Establishing a good relationship with your banker is beneficial to your business because a bank can be a source of ideas to improve your company.
“Think of your banker as an extension of your team, just as your CPA or attorney is part of your advisory team,” says Susan D. Steiger, vice president, commercial loans for Lorain National Bank.
“When we come out to see you, we don’t have the meter running. It’s part of our job to spend good quality time with our clients. We don’t send you a bill at the end of a meeting, so it’s something you should take advantage of,” she says.
And if your banker understands your business, he or she can bring you ideas that make your life easier.
Smart Business spoke with Steiger about how to establish a better working relationship with your lending partner.
How should business owners get their bank involved as they consider making investments?
Get your banker involved early when you’re weighing any kind of investment. Ideally, we’d like to be the first call when you have a major strategic move to consider. Whether an acquisition, buying out a partner or making a capital investment, it’s always better to start the discussion sooner rather than later.
Use us as a sounding board, bounce ideas off of us. We may have advice on structuring the deal or may have seen similar situations with other clients, so use that experience to your advantage.
On the other hand, you may be a nonborrowing client who doesn’t anticipate a need to borrow; maybe you’re just using the bank’s treasury services. It still is wise to begin a regular dialogue with your banker; the relationship ideally should be established before you have a borrowing request. Invest the time to educate your banker about your business, your markets and your industry — it will pay dividends down the road.
What else should a business owner expect from a banking relationship?
You should expect to have access to multiple levels in the organization. Make sure your banker is introducing you to others, especially top management. Your banker is your primary point of contact, but he or she is only one person and no one person is calling all the shots. Others at the bank are part of your team too, and you’ll benefit from everyone’s experience. Interaction with all the bank’s decision makers will pay dividends when your next credit request goes before committee.
We can also connect you with other valuable advisors. It’s our responsibility to introduce you to others, both inside and outside the bank, who have relevant experience. It might be for treasury management, investments or estate planning solutions, or tax advice — we can give you access to those professionals.
When is it a good time to talk with your banker about problems?
From the get-go, be forthcoming with information, both good and bad. It just is not a good practice to surprise your banker. When something happens seemingly out of nowhere, it raises red flags. We need to know if you’ve just lost a major customer, your new product launch is delayed or you’re in danger of tripping a loan covenant.
It’s a banker’s job to understand your business, and we know things don’t always go as planned. It is much better to deal with it as soon as you know about it because then we can help plan and strategize the next steps. Remember, we’re your advocate inside our organization.
Positive news often requires advance planning, as well. So let us know if you have just landed a major contract or are in negotiations for the purchase of a new warehouse.
How often should you be talking with your bank?
Your banker should be scheduling annual reviews with you. If not, then ask for it. This annual review is part of keeping the lines of communication open, but it also serves as a more formal process to review your year-end financials and the outlook for the coming year as well as to discuss any other needs you might have. But certainly meet with your banker quarterly, if not more frequently, on a more informal basis.
Also, get the other key people at your company involved in these meetings. Banks like to see that you have bench strength on your team and that the whole business isn’t being carried on your shoulders alone.
How crucial is it to negotiate rates?
Price isn’t everything. It is not necessarily the best strategy to negotiate every rate and price down as low as you can go. In the long run, if your banker is forced into that kind of relationship, when things get tough, he or she may not have the staying power to maintain the relationship. The financial relationship has to be a win-win. If the company is doing all of these things to foster a good relationship, it is going to get competitive pricing over the long haul.
I think it’s often frustrating for owners or managers to deal with the bank. They just would rather not do it or would rather delegate it to someone else, perhaps their controller. But that interaction is too important to ignore. The success of any relationship — personal or professional — always comes down to communication; it is the most important variable.
We are people and we are in a people business. Communication over time builds trust, and mutual trust is at the core of any good relationship. Everyone pays lip service to it, but it really is the key.
Susan D. Steiger is vice president, commercial loans for Lorain National Bank. Reach her at (330) 655-1824 or email@example.com.
Insights Banking & Finance is brought to you by Lorain National Bank
Smaller businesses often don’t have the wherewithal to enforce their patent rights because pursuing this type of litigation is very expensive, and they lack the expertise. However, the rise of nonpracticing entities (“NPE”) — organizations that enforce patents against alleged infringers with no intent to manufacture or market the invention — have made this an area that businesses need to take seriously.
“When you are a company that has one or two patents in an area and you’re fighting against an entity with hundreds in that area, it’s difficult to win,” says Michael G. Craig, a patent attorney with Brouse McDowell.
If you don’t have a standalone IP protection program, you’re losing revenue now, have lost it in the past and will continue to do so in the future.
“In the past, people assumed patents were a trophy for smart people to hang on their walls,” he says. “Now companies are monetizing their IP. Studies have shown that some 50 to 60 percent of a company’s worth comes from trademarks alone. These are commodities that need to be monetized. If you don’t have a strategy to do that, you are losing revenue.”
Smart Business spoke with Craig about NPEs and the importance of IP protection strategies.
What is a nonpracticing entity?
There are different types of nonpracticing entities. Generally, NPEs own and enforce patents but don’t intend to manufacture the products or provide the services associated with them. They instead enforce the patent rights in other ways. Some NPEs purchase patents from companies that don’t have the wherewithal to enforce those rights, doing so through licenses or lawsuits against infringers. These are groups created solely to buy up the intellectual property of others and enforce those rights without any other business plan or means of revenue.
Some entities hold defensive patents. Companies can partner with them for protection against lawsuits, and collectively, they become a harder target because they’re part of a group. There is also the purchase of patents for offensive purposes, such as buying patents to take over a segment of the market and force others to leave or enforce their rights.
Patent trolls are another aspect of NPEs. They hold patent rights, wait for someone to monetize the idea and then pounce. EBay’s one-click purchase — which allows buyers to bypass the bidding process and buy the item instantly — was a victim of a patent troll, as was BlackBerry, which had a patent troll sue it for its technology, worth hundreds of millions of dollars.
Why are NPEs significant?
They can drive the way a company’s patent strategy is developed. NPEs don’t have anything to lose when enforcing their rights. When you are sued, you have to allocate resources to defend your rights, which takes money away from your core processes. NPEs’ resources and business models are designed to enforce patents. You need to understand what NPEs are doing because they change the landscape of IP, and you need to develop an R&D strategy to navigate it and determine where you fit in.
You can join an aggregator, which is an NPE that aggregates IP property for the benefit of having safety in numbers. Those that join them can use the IP of others, as well as the aggregator’s resources for protection, offensively or defensively. And because the cost of a lawsuit is so deleterious, most will give up their IP rather than pursue a lawsuit. Also, when you practice in an area, particularly one that utilizes an industry standard, such as wireless networking, there is likely to be an NPE from whom you, or your parts supplier, may need to license the technology.
What can companies do to protect themselves from NPEs?
There is an overarching concern in the industry that there is no protection against an NPE. The reality is, under the current legal system, NPEs are not doing anything wrong. They would say they are just protecting the rights of inventors. IP is actually property that can be bought and sold and infringements against that need to be protected.
Err on the side of overprotection. Managing IP may seem expensive at first, but as far as costs associated with patenting or licensing, in the long run, the payback is tremendous. Further, you need a strategy to deal with NPEs in areas in which you do business, such as licensing agreements and hold harmless agreements.
IP programs should have the use of legal professionals to help them determine what is worthwhile to patent and how to go about it. A lot of companies have brainstorming sessions to come up with a list of ideas of what to patent, then flesh them out and go to their legal professionals with a list of ideas to determine which are worth protecting and the costs to do so.
Also, every company needs to have a strategy on how to protect their IP when certain situations arise, such as a potential infringer or infringement.
What should companies do when they are in a potential infringement situation?
That can be an anxious time, particularly if it is a product that drives your business. Your first call should be to an attorney who specializes in that area to analyze the claim to see if it has merit. They could contact the other party and negotiate because you don’t want to reach litigation. The worst thing you can do is put your head in the sand, because after you have been notified, it becomes willful and the penalties can add up.
You don’t need to reach that point. If a company is unsure of what the next step should be, contact a professional to manage the process. All you need is a little help to point you in the right direction and periodic management from an attorney to help along the way.
Patents are assets that need to be exploited and monetized. The IP landscape is changing, and those who don’t recognize this and look at the other way are going to be left behind.
Michael G. Craig is a patent attorney with the Intellectual Property Group at Brouse McDowell. Reach him at (330) 535-5711 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Brouse McDowell
Borrowers often assume that because they have made all their payments in a timely manner, renewing their line of credit will be as easy as it has been in the past. However, this is not the case, says Kenneth R. Cookson, attorney with Kegler, Brown, Hill & Ritter.
“The lending environment is different now and the conditions that allowed some borrowers to run the lines up to the maximum amount and simply pay the interest have passed,” says Cookson. “While in earlier years, it was almost automatic that timely payment of the monthly interest alone would make renewal easy, today, being a ‘loyal customer’ is nearly irrelevant to the renewal process.”
Smart Business spoke with Cookson about the lending environment and how changing conditions have affected it.
What challenges are banks currently facing?
In the post-Great Recession regulatory environment, banks are facing a combination of focused regulations and declining values in real estate portfolios and borrowers. They have pressure on their capital requirements and reserve requirements. When a loan is classified as less than perfect, there has to be a reserve established from a bank’s capital to offset the portion of the loan that is in jeopardy, which can eat into capital reserves quickly.
Banks are being subjected to a loan-by-loan analysis by regulators and they are trying to get ahead of that by going through their own portfolios to figure out which loans are speculative and which are not.
Further, a bank may feel regulatory pressure when it has a high concentration of loans in one industry with similar borrowers, so it may hedge its risk. The borrower may be surprised that the line of credit is not extended because the business has made payments on time, but the bank may feel that it is too exposed in that particular area.
How are banks coping with these regulatory requirements?
They are certainly increasing their lending standards. The ratio of loan-to-value has come down, particularly in the real estate market, where a 70 percent loan-to-value ratio is not an unusual request. When you couple that with a decline in real estate values, it really amplifies the state of the conditions and the difficulties for both lenders and borrowers.
What is happening to borrowers?
Borrowers, in many cases, are being caught unaware. They have had a line of credit with a bank for many years and don’t deal with a commercial banker very often. They will send in financial statements annually, the revolver is generally renewed and the rate goes up or down according to market conditions.
Now, bankers are having trouble renewing those lines of credit and are reducing them, or imposing other requirements that have not been enforced previously, such as not allowing borrowers to take out the maximum on their line and just pay the interest for a full year. The borrowers express surprise, asking, ‘Why shouldn’t making timely payments make the renewal of that loan automatic?’
The answer begins with the regulatory requirements on banks and concentration issues, the value of the portfolio of the collateral supporting the loan, an increase in loan-to-value ratios and cash flows.
If it is a real estate loan or one backed by accounts receivable, and the value of either or both has gone down, leading to the appropriate ratios established in the loan document to not be in line, the loan could be classified downward. Borrowers need to understand a bank’s regulation reviews, internal reviews and lending policies, and be prepared for that.
What can borrowers do to help themselves through this?
Borrowers should make sure that their financial statements are current, accurate and complete. Look at your internal records and make sure that your accounts receivable are all good, and if they are not, work to discover the problems before the bank does.
Also, know your business plan and what your five or 10 largest customers are doing. If you learn that of your two lines of business, only one is profitable, you should shift your resources to the more profitable of the two.
Companies can get weighed down by the history of their operations and not take a critical look at their business model, business plan, customer array and pricing policies. Examine your business model as if you were starting fresh.
There is no shortage of examples of businesses that hypothetically have grown but their profits have not gone up proportionally. Increasing sales doesn’t necessarily mean higher profits because of other factors, such as margins and collectability issues. You have to scrub the numbers to see what you are doing right. You may have to cut back sales to better serve customers at higher margins in order to make more money.
How can banks and borrowers each adjust during this period of transition?
You have to assume that we are going to come out of this Great Recession and that the economy will be back in growth mode. This takes patience and understanding from both lenders and borrowers.
Lenders want to make loans. They need to lend money because that is how they get a return on the capital that has been invested. And borrowers need to be granted loans in order to make that happen.
Kenneth R. Cookson is an attorney at Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5445 or email@example.com.
Insights Legal Affairs is brought to you by Kegler, Brown, Hill & Ritter Co., LPA
Cash is still king. In 2008 and 2009, many companies failed because of a lack of liquidity, and as the economy declined and sales trended south, many saw their accounts receivable days lengthen out. Combined with overleveraged balance sheets, it resulted in the tragic end of many companies.
“Cash flow is the lifeblood of any company, and managing it is the key to a company’s longevity,” says Edward L. Wood, CTP, regional vice president of commercial lending for National Bank and Trust.
Smart Business spoke with Wood about cash flow management strategies that can prevent companies from becoming overleveraged.
What are the areas of cash flow that a company can control?
The key component to managing cash flow is managing the inflow and outflow of money. A company needs to focus on three areas: accounts receivable, inventory levels and accounts payable. You want to shrink your turnaround days as much as you can for your accounts receivable and inventory levels. The shorter the turnaround on your receivables, the quicker you are collecting cash and putting it back into the company.
For payables, an outbound form of money, the strategy is the opposite. If you are paying your vendors in 10 days, you want to lengthen those payment periods to 30 days. This creates cash in the company because you are slowing down the outbound flow of money from the company.
Every industry varies somewhat on its payables strategy. Have a discussion with your lending officer because he or she can give you a benchmark of your payment strategies compared to your peers to give you an indication of where you should be. But generally, getting your payables out in 30 to 35 days is not unreasonable.
On the inbound side, you need to keep your receivables at the same levels. Less time is better on the inbound side and more time is better on the outbound side.
How should cash flow be tracked?
The main issue is that it needs to be a process that is focused on consistently, not just at the end of each quarter. You need to manage your accounts receivables turn, inventory turn and payables on a consistent, daily basis to know where they are. That is information you can get by using accounting software, or your community bank can take your financials and give you benchmarks.
What are some common cash flow management mistakes?
Particularly on the inventory side, and especially for manufacturing companies, you have to be careful of the inventory you are purchasing and how quickly you turn it around. Buying an expensive piece of inventory and not selling it quickly can tie up cash flow. It is important to buy inventory that you know will have a quick turnaround, not something you have to sit on while you look for a buyer.
On the accounts receivable side, the mistake is not monitoring your how quickly your receivables are turning over. When you make a sale, the faster you collect on your receivables, the faster you put cash on your balance sheet. Making a sale doesn’t do anything for your company until you are paid.
Customers need to focus in on methods that make receiving payments faster. To encourage faster payment, you can increase the cost for transaction types that are slower or offer discounts for faster methods.
On the outbound side with accounts payable, you can have a conversation with your customers about when they should expect to be paid. Vendors will often work with you, which will help to better manage your cash flow.
How can a company improve its cash flow?
Depending on your lender, it is always a good idea to make sure you are using cash flow effectively. If you have a commercial line of credit, consider a loan sweep that allows you to automatically apply your excess cash against your loan. If you need money, it automatically pulls liquidity from your line of credit so you are not manually moving money back and forth between your loan and deposit account. A lot of financial institutions will charge significant fees for those, but if your bank is doing so, you need to find a bank that is not.
You can also look at your billing cycle in terms of when you are sending out invoices. If you are not offering discounts on accounts receivable, doing so can be an incentive to get paid quicker.
How do you determine what impact capital assets will have on cash flow?
With purchase of any capital asset, the company needs to look at the value it brings to the bottom line. When you buy a piece of equipment, it produces some benefit over time, which is where financing becomes attractive. If you pay for the equipment in total today, you are putting all of that cash into a physical asset that offers a return over several years. Financing defers the payment of the asset over time to match the revenue coming in from the asset to its debt payments, so you are leveling off the payment structure to match revenue generation.
What products can a bank offer to help improve a company’s cash flow?
Utilizing electronic deposit for deposit transactions is a big plus rather than taking deposits to your bank. You can do this from your office through a check scanner, allowing you to accelerate the collection process, and this lets you know more quickly if you have a problem with a payer.
A lock box is another option. It eliminates the option of having something mailed to company and the need for someone to physically make the deposit. It also accelerates collections.
Edward L. Wood, CTP, is regional vice president of commercial lending and the HCDC (Hamilton County Development Corp.) 2011 lender of the year. Reach him at (800) 837-3011 or firstname.lastname@example.org.
Insights Banking & Finance is brought to you by National Bank and Trust
People are approaching how they use office space differently than they have in the past, says Ronald J. Gantner, CPA, a partner with Plante Moran CRESA. And this has changed how buildings are designed and renovated.
‘The generation coming up in the work force wants more collaborative space, with fewer walls and greater technology infrastructure,” says Gantner. “Some buildings and landlords have adapted, some have yet to catch up, and others may not be able to create the environment today’s tenants are demanding.”
Finding the right building for your needs and determining which is the most affordable — and that is not necessarily the one with the lowest rent — can be challenging and time consuming. But you don’t have to go it alone. An experienced tenant representative can assist you through the process.
Smart Business spoke with Gantner about tenant representatives and how they can help you navigate the real estate market while you stay focused on your business.
How have the changing needs of businesses affected office real estate?
In the real estate business, we used to talk about price per square foot. Now buyers are looking at the cost per person or the occupancy cost per employee. This creates an opportunity to accommodate more people within more flexible spaces and reduces tenants’ demand for square footage. We’re seeing more maximization of space or greater efficiency in the way space is used, which will drive down cost.
From a landlord’s perspective, buildings need to adapt and be smarter to recapture rent. A significant cost of space build out is related to the technology that our new wireless, high-tech workers demand. Existing buildings with a strong technology backbone are going to command a higher rent as this offsets improvements that would need to be made to bring another space up to par. More flexible and collaborative space will create a higher demand. Everything from WiFi in common areas and cafeterias to flexible space with lots of parking sets the best buildings apart.
Some market areas don’t have a lot of quality buildings that can be easily retrofitted to accommodate what today’s tenants are looking for. Tenants may discover the list of great opportunities is shorter than the recent high vacancy rates may imply. Rent is only one component of your total occupancy costs. Ultimately, tenants don’t want to put much capital into a nonperforming asset. Instead, they want to invest it into their core business because it will result in a higher rate of return.
How can a tenant representative help?
A tenant representative is an advocate for the tenant. Often tenants can get hung up on a great real estate deal and fail to analyze whether it is a good business deal. A representative will show you all of the options that make sense to your business from a real estate, financial and strategic perspective. It might seem attractive to only pay $15 per square foot for the real estate, but it could cost $100 per square foot to upgrade the space to work for the client. They look at aspects beyond rent, including the cost to move and build out a space, as well as the surrounding amenities to present you with the top options based on your needs and budget.
How important is the tenant representative’s ability to be independent?
It is extremely important to work with someone who is not incentivized by a landlord to lead you in a particular direction. Using an independent tenant representative will avoid conflicts of interest and show you all the options that make sense for your business. Having an advocate sitting only in your corner is also valuable in negotiation.
What are the dangers of conducting the search for office space on your own?
Tenant representatives are involved in numerous transactions on a daily basis. They have extensive knowledge about the market and what to look for in a real estate contract, and even help ensure your lease has flexibility for expansion or contraction. Tenant representatives have learned best practices over hundreds of transactions and years of experience, while comparatively, most business owners will be learning as they go while deflecting efforts away from their business’s core functions. And if you make a mistake, it can be very costly for a long time to come.
Can working with a tenant representative lead to a better deal?
Absolutely. Tenant representatives know the market, the transactions that are happening and what capital dollars landlords are spending to entice tenants. They also know the capital structure of the landlords who own the building you’re considering.
In the past years of the economic downturn, landlords have lost buildings or remain troubled financially. Tenant representatives can educate the client on these situations, which may range from a decline of property maintenance services or even foreclosure.
Once you are into a building and the property and facilities are not tended to properly, it impacts a company’s ability to do business. So it is not only pricing, it is making sure you are in a suitable location where you can conduct your business relatively worry free.
How do you select a tenant representative?
The important thing is to begin the process early — at least two and a half years before your lease expires. Also, talk to two or three providers. Look for firms that have independence or that work only on behalf of tenants. Talk with them about their process, look at their financial capabilities and work to understand the P&L impact of these real estate transactions. You want a firm that can handle your space planning needs while working to get the best pricing for the property.
Ronald J. Gantner, CPA, is a partner with Plante Moran CRESA. Reach him at (248) 603-5257 or email@example.com.
Insights Real Estate is brought to you by Plante Moran CRESA
In multi-jurisdictional litigation, a client faces multiple lawsuits in more than one jurisdiction, asserting substantially similar claims arising from a common alleged event, transaction or practice.
“You have litigation going on in several jurisdictions raising the same set of issues, which can lead to duplication of expenses and the risk of inconsistent verdicts; defendants must manage that risk,” says Fredrick S. Levin, a member at Dykema Gossett PLLC.
Smart Business spoke with Levin about strategies one can employ to manage multi-jurisdictional litigation.
Why does multi-jurisdictional litigation need to be handled differently from routine litigation?
Multi-jurisdictional litigation needs to be treated specially because of the greater potential exposure. Take, for instance, a dispute over a small fee. Using a traditional cost-benefit analysis, it may seem to make sense to let your internal claims department handle it, or to employ the firm regularly retained for routine, lower-dollar cases.
However, ‘routine’ treatment may not be best. For a single, routine case, it may not make sense to spend the money to bring a motion to dismiss or take significant discovery. It may be less expensive to have a short trial. But, if the case goes to trial and the result is an adverse judgment, that judgment might be used against you in similar cases being heard across the country. The issues decided adversely could provide the seeds for a class action on a state or nationwide basis. If a claim challenges an allegedly common practice or has been or may be raised in more than one jurisdiction, there are a number of techniques for managing multi-jurisdictional litigation.
How can defense counsel work effectively across jurisdictions?
When facing multi-jurisdictional litigation, it is essential to create a defense that is consistently applied across jurisdictions. There should be a common approach to marshaling the facts, documents and other evidence, analyzing the legal theories and determining the most appropriate defense, and assuring that the strategy can be successfully applied across jurisdictions.
For efficiency and consistency, there is great value in appointing a lead firm to implement the overall strategy. In selecting a lead firm, look not only for substantive expertise but also experience managing multi-jurisdictional litigation, including experience managing other lawyers and law firms nationwide.
Lead counsel may also need to hire local counsel. Select local counsel based on:
- Experience participating in coordinated, nationwide efforts;
- Knowledge of the judge and local custom and procedures; and
- A working relationship with opposing counsel, if possible.
What are some strategies for defending against multi-jurisdictional litigation?
The key to an effective defense is an early and thorough diagnosis of the problem. Is there potential merit to your adversary’s claim? Are the facts or practices easily explained and defended? If not, what is the best means for resolving the claims efficiently? Is the problem multiplicity of suits such that the cost of litigation poses a greater threat than the claims? Does such multiplicity impede a global settlement? What is the best forum for litigating, trying or resolving the claims? Is there an opportunity to consolidate all suits in one forum? The answers to these questions will drive the strategy for extricating your business from the problem.
For example, if your adversary’s claims are legally deficient, a motion to dismiss may be appropriate. Lead counsel will want to examine the law and a host of other factors for each of the pending cases and then push forward in the jurisdiction where you are most likely to prevail. The victory in that jurisdiction can then be presented in other jurisdictions.
If the problem is multiplicity of suits, various techniques can be used to obtain some or all of the advantages of single proceeding. For example, if several cases are pending in the federal court system, you can apply to the Judicial Panel on Multidistrict Litigation for an order consolidating the cases into a single court for pre-trial purposes. Some states have similar procedures for consolidating into one court multiple cases pending in different counties within a single state. In some rare situations, if the paramount objective is eliminating multiplicity of suits or achieving a global settlement, you may consider consenting to class action treatment, which, if allowed, will resolve in one proceeding all — or nearly all — similar cases.
Even without formal consolidation:
- The involved courts can enter orders: (a) setting similar schedules for conducting discovery and motion practice; (b) requiring the use of a centralized document ‘library,’ so that evidence need not be produced more than once; (c) allowing depositions taken in one proceeding to be used in others, so you and your colleagues do not have to be deposed more than once; (d) imposing uniform written discovery forms; and/or (e) limiting the scope of discovery. Courts may also appoint a common ‘Special Master’ to hear and resolve discovery disputes so that the same rules apply across the board. Usually, such coordination will require motions to the involved courts. However, it may be possible to obtain agreement from opposing counsel; although litigation is adversarial, it need not be nonsensical.
- In a multi-jurisdictional case, there will often be others in the same line of business who are being challenged for the same or a similar practice. Your lead firm can coordinate with its counterparts using a defense steering group.
- Your lead firm can host a secure, password protected ‘extranet’ to facilitate communication among you, your lead firm and your local counsel. The extranet site can be used to host pleadings, depositions and discovery materials.
- Your lead firm can (and should) help you to manage the selection of expert witnesses. To reduce expenses, these experts can be made available across jurisdictions.
Fredrick S. Levin is a member at Dykema Gossett PLLC. Reach him at (313) 568-5372 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Dykema Gossett PLLC
Many employers are beginning to cope with the realities of the Patient Protection and Affordable Care Act as its mandates, confirmed as constitutional by the Supreme Court, begin to take effect. Still, many questions exist, as some of the law’s major provisions have yet to apply.
“Complying with the new regulations might be frustrating and confusing for the first few years and employers will have to rely on their trusted advisers and insurance carriers for assistance and guidance,” says Paul Baranowski, Director of Account Management at Benefitdecisions, Inc.
Smart Business spoke with Baranowski about the impending reforms and the effects they will have on your employees, their benefits and your business.
What are the key concerns employers will face regarding health care reform?
The immediate concerns for most employers are the mandates that will go into effect with this next benefits renewal cycle. The primary mandates include women’s health preventive care amendments, uniform summary of benefits and coverage statements, W-2 reporting requirements and a reduction in the maximum amount an employee can put into his or her health flexible savings account (FSA).
Regarding the women’s amendment, the mandates require that plans cover 100 percent of expanded services, including preventive screenings for HPV, sexually transmitted infections, HIV and gestational diabetes. Additionally, counseling for these services will be covered. Finally, commonly used contraceptive methods will be covered, as well. Some services related to these categories have been a part of plans for some time but are now covered at 100 percent. By expanding the definition of covered services, the act will increase costs to insurance carriers in the short term, which will then be passed on to employers as premium increases.
The Uniform Summary of Benefits and Coverage is required for group plans with open enrollment periods after Sept. 23, 2012. This is a new, separate benefit coverage document that attempts to explain coverage in a standardized format. It is intended to make plan comparisons easier and to illustrate what an employee’s costs under the plan will be. However, due to design and content restrictions, employees may get confused and potentially misunderstand what their own expenses will be for their health care services. As a consequence, employers will have to be more thorough, cautious and deliberate in their open enrollment meetings and education to employees. Most employers are fully insured, so their insurance carriers will produce the Uniform Summary document. Employers that are self-funded, however, will be required to assemble these themselves. Some claims administrators will charge fees to produce the summary on behalf of a self-funded employer.
The mandate that requires employers issuing 250 or more annual W-2s to include the annual value of health coverage on the W-2 is pretty straightforward and most, if not all, employers are ready to comply for W-2s issued in January 2013 for the 2012 tax year.
Regarding health FSAs, the maximum amount an employee can contribute is being capped at $2,500. Previously, there was no stated limit to these tax-favored plans. Not many employees currently contribute more than $2,500, so this new provision primarily affects higher paid employees.
What provisions of the act will employers need to deal with in 2014?
2014 is the year that many of the big changes required by the reform act will take place. The state insurance exchanges, where smaller firms and individuals can purchase medical coverage, will be in place in 2014. Also, the requirement that employers ‘pay or play’ will take effect. This means that employers with 50 or more full-time employees are required to provide coverage that meets the ‘affordability’ and ‘coverage’ rules or face penalties. However, companies with fewer than 50 employees will not face these penalties. Employees will also face a tax penalty if they do not purchase required coverage.
Assessing the impact, determining the best strategy to navigate through these reform changes and, at the same time, maximizing an employer’s benefit spend can be very complex. Determining the exposure and risk depends on an employer’s size, industry, location, the mix of part-time employees, the company’s core values and other factors. The law will have a greater impact on employers in certain industries (e.g. retail, hospitality) in which the number of hours that employees work changes frequently. To avoid penalties, many employers in these industries will likely need to offer some form of health benefits to employees who didn’t have them previously. Because there is no universal answer as to what an employer should do, employers should partner with trusted advisers to help them strategize through this process.
Are there parts of the legislation that can ease an employer’s pain?
Yes, some new regulations are being released that give temporary relief, particularly for companies facing the largest penalties for not offering ‘adequate and affordable’ coverage. For example, recent notice was given that allows employers to take up to 13 months to offer coverage to employees who do not consistently work an average of 30 hours a week. Previously, the legislation was interpreted to mean that coverage had to be offered to these employees in 2014. For companies that have a large variable-hour work force, this notice has delayed millions of dollars in potential costs.
How might reform play out in the long term?
Regardless of the November election outcome, we expect that the major features of this legislation will remain, albeit with delays and changes. Employers can best prepare by relying more heavily on consultants and advisers to handle the significant changes over the next few years.
Paul Baranowski is Director of Account Management at Benefitdecisions, Inc. Reach him at email@example.com or (312) 376-0436.
Insights Employee Benefits is brought to you by Benefitdecisions, Inc.
Human resources departments provide two kinds of services: administrative and strategic. Russ Elliot, senior vice president, human resources director at Bridge Bank, says initially, it’s critical to develop effectiveness and efficiencies on technical aspects of human resources. The next step is to develop an understanding of the core business and use your combined knowledge of HR technical competencies, the business and its employees to influence the business direction, its goals and ability to perform.
“The key initially is listening to understand that each area of an organization is slightly different, requiring an unique set of resources and support,” Elliot says.
It’s important to understand the culture and subcultures, the direction the business leaders want to go in and the vision of the CEO so that the HR employee can assist in the journey to get to that vision.
“It’s a lot of listening at all levels, one-on-one with employees from across the organization, and taking all of that in to really understand the patterns,” he says.
Smart Business spoke with Elliot about developing your HR department to have the greatest impact on your company.
What makes HR effective?
It’s a complex role because you have to pay attention to the company’s needs and goals while ensuring employees’ rights and needs are met. The department’s responsibilities vary from benefits and compensation to training and organizational effectiveness.
HR is most effective when run by a skilled and well-rounded staff with a reputation of being trusted with important confidential information. An effective HR department helps the company culture grow with the business and becomes the path to honest and valuable feedback from the employees to the leaders of the business. HR directors need to understand the whole business and deliver approaches on attraction and retention to meet business needs. Finally, an effective HR department must look ahead. With knowledge of the whole business, it can use that to contribute to the growth and strategic direction of the entire company.
What are good sources for finding qualified candidates?
Employee referrals are often the best source because employees understand the demands and culture of the organization to know good candidates. It’s a wise recruiting approach to have employees network with industry peers, so if there is an opening they can find a good fit. There also are posting resources such as the company website, LinkedIn, CareerBuilder and Craigslist. The key is to identify the best resource for each job because IT candidates will likely not be looking at the same websites as sales employees. Also, college recruiting is important for entry-level professional positions. Regular presence on college campuses helps to develop the company reputation.
How can human resources become a strategic business partner?
Only after HR has shown it can handle, with little or no issues, the administrative side can it begin to influence the strategic side of the business. An HR professional must first develop consistent trust and confidence with the leadership over time. Then, HR professionals can work with executives on the business direction and performance expectations and actively contribute to deciding what tactics are required for managing talent to achieve those goals. They also must offer C-level executives different strategic solutions. HR has a unique perspective of the entire organization and best offers ideas involving all departments and divisions. Becoming a strategic business partner requires a high level of competency on the HR issues and a strong understanding of the business issues.
What are the keys to an effective and efficient business?
It’s critical for organizations to understand how they’re different from other businesses delivering similar products. In other words, organizations need to know and utilize their unique culture to maintain a competitive advantage. Other critical aspects of organizational effectiveness that HR can impact are:
- Hiring employees who thrive in that culture.
- Ensuring there are common systems that provide honest and valuable feedback to all levels of the organization.
- Creating methods of engaging employees to use their best talents.
- Ensuring employees understand the company goals with regular updates and how the employees can affect those goals.
- Providing an environment of continuous improvement, collaboration and teamwork.
For service businesses, it is important to ensure every employee understands the importance of being customer centric.
What can HR do to assist companies in becoming more innovative and leading edge?
HR needs to partner with leadership on innovative programs that could include:
- Leadership development programs combining theory and practice with assignments.
- Finding opportunities to give visibility to CEOs from the employees’ perspective, such as a monthly lunch with small groups.
- Culture and internal customer service surveys that regularly measure effectiveness and progress.
- Cross development and continuous development teams that solve real problems in effectiveness and efficiency.
- Mentor programs.
- New hire onboarding that provides new hires with a clear picture of company culture, history and goals of the organization.
Cultural surveys help depict the work environment. Ask employees a series of standard questions, repeated every two years, to see what has improved and what hasn’t. When employees rate something low on a survey, work to understand the meaning behind the words. Pull a group together to understand why it rated low and then you’re able to tackle the real issues and make an improvement in the culture.
Russ Elliot is senior vice president, human resources director at Bridge Bank. Reach him at firstname.lastname@example.org or through LinkedIn.
Insights Banking & Finance is brought to you by Bridge Bank
If you are a business owner, key manager or employee of a company going through an organizational transition, such as a merger or leadership change, it is likely you will experience performance disruption caused by confusing messages, speculation or lack of information. And you are not alone.
Often the planning for these important events happens behind closed doors with only the owners and advisers, leaving everyone else to speculate about the future.
Ricci M. Victorio, CSP, CPCC, managing partner for Mosaic Family Business Center, says business owners can avoid these challenges by being more transparent about upcoming changes and engaging everyone in the process.
“The key is communication, communication, communication. It’s important to identify what you can control and learn how to be flexible with all the rest. When you’re getting ready for a transition or succession, you might feel like you’re surfing a tidal wave. There’s an art to keeping your balance in an ever-changing world,” she says.
Smart Business spoke with Victorio about how to prepare yourself and your company for major business transitions.
What are the most common stumbling blocks that occur when a company is heading for change?
The most common stumbling blocks typically center on communication. Today’s older generation grew up learning to keep financial affairs close to the vest. So sometimes even a spouse doesn’t get involved in the planning until asked to sign papers.
Other times, people don’t feel comfortable sharing their ideas and concerns during shareholder meetings because they’re afraid of disrupting the artificial harmony that’s been established. They may have private conversations outside of the boardroom, but during meetings there’s often a fear of disrupting the delicate balance.
Further, business owners involved in a transition can be so overwhelmed by either the fear of confrontation or the lack of planning, the project begins to loom large and they’re stopped in their tracks. They feel as if there’s no way they can get through it; it becomes so daunting they often just hope it goes away.
How can these stumbling blocks be avoided?
Instead of keeping all conversations behind closed doors, when appropriate include key players such as family members, managers and those who will be most involved in the strategic design of the transition plan before you start actually planning. In these conversations, ask the group, ‘If we could do anything without worry of failure or confrontation, what would be best for our family and company?’ At this stage, there should be no pressure of commitment; it’s just brainstorming and idea building.
Engaging a succession coach can help facilitate dialogues that are creative, innovative and energizing, and potentially serve as the foundation of solutions to what might seem like an impossible endeavor.
Once you have a vision, you can develop an implementation plan. Break it down into a timetable and get key players involved to determine who spearheads specific initiatives and what the outcomes should be. Document the vision and itemize each step to be executed on a schedule for all involved.
Owners and other decision makers in a business likely won’t find it easy to facilitate these discussions, so consider using an experienced adviser to guide and focus the conversations and break the task into manageable segments. It can be difficult and even intimidating for groups to internally identify and discuss their own problems, but it’s helpful to have someone from the outside keep discussions open, comfortable and inclusive.
It’s also important to reach out to the overall organization, including employees, clients, customers, franchisers and vendors to communicate the vision of the plan — not the intricacies, but the expectation of the fulfillment of the plan and how it affects each party. This will help clarify what each can expect and what their roles will be.
What are the red flags that tell you a transition is going badly or not as planned?
Confusion or dysfunction within the management team is one of a few signs of difficulty that typically arise during a transition. Often it’s revealed that management is unsure where the company is going or what the plan is. Additionally, departments that are not cooperating well with each other — also called ‘silos’ — can typify dysfunction.
If management isn’t confident that the transition will include them, their productivity will slow and they’ll likely start looking around for something more stable and secure as a backup plan. A high level of turnover in management might prompt others to start abandoning ship.
When is a good time to seek outside counsel?
The best time is when you know or others are imploring you to consider that it’s time to begin succession planning. For any business owner between the ages of 45 and 75, if you have a business that is worth perpetuating, you need a long-term strategic succession plan and a short-term contingency plan to protect it. It’s worth bringing in an adviser who can help you with both kinds of plans. You’ve got to think beyond your own needs because your business has so many people tied to it who count on its success.
All of the planning responsibility doesn’t have to be on you. You can pull people into the transition process and get them enrolled so you’re no longer alone in the endeavor. If or when you do step aside, you can do so knowing you have people there to maintain and even grow the business. The hearts of those involved in the company might be broken when a founder passes or moves on, but that creation, built lovingly, does not have to crumble.
Ricci M. Victorio, CSP, CPCC, is managing partner for Mosaic Family Business Center. Reach her at (415) 788-1952 or email@example.com.
Insights Wealth Management & Family Business Consulting is brought to you by Mosaic Financial Partners
There are several methods of design and construction that can be used on a project. Each determines who produces the designs, who performs the construction and who is liable in the event of litigation.
The type of project, whether public or private, its level of technical sophistication and the time frame in which it needs to be finished determine the preferred method.
Smart Business spoke with T.G. Davallou, partner and head of Alfa Tech’s San Francisco office, about the different methods, what they entail and which is better for a given situation.
What are the differences among the methods of design and construction?
Traditional design-bid-build features a consultant who will design the mechanical, electrical and plumbing (MEP) systems for the building, the construction of which is put out to bid. The contractor with the winning bid then performs the construction.
Design-build means the MEP consultant writes the performance specifications, which provide the design criteria for the project, then hires a design-build contractor who finishes the design based on the specifications and performs the construction.
Design-assist entails a MEP consultant who realizes the design and draws it up to 50 percent completion before bringing the contractor on board. The contractor becomes the owner of the documents and completes the designs. The MEP consultant in this arrangement remains the engineer of record.
Are each of these practical in different situations, or should one always be chosen over the other?
The most sophisticated or innovative projects are either full design-bid-build or design-assist through integrated project delivery. Even though design-build contractors are getting smarter and have greater resources than before, they can’t compete on the engineering side with traditional consulting. If you look at simple tenant improvements that don’t have any design elements, design-build makes sense. But if it’s an innovative design or a complex project, like one with renewable energy or façade natural ventilation, these resources need a true consultant and not just a contractor, so design-assist makes better sense.
Business owners are getting smarter and are looking at overall life cycle costs of buildings instead of just the initial costs of the building’s design. They consider initial construction, utility, maintenance and replacement costs over the life of the building, which means design-bid-build or design-assist is more appropriate.
The schedule also has a big impact. There’s no way traditional design-bid-build would do a proper job with no issues on a high-rise building that needs tenant improvements in two months. Design-build would be better in this case. Scheduling has a large impact on which method should be used.
Who should a company appoint to serve as a liaison between the contractor and itself to stay on top of the process?
Typically an owner will recruit a project manager or construction manager first if he or she is not sophisticated enough to oversee the project. That person is the conduit between the business owner, the architects/engineers and the contractors. The construction manager is a third party who manages the whole process for the owner and has input on who is hired, such as the architect and engineers. Scheduling and costs also come into their recommendations to the owner.
Which method is used more often today?
Design-bid-build was the traditional method from the 1970s until the mid-1980s. Contractors weren’t very sophisticated or knowledgeable enough to handle entire projects from designing the specifications to completing the construction, so they relied on architects and consultants for design and to be liable for any issues. Beginning in the mid-1980s, the method shifted because numerous legal claims came out against contractors constructing public properties, such as state/county hospitals, institutional facilities, educational facilities and libraries, after the projects ended.
The problem is that public jobs are awarded to low bidders, as state law dictates. This often resulted in changes to the design or materials used during construction so the contractor could keep the project on budget. The owner of the building didn’t want to spend money on litigation, which is why the design-build concept arose because it reduced or eliminated change orders. The contractor in this method is the owner, designer and builder so legal discrepancies are reduced because there are fewer change orders.
Design-build contractors, it was later discovered, were not really giving top quality because the interest from public entities is low initial costs, so contractors were cutting corners, which led to systems not performing as they should. Thus, design-build declined as the preferred method of construction.
Now ‘big campus’ designers have found other ways to get a better design. With so much interest in Leadership in Energy and Environmental Design, projects are getting more sophisticated, so property owners are looking at how to get the most efficient systems without claims or lawsuits against the contractor at the end. This led to the establishment of the design-assist method, where a consultant can introduce the most innovative design and then become a partner with the contractor. The consultant brings the design up to 50 percent, meaning all the design elements are there, and it’s just a matter of coordination to make sure ductwork fits, etc. The contractor can’t change the specifications by, say, undersizing the ductwork, because he’s the engineer of record and the designer stays involved though the project’s completion.
When does litigation become a greater concern?
During a construction project, all parties are legally liable. Litigation issues happen mostly with public contracts. For commercial jobs the construction manager has pre-qualified and negotiated with a selected contractor. However, with public projects, the low bidder gets the job, which usually results in a lot of change orders that can lead to litigation.
T.G. Davallou is partner and head of Alfa Tech’s San Francisco office. Reach him at (415) 403-3092 or firstname.lastname@example.org.
Insights Technology & Engineering is brought to you by Alfa Tech