal acts?

The general rule in legal terms is that premise owners have a duty to use ordinary care to protect invitees from criminal acts perpetrated by third parties if they know or have reason to know that there is a reasonable and foreseeable risk. That simply means proprietors have to take reasonable care that may or may not require actual warnings to protect individuals on their property.

Does the existence of a special relationship between a proprietor and a person on his property establish any liability on his part?

That depends on the person’s status. There are three distinct statuses: trespassers, who have no authority to be on the premises; invitees, who are on the property for their own and the proprietor’s mutual benefit; and licensees, who are on the property merely by permission rather than invitation and usually for their own benefit.

Proprietors owe different duties to each. For trespassers, the proprietor has almost no duty, other than to not hurt them intentionally. For invitees, most often customers of businesses on the premises, the standard is to use reasonable care to maintain the property safely. Proprietors’ duty to licensees is simply to disclose to them concealed or unanticipated dangers, such as an obscure hole in the ground.

What happens if there is a dispute over who retains that right and control?

The parties involved or the court would look to the lease to determine the individual parties’ responsibilities, their policies and procedures regarding who has the right of control for security of the premises, etc. That explains why it is important that the parties to a lease draft it in such a way that the right of control is assigned precisely — especially if any of them do not want that responsibility or associated litigation or court costs.

How can proprietors and business owners protect themselves against premises liability and/or the associated costs of litigation brought on by third-party criminal acts?

One way is to work with attorneys as soon as possible to draft a lease that spells out exactly who is responsible for third-party security. In fact, anyone who is even thinking about starting a business should consult an attorney about premises liability.

But attorneys can do much more. For example, they can help clients access police records regarding criminal activity for the past couple years in the areas in which they want to open their businesses. Depending on what is learned, the attorneys can help clients implement plans to deal with concerns and protect people and property. They can install panic buttons, provide better lighting in parking lots or around elevators in buildings, hire security guards or take other proactive steps.

How does working with attorneys benefit property owners and other parties in respect to premises liability?

They will get insights into what their exact premises liability responsibilities are, receive advice about implementing training programs for managers, and be able to define what are considered reasonable steps to ensure that they have done enough to protect themselves. Of course, they will also have legal help should they face litigation or other legal remedies.

That can save them time and money in the long run, which justifies working with attorneys as early as possible.

PATRICIA B. LEHTOLA is a partner with Godwin Pappas Ronquillo LLP in its Dallas office. Reach her at (214) 939-4858 or

Wednesday, 25 April 2007 20:00

Not by chance

Building, preserving and expanding sizeable financial portfolios is something that educated investors should not leave to chance. Rather, they should rely on qualified wealth management advisers to guide them through the process — and choosing the right wealth management firm should not be left to chance either.

Ideally, the wealth management advisers selected should be on the same side of the table as their clients, and should be selected with a great deal of due diligence. After all, choosing the right financial course is one of the most crucial decisions investors can make during their lifetimes.

Smart Business talked with Christopher Bart, a managing director and principal with Aurum Wealth Management Group, about the significance to an investor of selecting a wealth management firm and how to formulate a specific investment policy statement that is a roadmap to achieving a client’s financial aspirations.

Who should be concerned with wealth management?

Theoretically, everyone who has assets should be concerned with protecting and growing them in a prudent manner. There comes a time, though, when portfolios outgrow their owner’s abilities to manage them by themselves. So individuals who have a complex or unique situation — for instance, someone who has a concentrated stock position, has sold a business or has experienced another life-changing event — should be particularly concerned with wealth management in general. Individuals who are in any of those positions should consider working with a wealth management adviser rather than a professional money manager.

How does a wealth management adviser differ from a professional money manager?

Wealth management advisers oversee a client’s complete portfolio of investable assets. As a part of their overall investment strategy, wealth management advisers will often hire professional money managers to manage a portion of a client’s wealth. The money managers are responsible for the day-to-day management of a client’s investments, while the wealth adviser is responsible for the selection and management of the money managers.

Is there a monetary figure at which clients should consider working with wealth management advisers?

Every individual’s net worth is different, but clients should consider investing their assets with a selection of professional portfolio managers. Each manager has its own investment minimums, and to achieve the desired results, a client’s assets need to be spread out among multiple money managers. Therefore, to properly execute a wealth management strategy, a client will often need a minimum of $500,000 in investable assets.

What should clients look for when selecting a wealth management firm?

The most important thing to look for is a wealth management firm that follows some type of disciplined process so that clients have a clear understanding of how their assets will be managed.

Clients should be looking for personalized service, a tailored investment approach, and portfolio transparency and flexibility. Clients should find an adviser who does not have a hidden agenda or who wants to push his firm’s proprietary products. Rather, they should look for advisers who are sitting on the same side of the table as they are, acting as advocates for their wealth.

What would a disciplined investment process entail?

The ideal process can be broken down into three easy steps.

First is the discovery phase, in which the adviser helps the client establish his or her goals and objectives. That involves factors like the client’s time horizon, risk tolerance, return expectations and cash flow needs. The answers to those questions will allow the adviser to develop an investment policy statement and a suitable asset allocation.

The next stage is to determine the best qualified money managers to manage the unique assets. This is the phase in which wealth management firms should add value. It involves an extensive process to screen and select the specific professional portfolio managers. Quantitative and qualitative checks and balances in this part of the process make sure the professional managers chosen are credible. For instance, there must be continuity in the manager’s employment and consistency in his performance. A 50 percent increase in a portfolio one year that is given back the next is neither consistent nor beneficial to an investor.

The final part is ongoing oversight of the portfolio’s performance. This involves analyzing returns, measuring the volatility of the overall portfolio, evaluating the portfolio managers’ performance by comparing it against peers and respective benchmarks, and monitoring overall asset allocation. All these steps are important, and can be accomplished best if advisers and clients work closely together.

CHRISTOPHER BART is a managing director and principal with Aurum Wealth Management Group in Mayfield Village. Reach him at (440) 605-7276 or

Wednesday, 28 February 2007 19:00

Safeguarding trade secrets

It is devastating for employers to spend time and money to train employees, expose them to market research, pay them to develop new clients and products, and then see them leave to work for a competitor or start their own businesses in which they produce competing products based on information obtained from their former employer.

When that happens, it is often because employees misappropriate trade secrets, which can have an adverse impact on the employer’s competitive advantage and revenues and possibly lead to costly litigation. Those scenarios can be avoided if employers apply due diligence to safeguarding their trade secrets.

Smart Business talked with David Patterson, a partner with Godwin Pappas Langley Ronquillo LLP, to learn more about how business owners can safeguard their trade secrets and how doing so can benefit them.

Is there a clear definition of a trade secret?

Texas case law provides a definition, but it is very broad. Loosely defined, a trade secret is any proprietary information used in a business that gives a business owner a competitive advantage and that has been kept a secret.

Do trade secrets have to be registered to be protected?

No. There is no formal process or governmental agency for registering trade secrets. In some circumstances, a trade secret may also constitute a patentable invention, which can be prosecuted as a patent in the United States Patent and Trademark Office. But, in doing so, the applicant must disclose the entirety of the invention or patentable trade secret, so to speak. So the secret is out, and after 20 years anyone can use it. Otherwise revealing a trade secret without patent protection or a nondisclosure agreement defeats its very purpose.

What are the key issues when an employer gets involved in a trade secret dispute?

One key question in such cases is whether the information is truly a secret. Employers have to be able to prove that it is, for example, by keeping the information locked in a desk or a file cabinet, marking it confidential, and by letting employees know that such information is deemed confidential and proprietary. This factors into the definition of a trade secret in a court’s view.

Employers cannot leave information openly displayed for anyone to see and then claim that it is secret. They have to make reasonable efforts to protect it.

What else can be done to protect trade secrets?

Two of the more common safeguards can be found in the form of nondisclo-sure and noncompete agreements. Both are binding in Texas, if properly drafted. The two often are combined in the same document. In fact, the Texas Supreme Court breathed new life into previously unenforceable noncompete agreements when it held in a case this past fall that the transfer of confidential information to an employee was sufficient consideration to support the validity of a noncom-pete agreement, even if the information is not provided until a later date.

At minimum, then, employers should have their employees sign agreements stating that they recognize they will have access to confidential business information and that they will not disclose it to anyone or use it for their own benefit.

Does an employee who develops information that is integral to a company’s operations have to sign it over to the employer?

While common-law ownership rights may be asserted by an employer against an employee who develops such information, it is advisable to cover this issue in a written agreement. These agreements, sometimes called intellectual property assignments, cover ownership of information that is developed during employment.

This is another area in which employers and employees can get into disputes. The issue usually involves whether the employee developed information in the course and scope of his employment or on his own personal time.

Employers need to be vigilant in drafting agreements regarding ownership of what employees develop at work and outside of work. Sometimes that is a fine line to draw. Generally speaking, though, if information is developed on company time with company resources, the company owns it.

A broadly drafted agreement can help to expand as far as possible an employer’s rights in any intellectual property developed by the employee that relates to the employer’s business. In any case, employers should consult attorneys who are experienced in intellectual property and/or labor law to develop such agreements in an effort to protect their trade secrets.

DAVID PATTERSON is a partner with Godwin Pappas Langley Ronquillo LLP in its Dallas office. Reach him at (214) 939-4415 or

Friday, 24 November 2006 19:00

The right bank, the right banker

Many business owners get regular medical or dental check-ups. Yet, when it comes to evaluating their relationships with their banks and bankers on a regular basis, they fail to do so.

Regular bank/banker evaluations on a periodic basis are a must for business owners. After all, the right bank and banker are essential in a company’s attempts to achieve its business goals, and a lot can happen to the company, the bank, and the bankers in a year. Evolution and evaluation go hand in hand, and companies that embrace that principle can enhance their profits and chances of success.

Smart Business discussed the benefits of the annual evaluation with David Duxbury, a group regional president with MB Financial Bank. His insights will be of value to business owners who may be behind in their check-ups but who are looking for ways to strengthen their companies’ well being.

Why is it important for companies to evaluate their relationships with banks and bankers on an ongoing basis?

Primarily because companies evolve constantly. The banking industry is dynamic: consolidation and personnel turnover are constant within it. Therefore, it is important for companies to assess their ever-changing needs and how their banks and bankers are meeting those needs.

It is significant to note that banks and bankers are separate entities, so they must be evaluated individually. In the process, a company might discover that the banker may be right for the company’s needs, but the bank is not. Or vice versa. When that happens, the company has to change one or the other — or both — in its own best interests.

How should companies evaluate banks?

One of the most important criteria is the bank’s focus. Business owners should look at where the bank directs its money, energy and resources. Does the bank have a focus on business banking? If it does, at what level? A bank that focuses exclusively on small businesses may not be the right fit for middle- or large-market businesses, and vice versa. A bank that claims to specialize in all sizes of business will be forced to spread its limited resources over a wide array of situations, which may not be beneficial to businesses in any market segment.

Another important consideration is the bank’s commitment to customer service. Are front-line people empowered to make decisions? Are operational issues resolved locally? A true commitment to superior customer service will reduce errors and the administrative burden on the company.

Additionally, business owners should look for a bank that grants access to senior management and other decision-makers who can process requests quickly, act as their advocates with loan committees, and respond to their credit needs on a consistent basis.

What should companies be looking for in their evaluations of their bankers?

One of the most significant is personal attention. Companies want experienced bankers who understand their operations and financial goals, and who are familiar with their key personnel.

Another important criterion is the level of the banker’s commitment and interest in the company. Is the banker truly interested in how a company makes money? Is the banker interested in knowing about changes in the company’s industry? Does the banker seem prepared to handle the next problem or opportunity that may arise?

The next area to address is the banker’s decision-making skills. Can he or she make a decision quickly and individually? A banker must excel in all three areas in order to effectively represent the company within the bank.

A final factor is the banker’s ability to act as a sounding board for the company. The more experience a banker has, the more likely he or she is able to help companies deal with unique business situations. Company personnel may never have experienced an expansion into foreign sales, for example, but the banker may have worked with other companies that have.

Is it more important to have the right banker or the right bank?

The two go hand in hand, and business owners have to have both. A company that does not have the right banker is not going to get access to the right people or the right products in that bank. A banker can be the greatest banker in the world, but if the bank can’t deliver when opportunities arise, such as expansion overseas or an acquisition, then neither the bank nor the banker can be of help to the company.

The combination of the right bank and the right banker delivers a relationship based on mutual benefit and a high level of trust and personal commitment. Being able to take advantage of opportunities is one of the criteria that make periodic evaluations so right and enhance the company’s chances of success.

DAVID DUXBURY is a group regional president, commercial banking, with MB Financial Bank. Reach him at (312) 948-1070 or

Sunday, 29 October 2006 04:50

It’s ESOP, not Aesop

Mention ESOP to some business owners and they might think about a fable. In fact, the term used in the corporate world refers to Employee Stock Ownership Plan, rather than to Aesop the moralist. In either case, the outcome is generally positive for both business owners and employees.

ESOPs are a qualified benefit plan under ERISA. They offer a benefit to employers and several tax advantages for the selling shareholders. There are disadvantages as well. For example, they might be too expensive for small companies or for businesses whose payrolls are too small relative to the value of the owners’ interests. And they generally will not be right for start-up companies. Nevertheless, ESOPs are fairly common in the corporate world. Nationally, according to the National Center for Employee Ownership, there exist approximately 9,000 ESOP and/or similar plans.

Smart Business spoke with Garry Karch of MB Financial Bank to learn more about the advantages of ESOPs and who they benefit.

Why would a business owner consider an ESOP?
The goal is to establish a form of employee ownership through which the business sells stock to an employee trust. It is a somewhat complex process, which benefits both business owners and employees. One reason is altruistic, while the other is financially driven.

From the financial perspective, there can be some fairly significant tax benefits to the selling shareholder. If the company is a C corporation, sellers who are willing to reinvest the proceeds from the sale can defer the capital gains taxes on them when they are reinvested into a qualified replacement property (QRP).

A QRP is an equity or debt instrument of a domestic operating company. It can be public or private, but it can’t be treasuries, ‘munis,’ mutual funds, or that type of thing. If sellers reinvest those proceeds, they can defer the capital gains tax. And, if the sellers hold the proceeds until their deaths, they pass on to their heirs on a stepped-up basis. So, in a way, an ESOP can be a strategic part of a business owner’s wealth management and succession programs.

Altruistically, there are some selling shareholders who really want to reward the efforts of the employees who have made the company successful, and they want to assure its continuity. In a lot of cases, they prefer to do so through the ESOP mechanism, rather than sell to a financial or strategic buyer who may or may not be concerned with retaining jobs and keeping the company going on an independent basis. In essence, the employees get an ownership stake in a company and build up a retirement fund without making a contribution in return for it.

What significant tax benefit accrues to employees and shareholders in setting up an ESOP?
One major benefit is associated with the principal on the ESOP loan. Here is where ESOPs can get a bit complex. The principal payments on the loan are generally going to be made using pre-tax dollars. They are structured where the dollar amount is contributed to the trust. This portion of the overall principal payment is deductible as a business expense, and the employee accounts receive allocations used in the contribution.

Does the entire company have to be sold to set up an ESOP?
The shareholder does not have to do a 100 percent transaction. Basically, if the business is a C corporation and the shareholder is looking to defer the capital gains tax, he must sell at least 30 percent in the first stage of an overall transaction, which is the threshold under the regulations to get a capital gains tax deferral. In a lot of cases, the seller won’t necessarily be able to do a 100 percent transaction, at least without taking back a note. A bank can only loan so much money to a company. Realistically, a lot of ESOPs are set up in two stages.

What is a bank’s role in setting up an ESOP?
The bank’s role is to help set up the overall financing structure in conjunction with the business owner or a financial adviser he might retain to put the deal together. But not all banks get involved with ESOPs. As a matter of fact, only a handful locally or nationally do. Business owners who are considering setting up ESOPs are wise to choose banks that have considerable experience in the area, and which are willing to work with attorneys, financial advisers, and other specialists who become involved in the process.

GARRY KARCH is the Commercial Group regional president with MB Financial Bank. Reach him at (312) 456-8520 or

Finding the most capable executive to fill a vacancy in the leadership ranks can be a daunting task for a company. Frequently, companies engage an executive search firm to assist in the process. Together, they form a partnership based on a clearly defined set of criteria aimed at identifying the most qualified candidate available through a rigorous process which involves search specification documents, research packages, networking, and clear, concise and constant communications between the parties involved.

Smart Business asked James M. Peters, a vice president with TNS Partners, Inc., to explain the creation and use of the tools used in a search, a step-by-step explanation of the overall “networking” process, and how they work together.

How is the search specification document utilized in the executive search process?
The search specification document — which must be compiled before the research and networking phases of the process can begin — becomes the backbone of the executive search process. The document identifies a wealth of information regarding the client, responsibilities associated with the assignment, and qualifications sought in potential candidates. With this information, it is virtually assured that the client, search firm and candidate share a common basis of knowledge.

What does the research package include?
Initially, the research package represents a compilation of industries and companies in which candidates who possess the credentials and experiences chronicled in the specification can be located. Often, this list begins with the same industry, and is then broadened to include industries that share commonalities such as customers, technologies, geographic region and processes that relate to the specific assignment being considered.

Once the industry list is complete, it is time to identify specific companies. The primary focus is on companies that share commonality with the search firm’s client. Obviously, direct competitors are the quickest to be identified. But to ensure that the ‘slate’ of candidates represents the most qualified and capable executives, the search firm identifies companies that have activities in common with those of the client.

What is the search firm’s commitment to the clients?
The search firm’s commitment is to present the most qualified candidates for the assignment. This includes the combination of functional industry knowledge and leadership ability.

That doesn’t necessarily mean that the slate of candidates will be clones of each other. The slate may include executives who might be considered to be ‘out of the box’ as it relates to their functional experience. These individuals possess outstanding leadership, or other, skills that will contribute to their overall success in the assignment.

Should clients focus solely on specific skills with comparable industry experience?
More often than not, the answer is a resounding ‘No.’ Candidates from outside the industry may provide the best potential to shatter industry/company paradigms that may exist.

A trend in business today is utilization of multifunctional teams for problem-solving activities. This trend has reinforced the importance for businesses to look at projects with several sets of functional eyes. Today, it is not unusual for clients to place a higher value on leadership versus functional skills when seeking director level (and above) talent. Enlightened organizations have determined that true leaders can lead teams to success with or without an initial solid functional knowledge.

Once search executives identify prime industries and companies, are they ready to start networking?
No. The identification of industries and companies simply prepares the search executives for the more difficult work: the identification of specific individuals possessing the skills and experience that would enable them to become potential candidates. The difficulty of this task varies dramatically.

Obviously, C-level executives are easy to identify due to their exposure to the public, but often very difficult to reach and engage. The deeper into the organization search executives must go, the more difficult the identification process becomes. A wide variety of reference sources are used in this effort, including proprietary databases, company Web sites, commercial databases, professional organizations, etc.

When does the networking phase begin?
Once the potential candidates have been identified. The objective is to contact each of the potential candidates and determine their respective desires to consider alternative employment. While these networking efforts are critical to establish the dialogue with potential candidates, the specification remains an equally important communication tool.

It bears mentioning that the research phase of the search process does not stop. As networking efforts continue to reveal new market intelligence, this information promotes new research efforts that broaden the target audience.

JAMES M. PETERS is a vice president with TNS Partners, Inc. Reach him at (214) 369-3565 or