Jayne Gest

When selling your company, parting with it can be difficult. You’ve spent countless hours growing the business from a small operation to the enterprise it is today, and that shouldn’t be minimized. But decision making in the early stages of this process can be guided more by emotion than logic, says Kenneth M. Haffey, CPA, CVA, a partner at Skoda Minotti.

As the project progresses, however, he says emotion lessens and upfront planning on both sides predicates whether the deal is finalized.

“Almost always when a deal doesn’t work, it’s because the proper things leading up to the merger and acquisition weren’t done — they were shortcut — and sometimes that leaves a nasty trail that has to be picked up,” says Haffey.

Smart Business spoke with Haffey about mergers and acquisitions and what both buyers and sellers should consider.

What factors should be first considered with mergers and acquisitions?

When looking to acquire a business, determine your strategic goals. Do you want to expand geographically, add to your current type of business or acquire a tuck-in or bolt-on that could be a smaller, complementary piece to your existing company? Does it make sense to stay in your area or expand to another part of the state or country? Pricing is another factor. What can you truly afford and how will you pay for it — with your own working capital or borrow from investors, a bank or a private equity group?

On the other side, a business owner looking to sell needs to find individuals or companies with which he or she feels comfortable while getting ready for the liquidity event. Hire experienced professionals — CPAs, lawyers, investment bankers or financial advisers — who work on mergers and acquisitions. Price is important for this side of the deal, too, and could be determined by a multiple of sales, net income, or earnings before interest, taxes, depreciation and amortization (EBITDA).

Who should be a part of the transaction team?

Deals happen or don’t happen depending on advisers. For example, if you let your recent law school graduate nephew be your deal attorney, it is a disaster waiting to happen. Internally, your team would be made up of human resources, operations, marketing, finance and possibly legal advisers.

Who should be on the list of potential suitors/targets?

There are different ways to compile lists of suitors or targets. For example, some advisory firms keep lists of companies that they’re working with to continually connect dots. Other options include trade associations, contacts you know from conferences and newsletters to find those who might be interested. Also, chat with others who have gone through such transactions.

There are two types of buyers — financial and strategic. Strategic buyers are in the same business space and want to expand geographically or absorb new technology. A strategic buyer usually gives the largest selling price. A financial buyer looks to get into a new business, using his or her own means to take on a new venture. There’s nothing wrong with selling to a financial buyer — that’s how private equity groups build — but the learning curve and pieces of operations are easier and quicker on the strategic side.

How can business owners determine what to pay?

Each side should have an independent valuation done by a professional. Appraisers or valuators specialize in valuing companies for M&A purposes, which differs from valuing a company for estate tax purposes — a CPA can have specialized accreditations, such as being a certified valuation analyst or accredited in business valuation. Then, stick to the value the professionals tell you. If a business owner has a preconceived, unrealistic notion of the worth, it may be impossible to continue.

Value also depends on timing. At any point, retail, service or manufacturing may be hot or ice cold. If your business is flying high and the industry isn’t, you probably won’t get the multiple of earnings you think you’re worth as buyers won’t trust what’s going on. Value is difficult to gauge because supply and demand can jack prices up overnight — some of it not based on any financial reasoning.

After the transaction is completed, what should be done to integrate the two companies?

The make-or-break point is what you’re going to do with the individuals and assets after you purchase them. You need to know where you’re going long before you finalize the deal. Once you’ve found suitors or targets, understand the financing and have hired advisers, complete your due diligence before discussing offers and finalizing paperwork. The whole process usually takes between five and 10 months; if it’s taking longer, both parties need to take a step back and determine the holdup.

Integration ranges from taking all aspects of one organization and folding them in under another — eliminating human resources, marketing, accounting and some operations — to leaving it alone because the new company is five states away or in a new business space. The integration team should analyze the company workings to figure out if one system is better. Forget who is bigger or smaller, or whose name is on the door. The smaller company may have a far superior system because, for example, it kept up on technology.

Most people run their company, do a good job and then go home. Many employers will only have one transaction their whole life, so competent professionals are necessary to meet your needs and maximize your situation.

 

Kenneth M. Haffey, CPA, CVA, a partner at Skoda Minotti. Reach him at (440) 449-6800 or khaffey@skodaminotti.com.

Insights Accounting & Consulting is brought to you by Skoda Minotti

Dividends have accounted for 40 percent of total returns in the market since 1940. Some investors are concerned about recent stock price increases, but there still is room to invest in dividend-paying stocks, especially for the long term, says Sonia Mintun, vice president and portfolio manager at Ancora Advisors LLC.

“For the long term and at current valuations, particularly given historically low payout ratios, dividend-paying stocks can see strong relative and absolute performance. The outlook is enhanced by near all-time low U.S. Treasury yields and the Federal Reserve’s extended dovish position on interest rates,” she says.

Although the upcoming election and global economic environment are areas for concern, Mintun says an emphasis on high-quality dividend-paying stocks at low valuations should cushion investors from volatility and provide real returns over the long term.

Smart Business spoke with Mintun about the current stock market and how dividend-paying stocks remain a smart investment.

With the recent run-up in equities, is the dividend-paying strategy overvalued or a crowded trade?

Over the last year or more, the dividend theme has been the popular trade and the market has run up. There are a number of ways to evaluate if the market — and therefore dividend-paying stocks — is overvalued. You can examine whether it is trading at lower-than-average yields, or higher-than-average valuation ratios such as price-to-earnings (P/E), price-to-book (P/B) or price-to-cash flow.

The current market’s value is dependent on an investor’s time frame and risk tolerance. Is it overvalued for the next several months? It is possible we could see some pullback, but looking over the long term, it is our view that dividend stocks are not overvalued. The trailing P/E ratio of the S&P 500 index is around 14, which is lower than its historical norm and nowhere near where it was during the tech bubble when P/E ratios were closer to 50. While you can argue that the economic growth outlook is sluggish, companies have become operationally leaner, which has helped boost profit margins. They have better positioned their balance sheets by refinancing debt at extraordinarily low interest rates and have historically high cash levels. Lastly, with regard to dividend payers in particular, yields are at close to seven-year highs, while payout ratios are low, suggesting current yields are well supported by earnings. So overall, our opinion is that dividend-paying stocks remain attractive for long-term investors, especially in comparison to fixed-income yields.

What sectors have performed better and may be perceived as overvalued?

Defensive sectors such as consumer staples, health care and utilities have attracted a lot of capital and could be perceived as overvalued. Their P/E multiples compared to the overall market are trading at premiums to their five-year averages, but it is not a significant premium. Utilities, for example, are the most correlated sector, with 10-year treasury yields that have an 80 percent correlation since 1990. If you think that rates are going to stay low for some period, utilities may not be overvalued based upon the five-year averages.

What dividend-paying sectors have underperformed?

Economically sensitive stocks, such as energy, industrials and materials, have fared the worst, largely due to fears about slower growth in emerging markets and from concerns in Europe. However, many stocks in these sectors are trading at attractive discounts to their historical valuation ratios. They have ample cash on their books, generate consistent cash flows and could see improving profitability with higher commodity prices and demand if global stimulus takes hold.

What impact will the potential tax changes have on dividend-paying stocks?

A potential dividend tax increase has concerned some investors about owning dividend-yielding stocks. In 2001 and 2003, dividend tax cuts were put into place that reduced the dividend tax rate to 15 percent from 35 percent. These cuts are set to expire at the end of this year unless Congress extends them or passes new legislation. If no legislation is passed, taxes return to a top marginal rate of 39.6 percent. This tax increase may be a short-term negative for stocks and high-yielding stocks.

However, history has shown that tax increases do not have a long-term negative effect on dividend-paying stocks, as stocks typically recover after six months or so following an increase. This may be because an estimated 50 percent of equity held is owned by tax-exempt entities — such as qualified plans, foundations and foreign investors — all of which are somewhat indifferent on taxes. In addition, when tax increases are anticipated, it has typically not been problematic over the long term. For example, beginning in 2013, a new Medicare contribution tax of 3.5 percent will be imposed on investment income. This proposed tax increase has had minimal effect on the stock market so far.

What is the long-term outlook for dividend-paying stocks?

Longer-term dividend-paying stocks remain an attractive option for risk-averse, equity-oriented investors. Dividends provide a cushion during poor equity markets and are relatively stable over time. Consequently, by being less volatile and being more disciplined with capital because of the dividend policy, dividend-paying companies have outperformed non-dividend-paying companies for more than 80 years. Additionally, with dividend payout ratios near historical lows and weighty cash balances, companies may return more cash to shareholders in a low-growth environment. Given today’s low interest rates and continued global economic turbulence, we see dividend paying stocks as attractive now and for the long term.

Sonia Mintun is a vice president as well as an Investment Advisor Representative of Ancora Advisors LLC (an SEC Registered Investment Advisor). In addition, she is also a Registered Representative of Ancora Securities, Inc. (Member FINRA/SIPC).  Reach her at (216) 593-5066 or sonia@ancora.net.

Insights Wealth Management & Investments is brought to you by Ancora

An employee is critically hurt in a taxicab accident while on business in China. He had to be stabilized at the scene, flown to the coast and then to Hong Kong. Two operations and two months later, he is sent back to the U.S. on a private charter plane with two nurses and a doctor. The repatriation trip alone costs $140,000, which he would have had to pay had he not had foreign insurance.

Richard B. Hite, CEO of SeibertKeck Insurance Agency, says domestic U.S. policies only cover incidents occurring in the U.S., Canada, Puerto Rico or any U.S. possession.

“A standard domestic insurance policy doesn’t insure against foreign business exposure in general,” he says. “As long as your company has goods, services or people going overseas, you’re going to need foreign

insurance.”

Smart Business spoke with Hite about how to get the most out of your foreign package coverage.

What are the characteristics of international insurance?

There are a number of scenarios where foreign insurance is necessary. For example, a salesperson at an international conference demonstrating a product causes bodily injury or property damage. Maybe you’re exporting products and have a product failure — a propane tank explodes and kills 20 people. If sued, your domestic policy does not respond to lawsuits outside of the U.S. and Canada.

Under a foreign package policy, there are five types of coverage. They are:

  • General liability — Covers public liability, including product liability.

  • Property coverage — Protection for laptop computers, sales samples, personal property at trade shows, etc.

  • Foreign voluntary workers’ compensation — Provides employees workers’ compensation and covers medical costs and loss of earnings as if the employee was hurt in Ohio or whatever the state of domicile. With 24/7 coverage, it also provides medical assistance services and repatriation expenses to get an employee to the U.S., including immediate family traveling with him or her or allowing family to fly to the foreign location where the employee is being treated.

  • Accidental death and dismemberment (AD&D) coverage.

  • Automobile liability — When an employee rents a car, there is certain compulsory insurance coverage in that country, but this provides excess liability.

Other types of foreign insurance exposure include kidnap and ransom, business interruption, crime and ocean cargo for when you’re responsible for your export shipment of goods in a container until it arrives.

How has foreign insurance changed to better serve small and mid-sized businesses?

With globalization and international trade agreements, even a small company could be distributing products abroad, but many small and mid-sized businesses don’t realize the protection needed. Insurance companies have different coverage levels, but usually a minimum premium with all five basic types of coverage runs an affordable $1,500 to $2,500 per year.

How do you decide which coverage and options or limits to buy?

Analyze the exposure — what employees, goods or services are doing and where they are going. Public liability and foreign workers’ compensation are necessary, but property and automobile depend on the circumstances. Property could be worth it if you have sales samples or laptop computers going abroad, but your employee might not be driving anywhere. Additionally, the AD&D for many mid-sized business is already an international 24/7 policy, so there could be a duplication of coverage. The insurance company takes a census of the number of people, where they are going and for how long, and then creates different rates for different risks.

Many policies exclude countries not aligned with U.S. foreign policy, such as Syria, Iraq, Iran and now, Mexico. To get around it, underwriters want to know the finite trip details. For example, Monterrey, Mexico, is a medium risk, while Mexico City is very hazardous and has become its own cottage industry considering the high incidence of kidnap and ransom occurring there. In general, the insurance company writes a blanket policy for all countries, excluding certain ones, and then underwrites exceptions on a per-trip basis.

What’s the difference between buying international insurance in the U.S. or local insurance in the foreign country?

If you write a policy in the U.S., called a nonadmitted basis, most countries accept it. However, some foreign countries require a domicile insurance company and a broker to write the policy as a form of protectionism. Therefore, big companies — Travelers, Chartis and Chubb — have foreign divisions writing policies, called an admitted basis. You might need a combination of nonadmitted and admitted insurance to ensure the proper coverage.

It’s almost always advantageous to buy U.S. coverage rather than admitted coverage in the country itself. U.S. coverage provides compulsory insurance on a broader basis and uses a U.S. company and adjuster, with the cost not necessarily more expensive.

What steps should employers take if something happens to an employee or property abroad?

The planning should be part of your disaster preparedness program. Insurance companies have emergency response teams globally who speak the local languages. As part of the service, you reach out to these key contact people if there’s a problem. They also know what steps to take to get the best medical care. For example, in Shanghai, China, hospitals won’t operate unless they know they will be

compensated.

Additionally, the insurance company will set up a website to be checked throughout the trip. It gives tips on how to travel, how to dress, what areas to avoid, and a security and weather report. It helps employees blend in and act accordingly, which also prevents them from becoming a target.

Richard B. Hite is the CEO of SeibertKeck Insurance Agency. Reach him at (330) 865-6573 or rhite@seibertkeck.com.

Insights Business Insurance is brought to you by SeibertKeck Insurance Agency

Sunday, 30 September 2012 20:00

How to cover your overseas business exposures

An employee is critically hurt in a taxicab accident while on business in China. He had to be stabilized at the scene, flown to the coast and then to Hong Kong. Two operations and two months later, he is sent back to the U.S. on a private charter plane with two nurses and a doctor. The repatriation trip alone costs $140,000, which he would have had to pay had he not had foreign insurance.

Cliff Baseler, vice president at Best Hoovler Insurance Services Inc., a SeibertKeck company, says domestic U.S. policies only cover incidents occurring in the U.S., Canada, Puerto Rico or any U.S. possession.

“A standard domestic insurance policy doesn’t insure against foreign business exposure in general,” he says. “As long as your company has goods, services or people going overseas, you’re going to need foreign insurance.”

Smart Business spoke with Baseler about how to get the most out of your foreign package coverage.

What are the characteristics of international insurance?

There are a number of scenarios where foreign insurance is necessary. For example, a salesperson at an international conference demonstrating a product causes bodily injury or property damage. Maybe you’re exporting products and have a product failure — a propane tank explodes and kills 20 people. If sued, your domestic policy does not respond to lawsuits outside of the U.S. and Canada.

Under a foreign package policy, there are five types of coverage. They are:

  • General liability — Covers public liability, including product liability.

  • Property coverage — Protection for laptop computers, sales samples, personal property at trade shows, etc.

  • Foreign voluntary workers’ compensation — Provides employees workers’ compensation and covers medical costs and loss of earnings as if the employee was hurt in his or her state of domicile. With 24/7 coverage, it also provides medical assistance services and repatriation expenses to get an employee to the U.S., including immediate family traveling with him or her or getting family to the foreign location where the employee is being treated.

  • Accidental death and dismemberment (AD&D) coverage.

  • Automobile liability — When an employee rents a car, there is certain compulsory insurance coverage in that country, but this provides excess liability.

Other types of foreign insurance exposure include kidnap and ransom, business interruption, crime and ocean cargo for when you’re responsible for your export shipment of goods in a container until it arrives.

How has foreign insurance changed to better serve small and mid-sized businesses?

With globalization and international trade agreements, even a small company could be distributing products abroad, but many small and mid-sized businesses don’t realize the protection needed. Insurance companies have different coverage levels, but usually a minimum premium with all five basic types of coverage runs an affordable $1,500 to $2,500 per year.

How do you decide which coverage and options or limits to buy?

Analyze the exposure — what employees, goods or services are doing and where they are going. Public liability and foreign workers’ compensation are necessary, but property and automobile depend on the circumstances. Property could be worth it if you have sales samples or laptop computers going abroad, but your employee might not be driving anywhere. Additionally, the AD&D for many mid-sized business is already an international 24/7 policy, so there could be a duplication of coverage. The insurance company takes a census of the number of people, where they are going and for how long, and then creates different rates for different risks.

Many policies exclude countries not aligned with U.S. foreign policy, such as Syria, Iraq, Iran and now, Mexico. To get around it, underwriters want to know the finite trip details. For example, Monterrey, Mexico, is a medium risk, while Mexico City is very hazardous and has become its own cottage industry considering the high incidence of kidnap and ransom occurring there. In general, the insurance company writes a blanket policy for all countries, excluding certain ones, and then underwrites exceptions on a per-trip basis.

What’s the difference between buying international insurance in the U.S. or local insurance in the foreign country?

If you write a policy in the U.S., called a non-admitted basis, most countries accept it. However, some foreign countries require a domicile insurance company and a broker to write the policy as a form of protectionism. Therefore, big companies — Travelers, Chartis and Chubb — have foreign divisions writing policies, called an admitted basis. You might need a combination of nonadmitted and admitted insurance to ensure the proper coverage.

It’s almost always advantageous to buy U.S. coverage rather than admitted coverage in the country itself. U.S. coverage provides compulsory insurance on a broader basis and uses a U.S. company and adjuster, with the cost not necessarily more expensive.

What steps should employers take if something happens to an employee or property abroad?

The planning should be part of your disaster preparedness program. Insurance companies have emergency response teams globally who speak the local languages. As part of the service, you reach out to these key contact people if there’s a problem. They also know what steps to take to get the best medical care. For example, in Shanghai, China, hospitals won’t operate unless they’re sure they will be paid.

Additionally, the insurance company will set up a website to be checked on the trip. It gives tips on how to travel and dress, where to avoid, and a security and weather report. It helps employees blend in, which also prevents them from becoming a target.

Cliff Baseler is vice president at Best Hoovler Insurance Services Inc., a SeibertKeck company. Reach him at (614) 246-7475 or cbaseler@bhmins.com.

Insights Business Insurance is brought to you by SeibertKeck Insurance Agency

Health care providers such as hospitals — particularly the more enlightened ones — started to reform years prior to the Patient Protection and Affordable Care Act (PPACA). Although the law crystallized the industry’s direction, health care systems faced pressure to reinvent themselves long before the act. This reinvention has not only affected the delivery model but also the human capital requirements within the health care system.

“There’s a big shift to outcome-based rewards as opposed to transaction-based rewards,” says Rob Rogers, a principal and health care industry leader at Findley Davies, Inc. “In other words, what is the quality of care provided as opposed to how many units of X were done in the fiscal year.”

Smart Business spoke with Rogers about the outlook for hospitals and health systems, and what this means for business owners.

How will reform affect revenue and other financials for hospitals and health care providers?

The topline or gross revenue for health care systems — which can either be an integrated network comprising multiple hospitals, physicians, clinics and outpatient treatment centers, or an independent community hospital — is going to jump. In particular, hospitals will have more patients as result of 30 million people now being covered under an ‘insured’ delivery system. Providers face the challenge of bolstering staff while facing a shortage of nurses and physicians.

Despite volume increases, net revenue will come under a lot of pressure as reimbursement levels from insurance carriers and Medicare and Medicaid continue to decline. Health care providers are being forced to scrutinize operating expenses to ensure they are providing care as efficiently as possible.

How will patient care be impacted?

More focus on clinical outcomes is one good thing occurring through reform — not necessarily the governmental legislative act, but the whole process. The health care system has recognized, based on internal pressure and pressure from employers covering health care costs, that patients and plan sponsors aren’t interested in paying for the volume of diagnostics. The reform focuses on keeping people healthy. If there are health problems, then the attention shifts to measuring outcomes such as the success rate of treatments, morbidity rate, length of hospital stay, patient satisfaction, etc. Health care systems must learn to cope with the continuous challenge of providing the right mix of care while, at the same time, getting paid for it.

What kind of consolidation and collaboration do you expect?

More collaboration among providers and consolidation of various related-care entities have already started. Some think only large health care systems will be able to operate in this new environment because they have enough volume to manage the margins better. However, while community hospitals will continue to operate independently, there will be pressure for them to partner with other community hospitals or to create alliances with the larger hospital networks.

Physicians are also building more partnerships. In 2010, for the first time, more physicians were employed by organizations such as hospitals and other related entities than were in private practice, though many independent physician groups exist in Ohio.

Health care reform works to eliminate silos of treatment. So we’re seeing the development of an integrated delivery model, with numerous entities working together under one umbrella to provide more efficient and better quality care. To remain competitive, physicians are creating alliances with patient care providers such as hospitals and nursing homes.

How will the operating procedures for health care providers differ?

Health care systems are taking a more proactive role in physician and nurse development and recruitment by providing financial assistance to university students in exchange for employment arrangements. With the assistance of experts to provide strategy, hospitals are looking at how they attract, retain and reward physicians, senior leadership and nurses to ensure staff is highly motivated and delivering quality care.

Most health care systems and hospitals are not-for-profit, tax-exempt organizations. As pressure increases from the public, Congress and state legislators, most health care providers are paying close attention to transparency in everything they do from audits, executive compensation and governance. More and more tax-exempt organizations are operating like public companies, which must comply with Sarbanes-Oxley requirements.

There isn’t a more public entity than a tax-exempt organization — the general public is the taxpayers. Rules governing the reasonableness of executive compensation and benefits under intermediate sanctions statutes are creating added pressure on health systems to ensure transparency and objectivity when dealing with executive rewards.

How might these changes impact business owners who provide health care plans?

The reform, apart from PPACA, is going to be mostly positive for business owners. While there may be additional costs associated with reform, the system will be more efficient with more focus on preventive care and wellness, which are steps in the right direction. There will be more integration with fewer silos of care. There’s more concern with helping the patient get from A to B to C without jumping through hoops. It will be less costly, more efficient and the outcomes will be better, which will make employees healthier.

The health care industry is rapidly changing. As health care providers work to deliver more efficient, better quality care, employers and employees both should be able to reap the benefits.

Rob Rogers is a principal and health care industry leader at Findley Davies, Inc. Reach him at (216) 875-1926 or rrogers@findleydavies.com.

Insights Human Capital is brought to you by Findley Davies Inc.

Standard business VoIP (Voice over Internet Protocol) sales are increasing as business owners become more aware of the technology and how it has matured over the years. Business IP phones are no exception, and improved features are impacting business efficiency.

“Five or 10 years ago, early adopters were willing to accept poor quality to be on the cutting edge, but now, the quality has caught up with the demand,” says John Putnam, vice president of direct sales at PowerNet Global. “Today, you have low cost, good quality and a lot of features that people with older phone systems didn’t have and are now necessary in order to be competitive in the marketplace.”

Smart Business spoke with Putnam about how business IP phones can improve all areas of your operations, from customer service and communications to sales force activities.

What are some recent feature improvements with business IP phones?

Unified communications, a big buzzword within the industry, combine email, fax and voicemail into a centralized location. Within your email inbox, faxes are converted to emails through E-Fax, and with IP-based phone systems, voicemails are converted to a WAV file and emailed to you. Then, faxes and voicemails can be saved in the relevant customer file. By integrating the phone and computer technology, employees are able to retrieve information quicker.

Phones and computers can also be used more efficiently. A phone call brings up the caller ID and relevant contact information — if that person is in your contact management software — on your computer screen before you answer. You can also open your contact records, click a button and dial the phone. From a contact management standpoint, you now have a record of incoming and outgoing calls in your system, including missed calls that didn’t leave a voicemail.

The next big thing is cell phone integration, in which mobile employees can push a button on their phones or cell phones to forward calls from the office to their cell phones.

How can these advances help employers run their businesses more productively?

Businesses with sales organizations are routing calls to the company first and then bouncing them out to the sales force. As a result, the company directly owns that relationship, while calls still get out in an efficient manner. Then, if a salesperson leaves the organization, you can easily reroute those calls to his or her replacement or manager within, maintaining the client relationship.

Business IP phones give companies options in terms of employees who aren’t located in the office by routing calls to either an IP-based phone or a cell phone. This allows employees to telecommute, so you don’t have to have square footage to house them in your bricks-and-mortar location.

Some business owners have closed their office space entirely and have all employees working remotely. Customers never know they are calling into someone’s house through auto-attendance and IP-based phone systems, and employers aren’t paying rent or any of the other costs associated with having a bricks-and-mortar location.

Routing calls works well with a sales force but also for others such as lawyers who often travel between their offices and court. Travel time becomes more productive for those who have meetings outside the office. Not only can those employees receive calls, but it can be easier for them to retrieve voicemails. They see the caller ID, date, time and duration of voicemails on their cell phones, and then choose what to listen to based on priority, improving your company’s response time.

Additionally, the ability to easily transfer calls to a different location provides better disaster recovery options. For example, if there is a problem in the work space, such as a loss of power, you can take your VoIP handsets and relocate to a place where there is Internet connectivity and power to get the company back up and running as quickly as possible.

How else can business IP phone features improve customer service?

By having remote employees across the country, businesses can extend their hours. For example, an organization can take advantage of the fact that 5 p.m. on the West Coast is 8 p.m. on the East Coast, allowing office hours or support line hours to be extended without paying overtime.

Companies that have teams dedicated to specific clients can bounce calls between offices so that only someone who is on the team is dealing with that important client. This skill-based call routing is possible because there is flexibility not only within offices but also call routing between branch offices.

How do these phones make communication more efficient in an office?

With unified communications, you have a centralized location for voicemail, email and faxes so employees aren’t spending their time chasing down and sharing information. Communications are saved in a shared folder on your network and multiple people can retrieve them more quickly.

Digital recordings also can be used for training purposes, such as for customer service in terms of coaching — the customer was angry and here is how the account manager defused the situation and addressed the client’s needs. Your sales manager can refer back to recorded conversations, and say, ‘Here’s what you said in this situation. Maybe you could have tried this or addressed it differently. Next time, why don’t you try saying this?’ This allows salespeople to more easily take advantage of each others’ experiences.

In addition, recorded conversations can be used as a part of contract negotiations or for a dispute on the collections side. Recorded calls and digital voicemails also create an easily transferred reference if someone else is working that account because of turnover or employee absence.

Business IP phones create more flexibility and accountability, which, in turn, increases your company’s efficiency and productivity.

John Putnam is vice president of direct sales at PowerNet Global. Reach him at (866) 764-7329 or pngsales@pngmail.com.

Insights Technology is brought to you by PowerNet Global

In some grocery stores, your smartphone uses GPS to ping you when you’re near items on your shopping list. Other retailers allow customers to order something online, and when they arrive to pick it up from the store, the item(s) is already bagged and ready to go. Others still provide customers with options of where to buy, where to pick up or have delivered, and have price guarantees in order to create a positive customer experience and resulting sales.

With the retail industry facing challenging times, savvy risk managers are helping their companies understand how to manage costs and allocate capital strategically while finding ways to stay ahead of market trends, says Lynn Serpico, managing director at Aon Risk Solutions.

“These risk managers have the opportunity to help shape the business as they manage operations and costs,” says Serpico. “At most retailers, risk managers are responsible for mitigating — for keeping the operation efficient, making sure that the use of insurance, self-insurance and alternatives are in line with overall company objectives and that the treatment of risk is agreed to by all internal stakeholders. At a retailer, these stakeholders can include treasury, legal, logistics, marketing, merchandising or IT.

Smart Business spoke with Serpico and Todd A. Dillon, senior account executive at Aon Risk Solutions, about the current risks that retailers face and the best ways to mitigate them.

What is new in the retail industry with risk?

Aon compiles a retail industry analytics report annually, collected from proprietary data and client interviews, identifying the top 10 risks. Retailers say the global economic slowdown is the No. 1 risk. With consumer discretionary spending as the biggest driver of retail sales, the industry constantly battles variables that are out of its control, such as gas prices.

Second, retailers worry about damage to their reputation or brand. For any retailer, the worst possible scenario is that customers stop shopping in their stores. The third-biggest risk is a market of increasing competition. This is one of the biggest trends in retail. How are people making their shopping decisions? What does this mean for retailers, and how can they respond? For example, how do they prepare for a situation in which a customer walks into the store, and tries something on before buying it at a lower price on their mobile device?

Other risks include:

  • Distribution or supply chain failure

  • Regulatory and legislative changes, particularly surrounding workers’ compensation, normally the largest contributor to a retail risk manager’s total cost of risk.

  • Technology failure

  • Failure to innovate and meet customer needs

  • Failure to retain top talent and, therefore, manage crime, theft, fraud and employee dishonesty. With plenty of turnover, there is a need for safety training and internal loss control to ensure not only a good store experience for customers but also employee safety and that employees are behaving in ways beneficial to the company.

What risks are critical priorities to manage?

Most retailers have gotten really good at managing the more traditional risks — property, workers’ compensation and general liability. For example, they know how to get their stores running after a natural disaster and they have programs to get associates back to work after an injury.

Emerging and changing risks are the new focus. These include network security, products liability for vendors, and wage and hour litigation. Network security is key, as this feeds in to a retailer’s reputation. It has customer data, employee data, financial information and, in some cases, medical data, and the risk is ever evolving because bad actors are getting craftier and losses are high profile.

Vendor/supplier contract management also is critical. A store might have products from 50 countries, so how does it control and manage contracts and litigation while understanding its exposure? Additionally, employment practices liability policies exclude wage and hour claims. However, this often drives a retailer’s exposure. Finally, retailers must continuously innovate and drive down costs so savings can be passed on to customers.

What best practices address common mistakes for retail risk managers?

As an industry, margins are thin, so retail risk managers need to carefully analyze their portfolios to determine the best use of capital. For example, should you have higher retentions on certain programs because the loss history is predictable? Or perhaps you might be buying too much insurance on other programs. Maybe there is a way to self-fund a certain amount of loss and buy excess capacity, which could reduce fixed costs. Is there an alternative that has not been considered?

If you have a loss that is not insured, have you vetted the process internally? Do you know how it will be funded? Risk managers are asking these questions as they work to create operational efficiencies for their companies. Asking questions helps avoid buying too much or too little insurance. Risk managers can also identify maximum capacity for loss across multiple lines of business. For instance, a $10 billion retailer may be able to absorb a penny per share of loss in a given year. However, you need to know what would happen if you have losses totaling five cents a share in a worst-case scenario year with a fire in your main distribution center, a customer death in a store and a security breach that compromises customer data. It is important to get feedback internally and ensure that all stakeholders understand decisions being made around insurance and the effect those have on the business from a financial perspective.

Know your overall retentions and whether they are aligned with the corporate strategy. Some companies are extraordinarily risk averse, so retentions are low, while others are very comfortable managing their own risk. It is up to risk managers to know the appetite of their company and make decisions that align with the financial objectives. In addition, whenever there’s a loss, multiple internal stakeholders need to be involved in the process.

Lynn Serpico is a managing director and the National Retail Practice Leader at Aon Risk Solutions. Reach her at (203) 326-3464 or lynn.serpico@aon.com.

Todd A. Dillon is a senior account executive at Aon Risk Solutions. Reach him at (314) 854-0864 or todd.dillon@aon.com.

Insights Risk Management is brought to you by Aon Risk Solutions

The most damaging thing women business owners can do regarding financial planning is nothing.

“It’s often the last thing that people want to talk about because they are so busy living their lives and running their businesses,” says Nancy Kunz, CFP®, ChFC®, CLU®, Lead Financial Planner at First Commonwealth Financial Advisors, Inc. “Then, by the time they figure it out, they are 65 and staring at retirement. A woman’s instinct often is to help everyone else first, to take care of everyone else, and that is compounded when a woman is also running a business,” says Natalia Paich, CPA, AIFA®, Wealth Relationship Manager at First Commonwealth Financial Advisors, Inc. “But sometimes she needs to put herself first and plan for the future of herself and her business.”

Smart Business spoke with Kunz and Paich about business and financial planning for women business owners.

How do women need to plan differently than men?

There is a high probability of a woman being alone late in life, as men tend to have a shorter life expectancy. It is important to take control of finances now, as doing so will lay the groundwork for making the choices for the future. While the thought of taking ownership of one’s finances may seem daunting, doing so both personally and professionally is imperative.

A common mistake made by women business owners is trying to do it all themselves. Instead, get help from the beginning and find the appropriate professional. Most people don’t truly understand their financial decisions and therefore make uninformed choices or no choices at all. When working with a trusted professional, women should ensure that they are active participants throughout the partnership, from hiring a professional to understanding the decisions and implications of those decisions.

What are some of the biggest financial mistakes female owners make with their business?

We mentioned that the biggest mistake women can make in regard to their finances is doing nothing. The same can be said for women business owners using slightly different words, ‘failure to plan.’  Very few businesses take the time to plan income, expenses, management of receivables and cash flows, money for capital expenditures, etc. Women should take the time to create a financial plan for their business. A big part of creating the financial plan is finding the right professional expertise for legal, tax, financial planning, etc. A business owner’s time should be spent doing what she does best — not on the behind-the-scenes mechanics.

Part of creating the right team of professionals includes where to look for them. Women should look for professionals who are familiar with and have experience with small businesses. Spending the money upfront to pay professionals can save a lot of headaches further down the road.

What do women business owners need to know about saving for retirement, and how can they balance that with other needs?

Women business owners have many options to save for retirement. The best option often depends on whether the business owner has employees, and if so, how many. Some retirement options include SEP IRAs, self-employed 401(k), self-employed Roth 401(k), SIMPLE IRAs and Keogh plans. Each type of plan has different contribution limits, may allow for tax-deductible contributions and withdrawal provisions, and may require taxation of monies at distribution.

It is important to consult with a financial adviser and/or accountant to determine which plan is best suited for the business and business owner. In regard to retirement savings, women business owners should avoid using their own retirement money to fund their business. The long-term effect on retirement savings can be significant. Monies designated for retirement should remain in retirement. Monies designated for business development and growth should be used for the business. A woman doesn’t want to find herself at retirement with only illiquid assets.

What should women know about financial planning when one spouse takes times off from work?

Keep retirement funding going, if possible. If one spouse takes time off to raise the family, increase savings into the spouse’s company-sponsored retirement plan and/or consider establishing a spousal IRA. This may not always be an option, so it is important to confer with a trusted adviser. Expectations for the family’s standard of living are paramount not only to planning but also to adjusting to one income, so those need to be realistic and continually reviewed.

If a woman business owner decides to leave her business, she should keep current with her profession so that when she is ready to re-enter the work force or start a new business, doing so will be easier.

When running a business, how can women incorporate their role as a primary caregiver to an elderly parent?

This can be financially and emotionally difficult, especially when paired with taking care of children and running a successful business. This is where long-term care insurance comes in, helping to ease the burden. Women should ensure their parents have long-term care insurance, even if they have to pay for it themselves. Oftentimes, care starts being required when a daughter is trying to raise her own family and her business is taking off.

When purchasing long-term care insurance, do the research to ensure a quality product. Certain companies are better with premiums and rate increases than others, and large annual rate increases can lead to unaffordable premiums. Financial stability of the insurance company is also important, as the need for the insurance may not arise for years.

The peace of mind acquired after confronting one’s own financial planning situation and working with a trusted adviser to put a sound plan in place is priceless, allowing you to focus on other things.

 

Nancy Kunz, CFP®, ChFC®, CLU®, is Lead Financial Planner with First Commonwealth Financial Advisors, Inc. Reach her at (412) 562-3232 or nkunz@fcbanking.com.

Natalia Paich, CPA, AIFA®, is Wealth Relationship Manager with First Commonwealth Financial Advisors, Inc. Reach her at (412) 562-3232 or npaich@fcbanking.com.

Insights Wealth Management is brought to you by First Commonwealth Bank

Employers — and subsequently, their employees — are becoming more savvy about the decisions involved in choosing and administering a health plan, often a business’s second- or third-biggest cost of operations. Just as safety initiatives can help reduce property and casualty insurance premiums, health insurance savings can often be achieved through self funding, says Mike Debo, senior sales and renewal executive at HealthLink.

“By instituting wellness programs and encouraging routine physicals and post-condition care for not only employees but for covered dependents, employers can reduce premium and claims costs while increasing productivity,” Debo says. “Instituting wellness programs, encouraging routine physicals and promoting post-condition care are especially beneficial to self-funded groups as they see the savings in the form of fewer claims spent, which can reduce reinsurance costs.”

Smart Business spoke with Debo about how increased involvement on the part of employers and employees can lead to lower health plan costs.

What is driving employers to be more involved with their health plans?

For many employers, the No. 1 reason they are becoming more involved is that they have no other option. They may have already maxed out what they can do from a plan design perspective with greater participant out-of-pocket costs. In addition, fully insured employers are constantly getting rate increases, but over the years, often no one has been able to fully explain the increases.

What are some tools an involved and educated employer can use to lower health costs?

An employer’s decisions are only as good as its information. That is why many business owners move into self-funding, where there is greater reporting about their group and its claims, whether medical or pharmacological.

One of the first tools businesses use is to have participant biometric testing, which provides the employer with information on how many people in the group have high cholesterol, hypertension, weight or smoking issues. From that — combined with reporting and claims — employers can create wellness programs and condition management programs. Wellness programs eventually save money from a claims perspective, but it might take a year or two to absorb the initial cost of testing.

With a year’s worth of information from claims and wellness programs, businesses can begin to change their plan design to address health conditions, utilization patterns or provide unique coverage for their plan participants. For instance, a business may find its participants are frequently visiting chiropractors because of their job type. With that information, they can look at not only how many visits they are allowing for chiropractors and the cost but also institute a condition management program strictly for back injury care.

Then, they can look at pharmacy claims. Are participants using generics as often as they can, brand names as necessary or mail order whenever possible? What does the employer need to do regarding the pharmacy benefit to not only ensure that people get the drugs they need but also to make it cost effective for the group?

By changing the plan design and addressing the specific needs of a group, employers often find they don’t need a particular program, such as condition management or a 24-hour nurse line, further cutting costs.

How can employers overcome initial resistance to wellness programs and other initiatives?

Most people aren’t going to participate in biometric testing, a smoking cessation program, a weight loss program or a condition management program unless there are cost differentials to participants in the form of incentives or disincentives. Plan participants often think such programs are an invasion of privacy or that they require too much of a time commitment, but when there is a 10 to 30 percent difference in premium costs, they get involved.

How can employers communicate to employees the true costs of health care?

One of the easiest ways is to use a plan with no co-pays, where everything goes toward deductible/coinsurance, so that participants understand how getting an X-ray at an outpatient facility versus a hospital can mean the difference between a bill of $700 or one of $1,800.

Reporting is extremely important because it provides the knowledge to make wise decisions. Communication is equally important, whether via traditional posters and payroll stuffers or new technology smartphones, emails and blast texting.

To be effective, the communication must address how to get the most out of plan benefits and programs while avoiding unnecessary costs to the participant and the group.

How do self-funded plans give employers so much more control of their health program?

Employers have full control, outside of federal mandates, to do what is best for plan participants and plan costs. For example, if an employer has a population with an average age of 45 and people taking off work for elderly parents going into nursing homes or going to the doctor frequently, the employer can bring in a vendor to work with employees on how to make decisions about their parents. This takes pressure off employees. They show up to work more regularly and are more committed to the company because of the service their employer provided.

With self-funding, it’s at least a three-year commitment of time and effort to cut costs and provide better benefits for employees. The employer has to sit down on a quarterly to semi-annual basis to go through reports and have someone scrutinizing claims. Employers with healthy groups may stay fully insured because they think there is no risk involved, but the risk is that they pay $2 million for something that costs $1.5 million. With self funding, employers have a program that they are in charge of, a program better suited for them and for their plan participants.

Mike Debo is a senior sales and renewal executive at HealthLink. Reach him at (866) 643-7094, ext. 1, or michael.debo@wellpoint.com.

Insights Health Care is brought to you by HealthLink®

When focusing on the day-to-day operations of your business, it’s easy to overlook planning for its future. And if your adviser doesn’t bring it up, you may never put a plan in place. However, having a well-thought out succession plan can ensure that your business continues after your retirement or death.

“It’s always a delicate conversation to have,” says Michael Dreveniak, vice president and wealth market leader with First Commonwealth Advisors. “Nobody wants to talk about when they are no longer here, but this is something that you have to do.”

It’s crucial to have answers for two questions, he says — what happens to the business if you are no longer around, and what happens in the event of your incapacity?

Smart Business spoke with Dreveniak about the importance of planning and how insurance can play a critical role in the process.

Why is succession planning critical to the continuity of a business?

There are risks associated with failing to plan. For example, when an owner passes away, there could be a lack of cash flow to maintain the business, which could result in a lower company value. And if the business isn’t well funded, it will lose key individuals and be unable to attract top talent to continue running the business.

The biggest misstep business owners make is failing to address this issue at all. Talk to your advisers — accountant, attorney and wealth manager — to ensure the best interests of your beneficiaries and heirs are considered. Your advisers are paid to walk through risks and anticipate them, providing ‘what if’ scenarios to ultimately arrive at a solution.

The classic example is the mom-and-pop shop that has been in business for 30 or 40 years and then closes its doors because the owner retires and there is no plan to continue the business. Proper planning could have allowed the business to continue running and the owners to accumulate additional wealth. Small businesses — classified as those with less than $7 million in annual revenue and fewer than 500 employees — represent  99.7 percent of all employer firms, and too many of those fail to create a plan.

When should business owners start planning and what steps should they take?

Five years is the perfect time horizon. Begin with the end in mind and allow financial professionals to ensure your balance sheet is cleaned up to maximize value. If the company is more attractive, you can receive top dollar and enable the parties involved to receive financing from a bank, other financial institution or investors. Then, evaluate the plan every year or two to monitor your progress.

Being proactive and having a well-designed plan can help with unforeseen future issues. When planning, prioritize what is most important to you, such as exit planning, income protection, retirement income, business protection, wealth transfer or survivor income. This keeps you from trying to tackle everything at once.

As your business changes — for example, you bring on another employee or your personal life changes — discuss it with your advisers so those changes are reflected in your succession plan.

How does a one-way buy-sell agreement work and why should a business consider it?

Many succession plans engage a well-defined buy-sell strategy, which dictates ownership going from the owner to another individual. It’s a key component of the planning process. With a one-way buy-sell agreement, if the owner of a company has somebody in mind — whether internal or external — who plans to purchase the company, there’s an agreement that he or she will buy from the owner upon some qualifying event, such as disability, death or retirement.

This works well where there is a sole owner, oftentimes for businesses with       $1 million to $5 million in annual receipts and fewer than 100 employees. The one-way buy-sell will dictate how the funds change hands to purchase the business. If the owner is not around, in many cases, it provides a way for the beneficiaries and heirs to be compensated.

How can life insurance assist with a buy-sell agreement?

If the person who is going to purchase the business buys life insurance on the life of the business owner and the owner dies prematurely or the plan is to transition at death, the insurance provides the funds needed to purchase the company quickly. It’s a plan to provide certain funding when needed.

How else can the right insurance aid with planning?

Business owners work extremely hard to grow their assets, so protecting them should also be a priority. After accumulating a large asset base, that money can go quickly for long-term care if something goes wrong with your health.

In Pennsylvania, the cost to be in a nursing home averages $8,000 per month, or $96,000 per year, for care in a semi-private room. If high costs erode your asset base, your beneficiaries or heirs are forced to have a fire sale of assets to raise money for your care. Long-term care insurance is a way to mitigate some of that risk, to transfer it to an insurance company as opposed to the owner.

Here is a final reason to ensure that you incorporate insurance into a defined plan. Though some business owners say, ‘I may never use long-term care insurance. I get no benefit and just pay out every month,’ properly placed insurance enables business operations to continue when the unthinkable occurs. Until then, it works to protect your assets and brings peace of mind so that you can concentrate on your business instead of worrying about the ‘what ifs.’

Michael Dreveniak is a vice president and wealth market leader with First Commonwealth Advisors. Reach him at (412) 518-1854 or michael.dreveniak@fcfins.com.

Insights Wealth Management is brought to you by First Commonwealth Bank.