Chelan David

Saturday, 26 July 2008 20:00

The tenant rep advantage

When renewing a lease, getting a quality tenant rep involved early can pay huge dividends, according to Piers Pritchard, senior associate, and Jay Holland, senior vice president and principal, both of Colliers Turley Martin Tucker.

“Your landlord is in the real estate business; brokers level the playing field,” Pritchard says. “Brokers provide expertise so you can concentrate on your core business.”

Smart Business spoke with Pritchard and Holland about what services tenant reps provide, the importance of making contact early and what types of savings can be realized.

What benefit does a quality tenant rep bring to the table?

A quality tenant rep provides a broad spectrum of services. It’s not as simple as just showing buildings — there is a wide array of knowledge that is necessary for every aspect of a transaction. This includes accurate and up-to-date market information, construction expertise and a detailed knowledge of lease documents. In addition to identifying properties and providing expertise in the negotiation process, a good tenant rep will provide a comprehensive financial analysis that allows their clients to compare alternatives on an ‘apples to apples’ basis. By utilizing the services of a quality tenant rep, a company can reduce occupancy costs, increase profitability, mitigate lease risks and minimize time invested. A quality tenant rep will also interview architects on behalf of tenants. If a tenant is going to move or renovate its existing space, it will need an architect to design the space. A good tenant rep interviews architects and negotiates architectural contracts — at no charge.

How can a tenant rep help a company gain leverage during the negotiation process?

When negotiating, it’s critical to have as much leverage as possible. When conducting real estate negotiations you gain leverage through a number of factors. Some of those include using market comparables — knowing what other deals the landlord has done, what the market dictates, what the landlord acquired the building for, upcoming lease expirations and if the owner has any intentions on selling the building. All of these factors affect a lease renewal and good brokers will use this information to gain leverage with a landlord, whether it’s an existing landlord or potential relocation.

At what point should a company contact a tenant rep?

The lead time necessary is dependent on the size of the tenant. The largest tenants need to engage a tenant rep several years prior to lease expiration so new construction can be considered. For smaller tenants, it’s important to contact a tenant rep at least 12 to 18 months prior to a lease renewal for several reasons. One, the lease renewal/relocation process, when done properly, simply takes that much time. Secondly, and more importantly, in order to properly assess all of a client’s options it’s imperative to review, explore and negotiate any relocation options before a tenant hits renewal option dates.

Typically, tenants will have the option to renew their lease with an option time between 6 and 12 months before the lease expires. It’s important that market research is completed before that option date, because if it’s not, you’re exposed to your existing landlord. Tenants that pass through renewal options are often treated differently than those with options as their ‘parachute.’ Landlords can stick tenants with above market deals simply because the tenant does not have enough time to move. Being ahead of the curve is critical.

What types of cost savings can be realized by utilizing a tenant rep?

There are two types of savings, quantitative and qualitative. Quantitative savings include how much you lowered the rent, how much the construction allowance was increased, and how much free rent a tenant received.

Perhaps even more significant — and where a good broker can drive value — are the qualitative items, which are more difficult to measure. That’s where you really see the benefit of having a strong tenant rep. Items in leases like renewal option language, operating expense caps and exclusions, termination and expansion options, white-box definitions, subletting rights and code compliance are hard to quantify upfront because you can’t associate a dollar value to them. But over a three-, five- or 10-year period — whatever your lease might be — you are certainly going to have to reference the lease for certain items. Qualitative items are hard to identify upfront, but often provide the biggest benefit in the long run.

What questions should be asked when meeting with a prospective tenant rep?

First, make sure the rep has adequate experience with similar types of tenants and transactions in the market. Secondly, ask a prospective tenant rep to answer the most important questions upfront, including: Specifically how are you going to save me money? How are you going to reduce my occupancy costs and increase my company’s profitability? What do you know about my building and landlord? Every good broker should think from the landlords’ perspective. What keeps them up at night? What specific issues are they having in the building? Are there other tenants with leases expiring in the near future? Are there tenants moving out? If there is a tenant moving out, the landlord will be more sensitive to your lease — they’re already losing one tenant and certainly don’t want to lose another.

PIERS PRITCHARD, senior associate, and JAY HOLLAND, senior vice president and principal, are both of Colliers Turley Martin Tucker. Reach Pritchard at (314) 236-5477 or ppritchard@ctmt.com. Reach Holland at (314) 236-5446 or jholland@ctmt.com.

Wednesday, 25 June 2008 20:00

Giving diligence its due

When making a real estate purchase, many details must be scrutinized. Failing to exercise proper care and planning prior to the completion of a transaction can be potentially catastrophic. That’s where due diligence comes into play.

Independently verifying all representations made by a prospective seller and uncovering relevant information that has not been disclosed — but is important to the buyer — can help you avoid expensive mistakes.

“Due diligence is a buyer’s investigation of an income-producing property during the sale process,” explains Marla Maloney, a senior vice president and principal with Colliers Turley Martin Tucker.

Smart Business spoke with Maloney about due diligence, common mistakes made during the process and the importance of a strong team of professionals.

How do you make the most of due diligence?

It is important to complete the physical inspection early in the process to ensure there is adequate time for inspectors to submit their reporting. If there is additional research that needs to take place, a structured timeline will allow the buyer to dig deeper. It is also important to manage the documentation flow so that there is time to review the materials.

How long does the due diligence process usually last?

Typically, the buyer and seller agree to a 30-day period. If the buyer finds significant deferred maintenance, if there is a hiccup with financing or if the seller is not diligent in handing over applicable materials — leases, surveys, the last elevator inspection, contracts that are placed on the property for services, etc. — the buyer will likely ask for an extension to have time to analyze and review the documentation as it relates to the property’s commitment.

What are some common mistakes that are made during the process?

There is so much exposure for buyers if they don’t fully understand the implications of code compliance and deferred maintenance. Let’s say a space has been vacant for a number of years. The previous tenant might not have been required to have a sprinkler system, but now it is mandatory. Maybe the building only has risers, it doesn’t have sprinklers on that floor, so the previous owner could have gotten away with it. However, if the code has evolved the new owner may no longer be grandfathered and may not be reflecting that cost in its pro forma, which could significantly affect the deal.

Sometimes, buyers assume unnecessary liabilities by failing to utilize professionals to complete their inspections. For example, a garage consultant should be hired to do core samplings of the parking garage. In the Midwest, there is a lot of deterioration of parking structures from deferred maintenance because of salt and chemicals that penetrate through the membrane into the actual structure of the garage. Perhaps on the outside it looks physically sound, but it could have a significant amount of deferred maintenance that will require the parking garage to be out of service for an extended period of time.

What type of research should be conducted in regards to current tenants?

It is important to examine leases and rent rolls as well as the payment history and creditworthiness of the existing tenants. It is a good idea to interview current tenants because you want to make sure they are happy and you can learn a lot about their future plans. A tenant may say it loves the building and its space, but the building is 100 percent leased and it is a growing company, so when the lease expires in two years, it will need an additional 10,000 square feet. The writing seems to be on the wall that the tenant will be relocating so you need to note this in your pro forma.

How can a company benefit from professionals when going through the due diligence process?

The benefits far outweigh the costs. Professionals understand and are aware of building codes. If you are engaging professionals, they can mitigate potential cost and help you understand the risks involved with the property.

Who should be on the professional team?

A real estate professional will act as a fiduciary on your behalf. An attorney will pore over the leases and identify the commitments that have previously been made to tenants. Due diligence includes an analysis of the incoming revenue stream. A tenant may be paying $22 per square foot in years one through three of its term, and in year four, the rent may go down. Without an attorney physically going through the documents this might have been overlooked. Also, in most cases, an environmental consultant, garage structural engineer, electrical engineer, mechanical engineer, surveyor, insurance broker and appraiser should be involved.

MARLA MALONEY is a senior vice president and principal at Colliers Turley Martin Tucker. Reach her at mmaloney@ctmt.com or (314) 746-0342.

Wednesday, 26 March 2008 20:00

Consolidating debt

When handled properly, debt consolidation can provide significant assistance in avoiding a crushing debt load. By consolidating a number of different loans, interest rates can be reduced. Convenience is another major draw of consolidation loans. Rather than pay numerous creditors who are charging varied interest rates at different times of the month, you can take out one loan and pay off all of your accounts.

Prior to exploring the possibility of securing a consolidated loan, however, it is important to evaluate your financial position with the help of a CPA. “The first and most critical thing is to have clean and accurate financial statements in order to make a rational decision,” says Rodney Fingleson, chairman of Gumbiner Savett Inc.

Smart Business spoke with Fingleson about debt consolidation, the importance of clean financial statements and what type of debt-to-equity ratio lenders want.

How does the debt consolidation process work?

It is generally a transfer of loans from different lending institutions to consolidate into one particular loan. Many of our clients have their charge cards as liabilities on their corporate balance sheets. They use their American Express, Visa or Mastercard; they use every kind of loan possible to finance their operation. This is extremely expensive, so what we try to do is take all of these loans, bundle them up into one package and have a financial institution consolidate the loan at a much lower rate, provided the company is making a profit.

What are the pros and cons of debt consolidation?

The biggest pro is that you can consolidate to a much cheaper rate. For example, many business owners have debt that is responsible for a whole slew of interest charges. Consolidation will generally eliminate those high charges into a much lower amount. Another pro is that a move toward consolidation helps to save bookkeepers time; rather than spending hours and hours each month reconciling every single account, they can get financial statements to the owners much quicker.

The con is that you have to be careful of the promises that are made to you by debt consolidation companies. It is important to find out which ones are the true lenders. Oftentimes, people get caught up with introductory rates to change their debt and find out much later on that they are in a worse position. One has to watch out for these hard money loans and people who promise to take care of everything when, in reality, the situation only becomes worse.

What factors should be considered when evaluating whether or not to consolidate debt?

The most important thing is that you have to have clean financial statements in order to make a decision. If the books and records of a company are not updated, it is very difficult to analyze a full balance sheet. It is crucial to have up-to-date financials in order to make a proper decision as to when to consolidate and when not to consolidate.

How often should financial records be updated and what specific components are lenders most interested in?

Monthly financial statements should be done between two to three weeks after the month ends. Financial institutions are looking at current ratios and debt ratios to see how a company is performing. Their main concern is debt to equity and whether the company is highly leveraged in the debt area.

Generally, banks are looking at a 5-to-1 or less debt-to-equity ratio. When you cross over this ratio, banks get highly nervous. A great company will have approximately a 3-1 ratio. If the leverage becomes higher than 5-to-1, you will have a rea problem — especially in today’s lending market — to try and consolidate your debt. A company with a ratio greater than 5-to-1 will pay a much higher rate of interest. The risk factor to the lender is much higher so, in order to bring down your interest charge, it is important to reduce your debt-to-equity ratio.

How should one conduct a search for a firm that specializes in debt consolidation?

The most important thing is to ask your CPA to analyze your balance sheet so he or she can provide you with some answers. Accountants should be aware of the potential benefits that can be derived from debt consolidation and let their clients know on a monthly basis if it makes sense for them.

At our firm, we have clients fax us their monthly financial statements so we can review them and see if there is anything that stands out. If we see anything out of the ordinary or out of balance, we call the client. It is very important to be proactive, and the best person to help you do this is your CPA.

RODNEY FINGLESON is chairman of Gumbiner Savett Inc. Reach him at (800) 989-9798 or rfingleson@gscpa.com.

Wednesday, 26 March 2008 20:00

Letting employees go

Allowing a disruptive or poor-performing employee to remain on staff will only create a hindrance toward meeting business objectives. If handled improperly, however, giving notice of termination can result in a wrongful discharge claim. Prior to terminating an employee, it is important to conduct a fair and comprehensive investigation.

“Terminations should occur only after thorough investigation and in conjunction with established principles and procedures within the company,” says James Bradley, an executive partner at Secrest Wardle.

Smart Business learned more from Bradley about how companies can best protect themselves from wrongful discharge claims and the importance of management setting a good example.

What are the most common types of wrongful discharge claims?

Some of the more common wrongful discharge claims in Michigan are brought pursuant to the Elliot-Larsen Civil Rights Act. These claims may allege constructive discharge based upon harassing conduct associated with race, gender, age or national origin, but they may also be based upon improper retaliatory discharge such as whistleblower-type conduct, wherein employees are terminated for raising concerns with management about improper conduct by other employees. Often they will include allegations of both improper conduct and wrongful discharge, and claims brought under this act may also subject an offending party — and the employer — to the payment of not only damages but also additional sanctions, such as attorney fees.

Other claims may be founded in alleged violations of conduct outlined in employee office manuals, such as smoking, taking drugs or other activities banned pursuant to established company policy.

How can companies protect themselves against wrongful discharge claims?

First, have a well-documented company policy in place that outlines employment expectations and job responsibilities as well as unacceptable employee behavior. This manual should be updated regularly, and employees should be thoroughly trained on what the policies are and how the policies will be enforced.

Second, insert a signature page into the employee manual that each employee must sign. By signing this page and returning it to the personnel office prior to beginning work, the employee signifies not only his or her understanding of what constitutes unacceptable behavior but also what the ramifications will be for violation of those policies.

Third, remember that every termination of an employee is an invitation to a wrongful termination claim. Terminate each employee with the expectation that a lawsuit could ensue. Disciplinary actions should, in most cases, be progressive, well-documented and fully discussed with the employee. Witnesses to the offending behavior should be identified in the company personnel files, along with any tangible evidence of the violation. The penalty imposed should also be outlined in the file, along with reference to any prior conduct of this nature.

How should a company communicate its policies to employees?

In well-published, strictly enforced directives from the highest levels of the business. While it is important to have policies against sexual and other forms of harassment well documented in employee manuals, it is equally important that they be adhered to at all levels of management. In many ways, businesses are like families. In fact, statistics show that other than your family, you will spend more time at work than in any other social setting.

Why is it so important for management to set the tone in regards to appropriate behavior?

First, because it is the right thing to do, and secondly, because it can save your business the needless loss of productivity and money spent defending litigation. Businesses do not exist in a vacuum. They act through their employees. Likewise, their exposure for the acts of their employees depends in many cases upon how fast and in what way(s) management reacts to the behavioral issues of its employees. If management is accommodating of bad behavior, or worse yet, complicit in the acts, it may expose itself to additional liability to a claimant for allowing injurious behavior to continue. Damages in harassment cases are often a function of not only what the offensive behavior was but how long the harassment was allowed to continue and what steps management took to abrogate the offending behavior.

How should a harassment complaint be handled?

With compassion, understanding and seriousness. Always remember that this issue is important to the claimant who is feeling wronged in some way. By taking the allegations seriously and investigating the allegations thoroughly, businesses demonstrate to the complainant and their other employees that harassment is a serious issue within the company and that it will not be tolerated.

JAMES BRADLEY is an executive partner at Secrest Wardle. Reach him at (517) 886-9024 or jbradley@secrestwardle.com.

Sunday, 24 February 2008 19:00

Short-term cash

The market’s recent turbulence signals the need to revisit short-term cash investments. Not long ago, investors were flocking to high-yield instruments. Now the pendulum has swung back in favor of less risky strategies. Successful liquidity management involves striking a balance between retaining accessibility to cash and earning predictable income from excess funds.

“Organizations need to understand what their cash needs are to determine how active or passive they want to be with their investments,” says Scott Horan, Vice President and Group Product Manager for Treasury Management at PNC Bank.

Smart Business spoke with Horan about the different types of liquidity, how the investment approach varies for each type and how to best strike a balance between risk and return when making short-term investments.

How has recent market turmoil affected how organizations manage their short-term cash?

When you look at what clients were investing in six months to a year ago, there was a lot of talk about higher yielding instruments, such as enhanced cash funds, cash plus funds and auction rate securities. However, auction rate securities had problems in that they were no longer considered cash equivalents. And enhanced cash funds and cash plus funds have had their liquidity problems. In response, clients that were the most aggressive have generally backed up one level on the risk scale.

The other thing that we’ve seen clients do is reorder their short-term cash investment criteria. It used to be that No. 1 was return, liquidity was a distant second and safety a very distant third. Now the order has been completely reversed: No. 1 is safety, No. 2 is liquidity and No. 3 is return. People are more concerned about the return of their money than the return on their money.

What are the different types of liquidity, and how does each investment approach vary?

There are primarily three different types of short-term cash: operating cash, reserve cash and strategic cash. Operating cash is not very predictable and tends to be what a client has in his or her checking account or in very short-term investments. Usually, with this type of cash, investments are pretty conservative and somewhat passive. Reserve cash is the amount of cash — outside of operating cash — that a client always wants to have on hand. For example, clients may know they need $1 million on hand in cash from an operating perspective, but they never want to be below $5 million because they want a little bit of cushion, or reserve. Typically, reserve cash is kept close to hand but may be directed to short, liquid investments like a money market mutual fund. Strategic cash tends to be longer term but not normally out past a year. Perhaps you have a certain amount of cash that you know you’re going to use to buy a building or equipment. You don’t want that cash to sit idle, so in this kind of situation you might be willing to lock up the cash in order to get a better rate of return.

What are some typical investment options for short-term cash?

There are three broad categories to choose from when investing short-term cash. The first category is individual-type securities, such as Treasuries, U.S. Government agency bonds, variable-rate demand notes, auction rate securities and commercial paper. The second type is a pooled investment, such as a money market mutual fund. With this option, the risk is diversified and you receive a blended return. The third type of category is bank liabilities. This includes bank repurchase agreements, bank time deposits, including certificates of deposits, and bank money market deposit accounts.

How can a business strike a balance between risk and return with short-term investments?

It is important to document your investment guidelines and policies. We talked earlier about return, liquidity and safety. An organization needs to determine what is most important to it. By understanding how to manage these three criteria and understanding the investments themselves, a company can effectively balance risk and return.

In the current environment, what steps should a company take to re-evaluate its short-term cash position?

If a company has already established its investment guidelines and policies, it should revisit them. If this information isn’t documented yet, it is important to start the process. This includes defining desired maturities, comparing current investments, understanding the ratings of the investments and examining diversification within the portfolio. These steps help to ensure that an organization’s investments are appropriate. <<

This article was prepared for general information purposes only. The information set forth herein does not constitute legal, tax or accounting advice. You should obtain such advice from your own counsel or accountant. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Opinions expressed herein are subject to change without notice. Bank deposit accounts are provided by PNC Bank, National Association and PNC Bank, Delaware, which are Member FDIC. Certain non-deposit investments are not insured or guaranteed by the FDIC or other government agency, are not deposits or other obligations of, or guaranteed or endorsed by, any bank and may lose value. © 2008 The PNC Financial Services Group, Inc. All rights reserved.

SCOTT HORAN is Vice President and Group Product Manager for Treasury Management at PNC. Reach him at (412) 768-9910 or scott.horan@pnc.com.

Sunday, 24 February 2008 19:00

Departure planning

Every business owner knows that one day they will exit their business — either on their own accord or involuntarily. However, many fail to properly prepare for their departure. One issue that every business owner should address as part of their exit strategy is how to maintain their current standard of living upon exiting their enterprise.

Early in the exit planning process it is important to develop a contingency plan for the business and assemble a team of advisers who can help identify strategies to meet your personal financial goals.

“The cost of hiring a team of experts is typically recovered several times over through the benefit of the increased selling price of your business and maximum personal financial security,” says Sandro Rossini, senior vice president, regional manager of Wealth and Institutional Management at Comerica Bank.

Smart Business spoke with Rossini about how business owners can most effectively transition into a comfortable retirement, the importance of having a customized financial plan in place and what type of service and performance standards one should expect from investment professionals.

What’s the first piece of advice you would give to founding owners about exiting their business?

The first step is to determine who is going to run the company upon the founder’s death, disability or retirement. If a decision is made to exit the business, the founder must decide between liquidating the business, selling the business to a non-family member or maintaining ownership of the business within his or her family. One-third of businesses don’t get passed along to the second generation. If you want the business to remain in the family it is important to evaluate the capabilities and interest of your children. This process can never be started too early.

How can a business owner most effectively transition into a comfortable retirement?

Just as an owner might hire a team of professional advisers, such as engineers, attorneys and CPAs, to build a successful business, it is important to hire a team of professionals to build a solid personal financial plan. The first step is choosing a financial planner.

Upon exiting a business, why is it so important to have a customized financial plan in place?

The main reason is so that you can maintain your standard of living. By having a plan in place, financial strategies can be developed to establish cash flow and reduce the tax impact of the sale of your business. It is critical to develop a customized financial plan because everyone’s financial circumstances are different. One person might have all of his net worth tied up in his business, with no other assets to speak of, while another person might have significant assets outside of her business. A certified financial planner can help you customize your plan so it meets your specific objectives.

Why is it important to get outside help when planning a financial strategy?

Switching from earned income to investment income is a whole new way of living. You are shifting expenses, such as for cars, travel and entertainment, from corporate expenses to personal expenses. This requires a complete evaluation. Working with a business broker, business attorney, CPA, financial planner and investment adviser should be part of your strategy.

What type of service and performance standards should one expect from investment professionals?

It is best to start with an evaluation of all your options with multiple professionals. Getting a referral from a trusted colleague that has gone through a business sale is always a good way to start. You should expect the planning process to be intense and require multiple meetings. All of the professionals you are working with should provide you with plenty of attention and be thoroughly committed to meeting your needs.

It is important to understand the compensation structure of the individuals with which you are working. For example, many stockbrokers carry the certified financial planner, or CFP, designation but are compensated only when you purchase a product from them, whereas other certified financial planners charge a fee and may not have the incentive to sell you a particular product. Part of setting your performance standards involves understanding what motivates your team.

SANDRO ROSSINI is senior vice president, regional manager of Wealth and Institutional Management at Comerica Bank. Reach him at (415) 477-3212 or sandro_rossini@comerica.com.

Sunday, 24 February 2008 19:00

Succession planning

While successful business owners spend a great deal of time building wealth through their ventures, many do not properly protect their assets by having a business succession plan in place. Allocating the necessary time and resources to create a succession plan, in which you address how you would handle the premature departure of a partner, can pay huge dividends in the future.

“You have to ask yourself a number of questions, including: If my partners die or become disabled what do I want to happen? How do I want to buy them out?” says Christopher Lapple, vice president, regional insurance consultant for Comerica Insurance Services.

Smart Business spoke with Lapple about business succession plans, specific strategies that can be implemented and the importance of obtaining an accurate business valuation.

Why is it so important to have a business succession plan in place?

There are business owners that have worked 30, 40 years to build their business, but they have no plan in place to buy their partner out in the event that he or she dies, becomes disabled or retires. Only about 20 to 30 percent of closely held or privately held businesses actually have a written business succession plan in place that is funded.

There are several different ways to fund a succession plan, with life insurance generally being the most cost-effective method. Without life insurance, the options are either borrowing money from the bank and paying interest or utilizing operating profits, which hurts business profitability.

How far in advance of an anticipated departure should business succession planning occur?

There are no anticipated departures, except for retirement. No one knows when someone will die or become disabled and will never be involved with the business again. You have to plan for the worst-case scenario and ask yourself, ‘How am I going to buy out my partner’s business interest if he dies or is disabled tomorrow?’ The time to plan is now. Drafting a written plan with your business planning attorney is essential. Your plan must address all possible departures, planned or unplanned. Some owners may even address the loss of a professional license as a buy out trigger. In addition to the three obvious buy out situations, there may be areas that are critical to address simply because of the uniqueness of the business.

What are some scenarios involving a partner that make succession planning especially critical for closely or privately held businesses?

Further complicating a buy out situation, the surviving partner(s) may be faced with a loss of partner talent or expertise. More than likely, he or she is an integral part of the business and has significant knowledge in a specific area that can’t be replaced immediately. For example, one partner may do all of the marketing and sales or has a highly skilled engineering background that might be difficult, if not impossible, to replace. You have to look at each partner individually because everyone brings something to the table. There are some cases where people within an organization are cross-trained, so losing a partner won’t have as much of an impact, but usually partners complement one another in terms of knowledge, skill and expertise.

What strategies can be incorporated into a business succession plan to address the departure of a partner?

Most people choose to pay an insurance premium using pennies on the dollar and leverage the money into a death or disability benefit. This allows your succession plan to be immediately and fully funded for these events and transfers the risk to the insurance company. The money is then certain to be there upon any of these triggering events.

How should the valuation of a business be determined?

It is critical to have a valid, reasonable accounting of what your business is worth on the open market. You need to get a business valuation from a valuation specialist or a ballpark figure from your tax accountant or CPA. A lot of people use a gut feel for what they can get for their business, but a business valuation expert will value your business by a number of different methods, including book value, capitalized earnings or recent comparable sales in the market. This will also mitigate any disagreement among partners when death or disability occurs.

How often should a business succession plan be reviewed or updated?

Any time you have a significant change in the value of your business, either upward or downward, you should review your plan. For example, if you know that your net income has doubled, there is probably a strong likelihood that your value has doubled or tripled. The need to review or update your business succession plan could arise every year or every five years; it is really a case-by-case basis.

CHRISTOPHER LAPPLE is vice president, regional insurance consultant for Comerica Insurance Services. Reach him at (310) 712-6789 or calapple@comerica.com.

Sunday, 24 February 2008 19:00

Protecting your property

Under a process called eminent domain, the government can take possession and ownership of private property for public use. Typically, the acquired property is used to build or widen roads or to install public utilities like water, sewer, gas or electric lines.

“An experienced condemnation lawyer will be able to identify things that you might not think of as you evaluate the offer, such as what your future plans for the property are and what effects the ‘taking’ might have on your continued ability to comply with things like zoning ordinances,” says Thomas Schultz, partner at Secrest Wardle.

Smart Business spoke with Schultz about eminent domain, how property is valued and the importance of fully understanding a proposed project.

What is eminent domain, and how might it affect one’s business?

Eminent domain is the right of a governmental entity to acquire property from its owner even if the owner is unwilling to sell that property voluntarily, subject to the payment of just compensation to the owner. The agency can only acquire the property if it intends to put it to a ‘public use,’ though exactly what that means can depend on a number of variables, not the least of which is the specific agency that is acquiring the property and the property’s location. Here in Michigan, there are fairly stringent rules about what ‘public use’ means, so property cannot be taken for what has been called ‘economic development’ purposes or for turning the property over to other private property owners to put to a different ‘private use’ that the government might like better.

What should a company do if contacted by a condemning agency seeking to acquire some or all of its property?

First, consult a lawyer. Even if you don’t object to the proposed project or improvement, you should know what your rights are and what the obligations or responsibilities are of the condemning agency. Second, you may also need to contact a real estate appraiser, who can help you understand the value of the land proposed to be taken.

Third, find out all you can about the project and the reason why the agency wants some of your land for this project. The agency will usually explain the project as part of its initial contact with a business, but if the information you get doesn’t seem like it is complete or you don’t think you’re being told everything, there are plenty of places to get additional information. Your local town or city planning department is often a good place to start.

Any other advice for business owners?

Think about what the loss of the property might do to your business, not just right now but years from now. Will it adversely affect accessibility or visibility or expansion plans or the future marketability of the land? Consider whether the offer from the government has taken into consideration all of the information that you have about your property and your business. If not, make sure that such information is properly conveyed to the agency. Make sure you understand the project and that your voice is heard on whether it should go forward. If you do object, object early in the process to protect your rights as best you can. Also, it is important to pay attention to deadlines contained in paperwork from the condemning agencies. Missing a deadline can have serious consequences on the right to receive proper compensation.

How is property valued in an eminent domain case?

Before contacting a business, a condemning agency is required to come up with a value for the property it intends to acquire, and it has to share that analysis with the property owner. Often, that evaluation process includes a formal real estate appraisal. The agency will at some point make a formal offer to acquire the property and negotiations can then occur. If you reach an agreement on the value of the property, the agency will then usually prepare the necessary paperwork to document the transfer of the property upon payment of that amount.

What type of litigation is typically involved?

If the parties can’t reach an agreement, the agency can then file a lawsuit. Assuming you have no argument that the property isn’t in fact going to be put to a ‘public use’ or shouldn’t be taken from you because it is not necessary to do so, then the agency will usually get the title to the property early in the litigation. After that, the focus of the litigation will usually be the amount of compensation that is owed, the fair market value and/or any damages that might be suffered by a business as a result of the ‘taking.’

THOMAS SCHULTZ is a partner at Secrest Wardle. Reach him at (248) 539-2847 or tschultz@secrestwardle.com.

Sunday, 24 February 2008 19:00

IT and business objectives

Nearly every company, regardless of their size, faces the challenge of aligning IT objectives with business objectives. Though the task is difficult, aligning new technologies with business goals can lead to streamlined operations and improved efficiencies.

“Aligning your IT objectives appropriately can help you realize major business objectives that include service-level improvements, cost reduction, compliance, information protection, and business process support and automation,” says Dave Braner, CIO of CIMCO Communications.

Smart Business spoke with Braner about aligning IT objectives with business objectives, what the biggest challenges are and the importance of developing metrics.

Why is it crucial for IT management to align its objectives with the company’s business goals and objectives?

Businesses are changing structurally and operationally in response to new trends in technology and business practices. The role of technology is becoming more and more of a competitive advantage as organizational dependencies on information and data increase. How IT is integrated into the core of a business and the integral relationships required between the IT organization and senior leadership are crucial to the success of a growing organization

As companies become more transaction-based, the value in IT investments grows. IT is no longer a cost-center or stand-alone function. In order to grow a company, IT initiatives have to be tied tightly to key strategic business goals and objectives.

What specific benefits can be realized by alignment?

Successful, properly aligned IT projects create a chain reaction of benefits. Increases in performance can lead to improved customer satisfaction, which, in turn, leads to higher revenue and market share. By basing IT investments on their ability to drive the business forward, not only does the organization’s performance increase but so does the IT department’s overall success.

How should a company get started?

It is imperative that IT management be involved in strategic planning for the business. Once the business’s strategic goals are set, establish a plan in which you translate the overall business objectives into measurable IT services. This allows you to effectively allocate your IT resources and maximize business value with every project you implement. Next, create an infrastructure that allows you to accomplish your planned objectives. Identify key resources, both internal and external, and their alignment so your entire staff can function efficiently. Finally, determine the functionality of each project and measure how it improved operations across the organization. Make sure to take baseline measurements in order to appropriately report significant change.

What are the biggest challenges?

Every business has its own set of unique challenges. Here are some challenges that can touch any IT organization:

 

  • Managing costs: This is always the No. 1 concern. To ensure that investments will bring the best return, assess the current state of your organization and its ability to deliver value.

     

     

  • Changing metrics: All too often in IT, when you finally find a pattern, there is a change and your current metrics become obsolete. Be prepared to adjust midcycle, as it is inevitable.

     

     

  • Understanding requirements: Ensure that you fully understand internal customers’ needs and the requirements to ease their pain as well as meet the business’s goals.

     

     

  • Leadership support: Major infrastructure changes and enhancements are significant investments. Senior management may not always see the big picture and often have varying opinions about how to spend budget dollars. Showing direct correlation between IT initiatives and business goals can help earn IT funds.

     

     

  • Poor prioritization: IT project wish lists do not get shorter. Poorly prioritized projects can end up costing additional money and time. Consider time, capital and outcomes when prioritizing projects.

     

What metrics are typically used when aligning IT and business objectives?

One of the most important ways to monitor your success is to evaluate your work and show tangible results. Although it is recommended that you develop metrics significant to your organization’s success, there are some standard metrics that can work well for any organization.

 

  • Percentage uptime: How long are your applications staying up? Consider the times when the applications are down and how they affect the function of that application and the cost per employee during downtime.

     

     

  • Functionality: What purpose is the application serving, and what process is it improving? Determine whether the project is meeting a purpose for the business.

     

     

  • Problem resolution: Are user issues being addressed in an efficient way? Is there one central location for users to go to for the application? What is the time to repair for problem resolution?

     

Metrics should always be tailored to a company and its objectives. Determine what metrics capture the true results of your projects to calculate the return on investment for your organization.

DAVE BRANER is Chief Information Officer of CIMCO Communications. Reach him at (630) 691-8080 or davebraner@cimco.net.

Tuesday, 29 January 2008 19:00

Prepare for change

Every business will hit a rough patch at some point. A company’s momentum can be stunted by a number of factors including an unfavorable economic climate, the loss of a key customer, or disappointing results from a merger or expansion. Regardless of the cause, during trying times, it is important to maximize the relationship you have developed with your bank. By being candid and forthcoming about potential challenges, you put your banking partner in a position where it can proactively identify solutions to meet your needs.

“The ability to maintain a relationship with a financial institution during challenging times will save a company time and money,” says James Wade, first vice president of Comerica Bank.

Smart Business spoke with Wade about how to best maintain a relationship with one’s banker during challenging times, the importance of communication and how to plan an investment strategy during the midst of an economic downturn.

Why is it so important for businesses to maximize the relationship they have with their bank during challenging times?

Having a long-term trusting relationship with a bank’s decision-makers should provide you with a clear understanding of their expectations, which will allow your management to focus on operations versus interviewing alternate sources of financing. If you find yourself in a situation where your bank is not willing to understand your business, especially during challenging times, it may be time to find a new financial partner.

In what ways should companies work with their banker in advance of, and through, economic downturns?

A company needs to choose a financial institution that has a history of supporting its customers through cycles. Look for a bank and a team that has operated through multiple cycles. If this experience is part of the culture of the financial institution, it provides the confidence and patience to support a company through challenging times. Invest the time to develop a relationship with multiple decision-makers in your financial institution when times are good. This strategy will pay off when cycles change.

What role does communication play in sustaining a positive working relationship?

Communication is critical; no one likes surprises. A financial institution and banker deserving of your business will bend over backward to support your company through challenging times, assuming you have taken the time to communicate the good and bad, timely and accurately. A banker who trusts the information you are providing will have an easier time supporting your company during challenging times. However, remember that commercial banks are regulated institutions that have legal requirements and their role is not to fund long-term losses or other equity situations. Banks do have the flexibility to work through short-term problems and may ask for flexibility in return in the form of additional collateral.

How should a company communicate disappointing results to its banker?

Communicate as soon as possible and provide an action plan. Include monthly projections with your plan for a benchmark to operate against. The objective is to agree on a plan so you have the ability to operate your company without wondering how your bank will react. Meet often during these times and provide actual performance comparisons to your plan. If you deviate from the plan, meet with your banker to discuss what happened. It may be necessary to revise your plan if the environment you are operating in is changing.

In the event that a company loses a key customer, what strategy should be utilized?

A company should be diversifying from concentrations prior to losing a key customer. However, if a key customer is lost, the obvious and most conservative answer is to cut expenses to remain profitable at the lower volume. Your company becomes self-sustaining quickly and can implement a long-term plan to replace the lost revenue. Business owners are entrepreneurs and may want to invest to replace lost revenue quickly. This can be done through acquisitions of a company, technology or people. All have an element of risk. Plan ahead and, if possible, implement your plan before losing that key customer.

How should companies plan their investment strategy during the midst of an economic downturn?

A cyclical business that is affected by economic downturns needs to develop a strong balance sheet during the good times. This will provide a competitive advantage during challenging times. You may be able to acquire a competitor at a great price or increase your market share one customer at a time. Regardless of your specific strategy, the flexibility provided by having liquidity during uncertain times will prove beneficial. <<

JAMES WADE is first vice president of Comerica Bank’s San Diego Middle Market Group. Reach him at (619) 652-5778 or jrwade@comerica.com.