Sue Ostrowski

With several tax provisions set to expire this year, and tax rates set to increase, business owners need to start planning now for the impact on their businesses.

“Business owners need to be collaborating with their tax advisers on a level they may not be accustomed to in the past,” says Gregory C. Brown, tax partner at Sensiba San Filippo LLP. “Discuss your plans with your tax adviser and look at the tax implications in light of the expected changes. This will require more time, energy and communication than in the past with respect to tax planning for 2012 and beyond.”

Smart Business spoke with Brown about expiring tax provisions and how they could potentially impact businesses and their owners.

What could happen with tax legislation in 2012, in light of it being an election year?

It’s difficult to say. Congress is challenged with many difficult issues and a very limited number of days that they will be in session to address these issues. A few possible Congressional outcomes for tax provisions could be a complete tax reform overhaul or a simple extension of provisions that have expired or are set to expire. Or Congress could let things expire and the set changes take hold. If something does happen this year, it’s probably going to be later in the year, after the election.

What provisions set to expire this year would have the biggest impact on business owners?

For small business owners, cash is vital. A few of the more prominent tax provisions that will impact operating cash flow stem from equipment purchases and the cost recovery through bonus depreciation. Currently, if you purchase certain capital assets, under bonus depreciation, you can expense a large amount of the purchase costs right off the top in the year that asset is placed in service. This means the recovery of the purchase cost is realized sooner than later, saving tax dollars and making more cash available. These provisions are being reduced and eliminated.

Another significant tax provision is IRC (Internal Revenue Code) Section 179, which is expense electing for equipment and other capital purchases. If you purchase certain qualified equipment, you can expense 100 percent of the cost with certain limitations. In 2011, the maximum amount that could be expensed is $500,000, with an overall purchase limitation of $2 million before the expense amount is reduced. In 2012, the expense election is reduced to a maximum of $125,000, with a purchase limitation of $500,000. As these expensing limits are scaled back, and barring a change by Congress, the cost recovery time is increased and may impact the business’s ability to make these purchases.

If you, as a business owner, are considering purchasing capital equipment, these provisions need to be considered.

What will the impact be of expiring tax provisions on business owners personally?

Without Congress acting, several provisions will expire at the end of 2012. Business owners, along with all individual taxpayers, will be subject to increased capital gain, dividend, and ordinary income tax rates. The long term capital gain, for capital assets held at least 12 months, are taxed currently at a max rate of 15 percent. This rate is slated to go up to 20 percent starting in 2013. In addition, dividends are currently taxed at the 15 percent capital gain rate. Starting in 2013, dividend income will be taxed at increased 2013 ordinary income rates, with a top rate of 39.6 percent.

Also in 2013, as part the health care overhaul of 2010, there will be a new Medicare tax of 3.8 percent on unearned income, which includes interest, dividend and capital gains. This will impact taxpayers with income of more than $200,000 for individuals and $250,000 for a married couple. This is a new add-on surtax, on top of all other income taxes.

What should business owners be doing now in respect to the current tax environment?

Look at your business plan and determine what you are planning to do. On the individual side, gain an understanding of what you are doing now and what you are planning to do, and superimpose those plans on top of what is potentially going to happen with tax provisions. That means looking at different scenarios with respect to the plans you have with your business — with hiring, with capital equipment purchases, etc. — to see if there are things you want to do imminently, or if there are things you want to delay. Questions you should ask include, ‘What is the tax impact of what I am thinking, and is this the right time?’

In 2011, everything was relatively static with respect to expiring provisions. 2012 is going to be a real wild card and tax planning is going to be daunting because there is not a lot of clarity about which way business owners should go.

The most critical advice I can give is to not delay in approaching professional advisers. If you are thinking about a significant transaction for 2012, you need to start talking to your business advisers now, versus later. Your CPA, attorney, investment adviser and other professionals can help you get your arms around your situation and things will go much more smoothly if it’s not the 11th hour.

It can be a tough situation when a business owner does not talk to his or her tax adviser to later find out, when it is too late, that there was a more tax efficient route to take. Good tax professionals are experts at boiling down complicated tax code and regulations and working with business owners to get to the right answer. Putting business owners in the best possible tax position is the primary job of the tax adviser.

Gregory C. Brown is a tax partner at Sensiba San Filippo LLP. Reach him at (925) 271-8700 or gbrown@ssfllp.com.

As companies continue to try to do more with less, the stress of doing the work of two or more people is taking a toll on employees. And that is making them less productive, less motivated and less likely to do their best work, says Ricci Victorio, CSP, managing partner at Mosaic Family Business Center.

“As companies deal with lower budgets and tighten their belts, they are putting ever-greater demands on their employees,” says Victorio. “As an employer, you need to help your employees fill their cups back up, because they are being significantly drained. Whenever you have people being pushed at absolute top levels performing on all 100 cylinders all of the time, they run out of gas. And when they run out of emotional gas, negative behaviors start springing up.”

Smart Business spoke with Victorio about how one-on-one coaching with employees can improve morale and help them work better together as a team.

What is the value of executive coaching?

It can improve morale and provide an internal vision for employees as they ask: What is my value? Why am I here? What am I doing? How can I do it better?

Improved morale increases productivity and, in some cases, employers see a change in the first week, with people taking responsibility for their communication with one another, approaching their differences of opinion with less of an edge, having conversations happening in a different way and struggling less.

Why should employers be concerned about stressed, overworked employees?

It can impact their performance and, as a result, the performance of the company. Like a rubber band, we all can handle stress. We get a shot of adrenaline, we go into performance mode, we adapt and we circumvent our fears to handle the bigger cause. But also like a rubber band, if you don’t relieve that stress and the tension continues to build, people will snap. And when they snap, you see increased anxiety.

Stress robs individuals of mental energy, their problem-solving capabilities are reduced, their fuses become shorter and they snap at trivial things. They lose sight of the big picture and feel like they’re drowning, to the point that they can’t even see the path that they’re on. They’re so busy removing stones from their path that they don’t feel like they’re moving forward. They lose sight of the vision and goals that were so painstakingly created by leadership.

When the stress gets too great, people are going to do something to reduce it, whether that is quitting, blowing up, firing someone, getting sick with a stress-related illness or taking it out on their families. And all of those results are damaging to the company.

At too many businesses, what used to be a happy group is now a group of people who are frustrated, bickering and not cooperating with one another. Employers need to look at whether they are treating their employees as if they were paper cups — just using them up, throwing them away and getting a new batch.

How can employers help their employees?

In the past, employers might have hired a coach for their executives, but companies are now moving toward coaching for their managers and employees. It can be beneficial to begin work with individuals for one-on-one coaching before expanding to team training. Coaching helps each individual get a hold of what they can be responsible for in their own experience and helps them gain another perspective and a better understanding of other people’s communication styles. If you can understand why someone is communicating in a certain way, you can start to react differently. Or if people aren’t responding to you, you can look inward to identify a better way to communicate.

If you can become aware of your natural tendencies and learn to govern them better, you can expect a different outcome. And that self-awareness and the awareness of the team around you can be a significant investment in team morale.

I believe that people are naturally resourceful and creative and whole, and they don’t need to be fixed. But a coach can help them look inward to find the magnificence of who they are and the mission of what they’re doing, to gain a sense that, ‘Yes, I’m engaged in a project with my team that I really believe in,’ and forgive a lot of the trivial things that have been weighing that person down.

It helps them to get a better sense of perspective, giving them strategies for how to navigate tricky personalities and a better understanding of who they are so they are more self aware in their interaction with others.

How can that benefit a company?

It’s amazing what people can do when they feel acknowledged, excited, motivated and energized about the mission and about what their role is in it. A coach can help give people a clearer perspective on what they can control and magnify who they are and the contribution they are making, leading to a renewed sense of vision and appreciation for those they work with.

When people really get permission to be who they are and express their truth in a non-confrontational way, they can really do amazing things. You and your employees already have the answers inside of you. A coach is just a way to access those answers that you may not know how to get to on your own.

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

All businesses manage their cash flow, but most don’t have a professional treasurer to help them with the task. And without that professional input, you may be paying for services that you are not  fully utilizing or overlooking services that could benefit your business, says Tom Hoffman, senior vice president of Treasury Management at Bridge Bank.

“By forming a strong relationship with your banker, you can reach out to your bank to fully understand things such as account analysis,” says Hoffman. “Most companies just  implement whatever they’re told and  do not realize there are services they are paying for that they  do not take full advantage of.”

Smart Business spoke with Hoffman about how to avoid missteps in setting up your cash management system and how technology has changed the way businesses handle their financial relationships.

What are some common missteps that businesses make when setting up their cash management systems?

Their biggest mistake is not reaching out to a banking professional to better understand their choices and make the best ones for the business.  It is similar to people who go to the same restaurant for years, buying the same thing over and over. What they  have not realized is that the menu changes and there are choices they would like better or are better for their health. That’s what happens in banking products; they change dramatically over time, and there may be better choices for your business.

How should business owners begin looking for a new banking relationship, and what should they be asking?

If you think it’s time to change your banking relationship, first go to your existing bank and take a close look at what services you have there, what you are paying for and what you are missing. Then, when seeking a new bank, before you ask anything, you should  explain to a potential banking partner  what your business does. Sit down with someone at that bank and have that person evaluate, in a consultative way, what your treasury platform is, and that includes not only how cash and information flow in and out of your business, but also the capabilities of your personnel.

Then once you choose a banking partner,  your new bank should review your account analysis statements with you on a periodic basis to understand what products you are using and if you are using them in the best possible way. Your accounts should also be reviewed if something changes at the company, for example, turnover in the accounting staff. A treasury management services review will lay out what your services are, who is entitled to what services in online banking, what payment limits you have in place and then determine if any changes need to be made.

Because most businesses do not have a professional treasury staff, companies should look to their bank for advice and take advantage of their expertise to use them as an outsourced treasurer.  That is what your expectation should be of your banking relationship.

How is technology changing the way businesses handle their financial relationships?

There has been an evolution in treasury management as systems have moved from paper-based processing such as writing checks. Over the past few years, online banking — e-banking platforms — have become the primary vehicle for obtaining information about accounts and tracking activity on a daily basis. Businesses can download transaction data, initiate payments, process wire payments and foreign exchange trades, do ACH transactions and do payroll all online. The online capabilities are cheaper and faster than the old paper-based way.

How will treasury management services be different in five to 10 years?

Over time, there will be fewer and fewer checks being written and more electronic payments being processed in an e-banking platform. The paper payment system in the U.S. is very inefficient. To bill a client, an accounting department creates a paper invoice, puts it in an envelope, puts a stamp on it and someone takes it to the post office, which puts it in a truck and delivers it to the client. The client then writes a check and it goes through the whole manual process again to get payment back to the provider.

In the next five to 10 years, instead of writing paper invoices, the entire process will be electronic. Companies will initiate an electronic invoice to the client, the client will get that in their inbox and reply, authorizing the vendor to process a payment against its account, and the payment will be made electronically. The efficiencies gained are tremendous; it speeds up cash flow, and it’s also good from an environmental standpoint.

But the challenge today is the information  that is related to that invoice. For me to process a payment against you, that means I’m pulling money out of your account, and you want to know what that payment is for. If you have 100 vendors with invoices coming in, you need a way to match those. So the trick will be tying  the invoicing process to the payment process.

The international area is also  inefficient and there are going to be a lot of changes there, not only in transferring information between countries but in payment information, as well. Right now, there are many different silos, and each payment type is in a separate silo, and may be in a different currency, so they don’t connect. Today, you see bridges between silos with companies such as PayPal making that connection between entities. But in the future, those  intermediaries will go away.

The first step for a handful of countries is an international ACH payment system, allowing companies to deliver and collect funds overseas much more efficiently, and that system will only continue to grow.

Tom Hoffman is senior vice president of Treasury Management at Bridge Bank. Reach him at Tom.Hoffman@bridgebank.com or (408) 556-8353.

While some students continue on to higher education directly after graduating from college, many more head out into the world to work. It is only after gaining years of experience and success that they realize they could do even better by enrolling in an executive master of business administration (EMBA) program. Instead of just learning about theories and concepts that they may someday apply, they can immediately apply them in their work lives, says David Lewin, the Nell H. Jacoby Chair in Management at UCLA’s Anderson School of Management.

“The EMBA program draws people who are very highly committed because their average age is 38 and most of them are juggling jobs, families and the program,” says Lewin, who also serves as president of the Labor and Employment Relations Association. “They have a lot of balls in the air and are trying to do something quite demanding. They may actually be more attuned to the program and get more out of it than students in the MBA program precisely because they have other commitments and can immediately apply what they learn over the weekend to their jobs on Monday.”

Smart Business spoke with Lewin about how UCLA’s EMBA program can benefit successful executives who are looking to do even more.

How do students’ experiences in the work world impact performance in the program?

The students’ experience works very well for certain courses. Students are able to interpret and reinterpret that experience in the context of the concepts that are provided to them. Thus, they have a strong preference for ideas that can potentially be translated into practice.

Because we have one section of students entering the program annually — this year the number was 73 — and they take their core courses in one section, they become closely bonded. That experience works well, too, because strong bonds make them more willing to critique each other’s work and treat themselves as a learning community, learning from each other as well as from the faculty.

The courses are highly demanding and students have to fit the demands of the program into the demands of their work and home lives. But that allows them to take what they are learning and have the opportunity to apply that learning quickly, whereas students in the MBA program have to wait until they graduate, get employed and advance in the workplace.

How do students put that knowledge to work in other ways outside the classroom?

In the second year of the program, students self-select small groups to conduct a Strategic Management Research (SMR) project. For two quarters, each group has a client company (or non-profit organization), a faculty adviser and a specific issue or problem to work on. At the conclusion of the SMR, each group must deliver a written report and an oral presentation to the client. These groups often become tighter than the assigned study groups they worked in previously because they are producing deliverables for clients, which can be distributed across the globe. For example, an SMR group recently traveled to Africa to meet with its client organization, and other groups have traveled to Asia, Europe and Latin America for the same purpose.

Because the students have self-selected their groups and are ‘on the hook’ to produce, they typically have a very strong, positive experience. Once in a while, however, and as occurs with groups in any context, an SMR group faces the challenge of learning from a negative experience. For example, a group may lose its main client contact because that individual has left the organization during the project. Occasionally, a client company doesn’t supply the quantity or quality of information required by an SMR group. Also, occasionally, a group may have internal conflicts about its deliverables or its communications processes or a free rider problem. Whenever you have a substantial number of groups working on assignments like the SMR, certain problems will arise, yet students can learn as much or more from these types of conflict as they can from positive experiences; it’s all part of their professional development.

How does the program contribute to the leadership growth of students?

In all of our MBA programs, when students first enter they have an orientation or, in the case of EMBA students, a residential, in which they take a course titled Leadership Foundations. While certain leadership concepts and frameworks are covered, the course is heavily experiential and includes such activities as a survival exercise, a self-assessment, case analyses, a negotiation simulation, an outdoor team building day and study group norm setting. The end-of-course ‘deliverable’ is a Leadership Map in which students state their leadership aspirations, summarize their leadership strengths and limitations, and specify a preliminary leadership development plan for their two-year EMBA program.

In the EMBA program, but not in the MBA or Fully Employed MBA (FEMBA) programs, there is a second Leadership Foundations course offered in the latter part of the first year, and a third course offered in the latter part of the second year. In this last course, students produce an additional, final Leadership Map, this one externally oriented. The big challenge here for EMBA students is to specify how they’re going to further enhance their leadership capabilities after they leave the safe harbor of the program. The underlying rationale for this three-course Leadership Foundations sequence is for students to have recurring (if not continuous) leadership capability development — not just leadership knowledge, but also the ability to apply that knowledge. Currently, the Anderson School is considering adopting this course sequence in the MBA and FEMBA programs so that leadership development for students in those programs doesn’t end at the conclusion of their orientation.

David Lewin is the Nell H. Jacoby Chair in Management at UCLA’s Anderson School of Management. Reach him at (310) 206-7666 or david.lewin@anderson.ucla.edu.

The days of rushing into mergers and acquisitions are over. Companies today are doing more due diligence up front, and making a bigger effort to integrate acquired companies, says Iain Jones, FFA, director, International Consulting Group, Towers Watson.

“Business leaders are recognizing that they must allow people more time to do due diligence, and that there shouldn’t be a rush to get due diligence done too quickly,” says Jones. “In the heady deal-saturated times, there was significant competition for targets, but people are realizing that there are consequences to ignoring potential obligations, so they need appropriate due diligence.”

Smart Business spoke with Jones about M&A trends and how HR can play a critical role in the process.

What are the current trends in mergers and acquisitions?

First, not all transactions are closing. There’s more willingness for companies to walk away from deals as they are no longer brushing off risks and saying they’ll deal with them later. Second, smaller deals are dominating. There aren’t as many as multibillion-dollar deals as we used to see. Third, there are quite a few spinoffs, companies shrinking to grow as they take flak in earnings because they’re too diversified. Fourth, there is a growing importance of emerging markets and, finally, global perspective does matter. Companies in the U.S. are acquiring what they thought was a U.S. company, then realizing that, because of the way we’ve globalized, those companies have operations around the world.

What are the challenges of international acquisitions, and how can companies overcome them?

The biggest challenge is that you get into a multitude of cultures, regulations, time zones and languages to deal with, all of which can be exacerbated if you haven’t had operations in those countries before. You have to figure out all the legal pieces and do your due diligence. Get outside support with the skills and global resources to support such deals.

Another reason for bringing in external advisers is that, as you move into multiple countries, one person running the deal simply cannot handle the volume coming at them.

Businesses also need to balance global consistency on certain items with country specificity. That’s where you need advice, someone who can say, ‘Yes, you can apply that across the world,’ or ‘No, there are EU regulations that say you can’t do that.’ It’s important to identify those advisers before you need them, because, once the need arises, you’ll be too busy blocking and tackling the issues that come up to give enough attention to adviser selection.

What role can a company’s HR staff play in an acquisition?

People are the fabric of the deal and HR glues it all together. Deals succeed with long-term integration and people buying into the long-term vision and strategy. Engagement drops in periods of uncertainty during a deal. There’s a clear link between engagement, productivity and business results; to the extent that you can minimize that uncertainty, you can minimize the drop in productivity. That is a key role for HR.

How can business leaders prepare their HR department to take a lead role in a merger or acquisition?

First, HR needs to prepare themselves for deals. Business leaders should train them on the role of M&A in the business and how they can contribute to the deal success from talent, culture and HR functional perspectives. This role needs to be earned though, which is why experienced acquirers invest so much in training HR.

When a deal hits, get them involved from the beginning. Let them in on the change management aspects of the deal. Get them to lay out the long-term vision up front and communicate it to employees. Tell them what’s coming. Changes may not happen immediately but it reassures them that those key issues are being looked at.

Another vital element for the HR side is to work on culture, which is so key in a deal. There are different ways to go with culture but, if HR is allowed to do that assessment, they can advise business leaders on how to approach and integrate the target company in a more effective way, including identifying and focusing on the things that matter most to employees.

How important is it to integrate acquired companies, and how do you begin?

It depends on the business strategy. If you’re looking at a standalone company, you may just take it on as it is. It may be simply a different ownership structure with work as usual.

With a full integration, however, you really need to engage people, welcoming them to the company and explaining what it means to them.

Too often, when a large company acquires a smaller one, there’s insufficient communication and employees of the acquired company are just expected to adapt. That doesn’t just happen — the acquired company has a certain culture and a successful way they are working that you want to capture. Take the time to understand what is working so well at this company.

On day one, let people know your long-term vision and likely timing of the various aspects (e.g. job structures/grading alignment). This communication is vital to minimize that crippling uncertainty. If you leave a gap in knowledge open, people fill in the gaps with potentially false information.

Successful integration may also involve not touching things on the operations side until you have a clearer picture of how they work. There is normally something very powerful in that company and it is the reason you’re buying it. You have to be careful you aren’t killing the goose that’s laying the golden egg.

Iain Jones, FFA, is director of the International Consulting Group at Towers Watson. Reach him at iain.jones@towerswatson.com or (949) 253-5249.

Most business owners understand the importance of insuring their physical property.

But too many are unaware of the need for insurance to cover losses resulting from that physical damage, such as lost revenue when mechanical equipment fails, says Marc McTeague, president of Best Hoovler McTeague Insurance Services, a member of the SeibertKeck Group.

“In a business, people will buy property insurance to cover the building, its contents and those types of things and assume they are covered, but that coverage does not includes equipment breakdowns, electrical arcing and other things that can happen to the machines that run the business,” says McTeague. “And if a critical piece of equipment goes down and you are not covered for those losses, you could be out of business.”

Smart Business spoke with McTeague about how to ensure that your business survives an equipment failure.

What is equipment breakdown insurance?

The five main items that are covered under equipment breakdown insurance are electrical; equipment, air and refrigeration; equipment, boiler and pressure vessels; computers and communication equipment; and mechanical.

Where should a business owner begin when considering this insurance?

First, find an agent who is knowledgeable about this insurance and doesn’t just throw it in as an afterthought. It’s complicated, and, too often, it is overlooked, or not written properly, because agents aren’t comfortable with it. Business owners should rely on an expert to design the program.

Once you’ve identified that person, he or she will look at the overall property profile and, based on the building and content limits, look at what kind of machinery the business relies on. Is there production machinery? Are the machines redundant? What kind of protections do they have?  What kind of maintenance programs? Have you done thermal imaging studies? What are you doing to prevent a loss in the first place? Does the business have a pressure vessel — a boiler?

Everyone understands the risk of a boiler exploding, but they don’t understand that a business could have electrical arcing that could take down a call center, resulting in the loss of thousands of dollars in repair costs and lost sales. The physical damage to that equipment may be covered under property insurance, but unless you have equipment breakdown insurance, costs such as lost business income and revenue and lost production time would not be covered.

People often think if equipment breaks down it’s uncovered because it is a wear and tear issue. But while wear and tear is not a covered peril, a sudden, accidental breakdown is. And there can be really large dollar amounts involved here.

What kinds of businesses should consider equipment breakdown insurance?

Every business runs on some type of electrical apparatus, such as a computer, so every business could benefit from this coverage.

A lot of times we see property owners who don’t have coverage because they are leasing the space out. But if an electrical arc blows out the air conditioning or heating of an office building and you don’t have coverage for temporary power and to expedite the repair process, you will have angry tenants not paying the rent.

This coverage is becoming more prevalent, but we estimate that half of the companies that need it still don’t have it, or they have base form coverage that might not cover things such as lost revenue or contingent business income. Take, for example, a manufacturer that relies on another company to make half its product and uses that product to put together its own product. If that supplier has an equipment breakdown, it could break down the whole chain, and the manufacturer is no longer able to produce its product. However, there is a way to write the insurance that covers that contingency.

What would you say to business owners who say they can’t afford this type of insurance?

A business is more likely to have this type of loss than a fire, and no business would go without fire insurance. A knowledgeable agent can change deductibles and move coverages around and make it affordable. This is not an exceedingly expensive coverage, but a resulting incident could be.

If you think about a rooftop unit on a mall that is cooling the entire place, the compressor alone can cost $20,000 to $30,000. Just to repair the physical damage can be brutal, but then there is the service interruption, lost revenue and lost rent.

Another example is medical centers that either don’t have coverage or don’t have it written properly. If there is a sudden power spike that blows an MRI machine; MRIs still have to be done, only now they’re going to be done somewhere else. And without insurance, you lose the ability to get that revenue back. If it takes three months to get parts from overseas and get it rebuilt, you could be out of business. But if your policy is designed correctly, those resultant losses will be covered.

The lost income and expedited expenses of getting the equipment repaired quickly can be costly. And the extra expense of sending your customers elsewhere to get the job done is something you have to do to keep your clients happy in the interim, because if you don’t, they’ll go somewhere else permanently.

Having equipment breakdown insurance can help ensure you cover those losses to get back into business as quickly as possible.

Marc McTeague is president of Best Hoovler McTeague Insurance Services, a member of the SeibertKeck Group. Reach him at (614) 246-RISK or mmcteague@bhmins.com.

Under the InvestOhio program, a new resource for Ohio small businesses, those who invest in a small business enterprise  located in the state can receive a 10 percent income tax credit if the investment is held for two years. The small business enterprise must meet certain qualifications to be a qualified business for the credit.

And that credit applies even if the investor is the owner of the business,  says Mary Jo Dolson, CPA, director in tax at SS&G.

“It doesn’t have to be a new investor,” says Dolson. “You can invest in a company that you own, then get the credit on your individual income taxes. More and more businesses are buying equipment or expanding their buildings, both activities that would qualify. So why not invest as an individual and get the credit for dollars the business is going to be spending anyway?”

Smart Business spoke with Dolson about how to take advantage of the InvestOhio program by investing in your own business, or in someone else’s.

What is InvestOhio, and how does it work?

InvestOhio is part of the budget bill passed in June 2011 that took effect July 1 and runs through June 30, 2013.

To participate, an individual or a pass-through entity that wants to invest in a small business must register themselves as an  investor. The small business enterprise must also register itself as a small business entity. Then the two parties, the investor and the small business enterprise, decide how much to invest and when. The investor must receive an ownership interest in the small business enterprise.

For example, if someone decides to invest $1 million in a company, both sides register, and they each get an ID number. Together they would create one application that indicates that, for example, on May 1, that taxpayer is going to invest in that company. That investment then has to be made within 30 days before or after that date. The business entity then has to spend the  money invested on qualified items within six months of the investment, or that credit would potentially be  lost.

Finally, there is a two-year holding period. If a taxpayer invests on May 1, 2012, that investment and the assets acquired have to stay in place for two years, until May 1, 2014. As long as that condition is met, the taxpayer who invested $1 million then gets a 10 percent non-refundable tax credit, with $100,000 coming right off that individual 1040 return. And if you can’t take the whole credit amount in one year, it can be carried forward for seven years.

Individuals can invest up to $10 million, and the $100 million tax credit program is expected to generate at least $1 billion in new private investment in Ohio small businesses by 2013.

What kinds of companies are eligible to participate?

Qualifying entities need to have less than $50 million in assets, or less than $10 million in sales. Companies must also have employees who are located in the state. All registrations and applications for the credit are completed through the Ohio Business Gateway. The individual investors might have to set up an Ohio Business Gateway account but probably most small business enterprises will already have a gateway account.

How complex is the application process?

Even though investors and small businesses have to register, it is not a voluminous application. It is about 10 questions, and they are simple, such as your Social Security number, whether you are a pass through entity investing in another entity and your federal ID number. There are also a lot of links for small businesses to secure the information they need quickly from the state website.

Are there drawbacks?

As long as you follow through with the requirements of the application, there really are not any drawbacks for the credit. If you complete the application and say you’re going to invest $1 million, and then you only invest $250,000, the state has indicated they will deny the credit — at least 50 percent of what you indicated you were going to invest must be invested to secure the credit. Also, if you just own rental real estate and have no employees, you can’t participate. There is an employee requirement for the small business enterprise to qualify for the credit.

Finally, it has to be an individual or another pass-through entity investing. The small business enterprise cannot secure a loan and have the investors pay it off. This will not qualify.  The actual individual and/or entity investing must actually put the funds into the business. The individual and/or entity investing can borrow the investment money from a bank .

What can a business use the money to invest in?

Fixed assets, tangible personal property and real estate are included, among other items. A business can also spend the investment on wages, but it cannot be for wages for owners or officers of the company. Motor vehicles also qualify, as long as they are titled in Ohio. The key is the assets being purchased must be utilized and located in the state of Ohio.

How will businesses account for the money?

Reporting will be required after a company spends the investment through the Ohio Business Gateway. The state does not currently have those forms available, but they are anticipating they will be available by April 1.

Will the program continue after 2013?

As part of the budget bill, the program exists in the next biennium, as well, from July 1, 2013, to June 30, 2015. However, there is one major change: the holding period for assets goes from two years to five years. There is also supposed to be another round of funding in the next biennium, from July 1, 2015, to June 30, 2017, with the holding period increasing to seven years. Right now is the shortest holding period investors are going to get, so investing sooner rather than later will provide a bigger bang for your buck more quickly.

Mary Jo Dolson, CPA, is a director in tax at SS&G. Reach her at (330) 668-9696, (800) 869-1835 or MDolson@SSandG.com.

Most business owners understand the importance of insuring their physical property.

But too many are unaware of the need for insurance to cover losses resulting from that physical damage, such as lost revenue when mechanical equipment fails, says Craig Hassinger, president of SeibertKeck.

“In a business, people will buy property insurance to cover the building, its contents and those types of things and assume they are covered, but that coverage does not includes equipment breakdowns, electrical arcing and other things that can happen to the machines that run the business,” says Hassinger. “And if a critical piece of equipment goes down and you are not covered for those losses, you could be out of business.”

Smart Business spoke with Hassinger about how to ensure that your business survives an equipment failure.

What is equipment breakdown insurance?

The five main items that are covered under equipment breakdown insurance are electrical; equipment, air and refrigeration; equipment, boiler and pressure vessels; computers and communication equipment; and mechanical.

Where should a business owner begin when considering this insurance?

First, find an agent who is knowledgeable about this insurance and doesn’t just throw it in as an afterthought. It’s complicated, and, too often, it is overlooked, or not written properly, because agents aren’t comfortable with it. Business owners should rely on an expert to design the program.

Once you’ve identified that person, he or she will look at the overall property profile and, based on the building and content limits, look at what kind of machinery the business relies on. Is there production machinery? Are the machines redundant? What kind of protections do they have?  What kind of maintenance programs? Have you done thermal imaging studies? What are you doing to prevent a loss in the first place? Does the business have a pressure vessel — a boiler?

Everyone understands the risk of a boiler exploding, but they don’t understand that a business could have electrical arcing that could take down a call center, resulting in the loss of thousands of dollars in repair costs and lost sales. The physical damage to that equipment may be covered under property insurance, but unless you have equipment breakdown insurance, costs such as lost business income and revenue and lost production time would not be covered.

People often think if equipment breaks down it’s uncovered because it is a wear and tear issue. But while wear and tear is not a covered peril, a sudden, accidental breakdown is. And there can be really large dollar amounts involved here.

What kinds of businesses should consider equipment breakdown insurance?

Every business runs on some type of electrical apparatus, such as a computer, so every business could benefit from this coverage.

A lot of times we see property owners who don’t have coverage because they are leasing the space out. But if an electrical arc blows out the air conditioning or heating of an office building and you don’t have coverage for temporary power and to expedite the repair process, you will have angry tenants not paying the rent.

This coverage is becoming more prevalent, but we estimate that half of the companies that need it still don’t have it, or they have base form coverage that might not cover things such as lost revenue or contingent business income. Take, for example, a manufacturer that relies on another company to make half its product and uses that product to put together its own product. If that supplier has an equipment breakdown, it could break down the whole chain, and the manufacturer is no longer able to produce its product. However, there is a way to write the insurance that covers that contingency.

What would you say to business owners who say they can’t afford this type of insurance?

A business is more likely to have this type of loss than a fire, and no business would go without fire insurance. A knowledgeable agent can change deductibles and move coverages around and make it affordable. This is not an exceedingly expensive coverage, but a resulting incident could be.

If you think about a rooftop unit on a mall that is cooling the entire place, the compressor alone can cost $20,000 to $30,000. Just to repair the physical damage can be brutal, but then there is the service interruption, lost revenue and lost rent.

Another example is medical centers that either don’t have coverage or don’t have it written properly. If there is a sudden power spike that blows an MRI machine; MRIs still have to be done, only now they’re going to be done somewhere else. And without insurance, you lose the ability to get that revenue back. If it takes three months to get parts from overseas and get it rebuilt, you could be out of business. But if your policy is designed correctly, those resultant losses will be covered.

The lost income and expedited expenses of getting the equipment repaired quickly can be costly. And the extra expense of sending your customers elsewhere to get the job done is something you have to do to keep your clients happy in the interim, because if you don’t, they’ll go somewhere else permanently.

Having equipment breakdown insurance can help ensure you cover those losses to get back into business as quickly as possible.

Craig Hassinger is president of SeibertKeck. Reach him at (330) 865-6237 or chassinger@seibertkeck.com.

Every company seeks top talent to help grow its business and succeed, but not every company knows how to find it.

Too often, businesses settle for job candidates who meet some of the criteria for a position because they tire of interviewing, or simply don’t know where to find more qualified candidates. But a specialized recruiting firm can help you find those candidates after you have carefully evaluated your needs for a position, says Danny Spitz, president of EverStaff.

“Companies often go into the recruitment process with high expectations when hiring new individuals, and working with a specialized recruiting firm can help you meet and fulfill those expectations instead of falling short,” says Spitz.

Smart Business spoke with Spitz about how to evaluate your company’s staffing needs and how a specialized recruiting firm can help find individuals to meet your expectations.

How can a company begin to identify its staffing needs?

Start by evaluating your current staff to identify strengths and weaknesses within each department or within individual positions. Develop a current job description and evaluate it to make sure that is what is actually being done on a day-to-day basis. Update those descriptions annually, because in this economy, companies must be flexible and job responsibilities change to meet requirements. This process will allow you to make sure you are maximizing the position for your company’s requirements.

Once you’ve done evaluations, a specialized recruiting firm can do a full analysis of the department, or the individual positions, to understand how the recruitment process can enhance performance by identifying the right talent.

Should a company evaluate only open positions?

No. Meeting a company’s high expectations doesn’t necessarily mean that there is a current job opening. The best time to start looking for talent and raise expectations is actually when you have someone currently in the position but know you could hire someone with better talent that will enhance the company’s performance.

A lot of times, companies have someone they like, who is a good worker, but that person is not able to keep up with the growth of the company or take on additional responsibilities because he or she has hit the ceiling. Every year, a company should analyze every position and every function within that responsibility to make sure that the person is meeting or exceeding standards. And if he or she is not meeting or exceeding standards, that’s an opportunity to evaluate whether there is someone in the market that you can bring in to enhance that position.

This applies to upper management, as well. It is critical that you have the right managers in place, because if your management team is not exceeding expectations, it’s very likely that their teams are not meeting expectations, either.

Companies should continually try to upgrade positions if they believe there is better talent out there. Sometimes that means moving the person currently in that position to one more suited to his or her skill set, and sometimes it means letting that person go. Those are critical decisions that every company is faced with to make sure it has the right people to take it to the next level. Every company should be looking for those people who are constantly going to add value and help you get to the next level.

What would you say to a business leader who is reluctant to let someone go or move someone to another position?

It’s tough to recognize that the company has outgrown the skill set of someone you like. It’s difficult because you’re not evaluating someone on a personal level as much as if his or her talents are a good fit for the company. If the company is hesitating to make that transition, it is suffering as a result.

The management team needs to look at where the company needs to be in the next year, or next five years, and come up with a plan that will ensure it has the right staff in place to allow it to continue to hit those levels of success.

How can a specialized recruiting firm help identify the right people for a company’s needs?

While a company should do the evaluation process on its own, when looking to make improvements, partnering with a specialized recruiting firm is critical.

The recruiting firm will analyze a company’s expectations and determine if they are reasonable and, if so, how it can meet those expectations. The recruiting team will do customized searches based on where it thinks the company’s weaknesses are, where the position stands in terms of weaknesses and where improvement needs to be, and focus on identifying individuals who have the strengths to offset the weaknesses the company is facing.

It’s a very in-depth process, as the specialized recruiting firm not only takes individuals through the interview process but tests their skills, evaluates computer and personal skills, identifies where their strengths are and matches those to the company’s weaknesses. That’s what needs to happen to meet the company’s high expectations, because it’s looking for improvement out of that position.

The specialized recruiting firm will then narrow the pool of candidates based on the specific criteria developed between it and the company. It’s a very time-consuming process, but taking the time to recruit and attract the best talent will allow a company to save money by having the right individual in place or make more money by having better talent.

Danny Spitz is president of EverStaff. Reach him at (216) 674-0788 or danny@everstaff.com.

How much time do your employees spend each day tracking down documents or recreating those that have been misplaced? Even if it’s just a few minutes — and at most businesses it’s much more than that — that’s time that those employees could be doing something more beneficial to the company, says Nano Zegarra, director, Imaging Solutions Division, at Blue Technologies.

“People waste a lot of time getting up to look for files,” says Zegarra. “And while they’re up searching, they bump into someone, and three minutes turns into 10. An enterprise content management (ECM) solution can eliminate that wasted time by placing all of your organization’s documents, regardless of format, in an easy to search centralized repository. There is no real need to get up and search for documents.”

Smart Business spoke with Zegarra about how an ECM system can create efficiencies for your company and allow your employees to focus on growth, not on searching for documents.

What are the benefits of an enterprise content management system?

Many companies have unstructured document storage, with some documents on paper and some in electronic format stored on a network or on their computers, with multiple versions of the same document in different places, lacking any kind of consistency.

Paper documents can be easily lost, damaged, misplaced or they may be overlooked altogether, causing you to recreate them. And with paper-based workflows, you have documents moving from one person to another through multiple levels of approval with no real way to audit the trail or link related documentation.

But with ECM, the related documentation is always at your fingertips and one can easily monitor a process to see where the inefficiencies lie.  It offers a huge return on investment.

Another benefit is customer service. If a customer calls to question an invoice or a contract, there may be some timely investigation needed. That may entail calling someone to request a document or looking for old e-mails, then calling the customer back with the information. But with an ECM solution everything is stored centrally, so you can quickly log into the system, enter your search criteria and have everything regarding that customer in front of you, giving you the ability to quickly answer any inquiry and provide the necessary documentation to the customer if needed.

All of the work that is now sitting on your desk or that is scattered in files across multiple locations can now be sitting on your computer for quick and easy access from anywhere in your organization.

How can a company get started implementing an ECM system?

It just takes someone recognizing pain points or inefficiencies in the way they do business. Too often, companies get into the mindset that paper documents are the way they’ve always done it so that’s the way it needs to be done. It takes a proactive thinker to recognize that there has to be a better way.

When people think of ECM, they often think they need to involve the IT staff, but that is not true. The best place to get started is to identify your biggest problem point, the area where you have the biggest inefficiencies when it comes to processes, especially paper-driven processes. Once you recognize that this is something you need, contact an ECM professional, who will ask about your processes to analyze your needs and identify inefficiencies that could be eliminated with an ECM solution.

Aren’t a lot of companies already paperless?

Yes, and a lot of companies think that because they are paperless, they are doing it right. But simply being paperless isn’t enough. After companies gain an understanding of what ECM can do for them, they realize that even though they are scanning everything, they can still make that process more efficient.

There are a lot of bottlenecks in organizations, even in those that have gone electronic. Someone has to digitize a document, and someone has to categorize it.

Some ECM solutions can capture data automatically, relieving you of the timely indexing, and pushing it right into a workflow process. That’s where you see the biggest cost savings: workflow processing. It is the best way to handle any type of transactional data.

When you look at return on investment, you have hard costs and soft costs. Obviously you need less paper and storage space, but there are also the soft costs gained in people not wasting time tracking down paper documents, sitting on the phone waiting for someone else to track down a document or waiting on approval.

ECM speeds up the process and allows you to repurpose employees for more meaningful tasks. Then, as a company begins to grow, it doesn’t have to add people to process more. It can tweak the workflow, adding efficiencies, and, as it continues to grow, it can tweak it again.

What should a company look for in an ECM provider?

Look for a solutions analyst, a company that is not just trying to sell you a system or software but that will partner with you, listen to your needs, analyze them and find the best solution.

Also make sure the system is user friendly so that you can tweak it yourself. With many systems, when you want to change something, you have to go back to the vendor for every change. A proper solution should be handled by the user; you are the one that knows your organizations and processes better than anyone. The job of the solutions analyst is to make sure that you not only have the tools but the knowledge to make your business workflow better.

Nano Zegarra is director, Imaging Solutions Division, at Blue Technologies. Reach him at (216) 271-4800 or nzegarra@BTOhio.com.