Companies are being challenged to protect vast amounts of proprietary and confidential information. And now, many are being held to an even higher standard when it comes to protected health information (PHI).
“The Health Insurance Portability and Accountability Act (HIPAA) has existed since 1996. It’s well established that covered entities — health care providers, benefit plans and clearinghouses — have a responsibility to ensure the privacy and security of PHI. Recently, the rules have been tightened to also cover business associates — organizations with which a covered entity shares PHI. These changes mean that business associates now have to fully comply and be accountable under the HIPAA security rule,” says Tony Munns, member, Risk Advisory Services, at Brown Smith Wallace.
Smart Business spoke with Munns about the final omnibus rule and what actions businesses should take.
What prompted the new rule?
A significant number of data breaches were from business associates who were not as diligent as they should have been, and covered entities were not selecting business associates with the appropriate rigor. A notable example involved an insurance company that had a business associate who was responsible for off-site storage of sensitive data. The business associate was using a garage, which was left unlocked and wasn’t climate-controlled. That contracting choice has led to separate investigations by both California and federal regulators.
What action should companies be taking?
The Department of Health and Human Services said that it’s not sufficient to just have an agreement, there needs to be satisfactory assurance that the business associate can and does follow proper procedure. Entities covered by HIPAA have until Sept. 23, 2013, to update their business associate agreements. Current agreements do not have to be changed until they’re up for renewal, but in any case all agreements have to be updated by Sept. 22, 2014.
What steps should companies take to comply with the legislation?
- Understand the new requirements and the impact on the business.
- Update business associate agreements.
- Apply the satisfactory assurance mandate.
Review existing agreements and perform due diligence to get comfortable with the practices of your business associates. This might involve requesting that audits be performed, such as Statement on Standards for Attestation Engagements No. 16 reports. In the insurance company example, no one examined whether the person contracted to provide off-site storage was capable of providing it to the level expected.
What are other requirements of the final omnibus rule?
The new rule requires that individuals be informed that their information has been breached. Managing breaches is no longer sufficient. Meanwhile, business associates are not required to provide a notice of privacy practices or designate a privacy official; they only need to comply with the general privacy requirements and all security measures, much like covered entities.
The definition of a breach was also changed from ‘a significant risk of financial, reputational or other harm to an individual’ to ‘an acquisition, use or disclosure of PHI in a manner not permitted.’ Under the old rule, companies that didn’t believe information was compromised didn’t need to classify it as a breach. Now they have to report the breach, but can apply mitigation to demonstrate there was a low probability of harm.
What are the penalties?
There are four categories:
- Ordinary breaches, such as an error or lost equipment — $100 to $50,000 per violation.
- If reasonable due diligence would have revealed the violation — $1,000 to $50,000 per violation.
- Conscious, intentional failure or reckless indifference, but the breach was corrected — $10,000 to $50,000 per violation.
- Conscious, intentional failure or reckless indifference and the breach was not corrected — $50,000 per violation.
For all violations, the cap is $1.5 million. And there will be more enforcement.
Tony Munns is a member, Risk Advisory Services at Brown Smith Wallace. Reach him at (314) 983-1297 or firstname.lastname@example.org.
We can help you with HIPAA compliance.
Insights Accounting is brought to you by Brown Smith Wallace LLC
On-site workplace centers have grown in recent years from being traditional in-house occupational health clinics where someone who was injured on the job could get basic care, to more extensive total health management centers that offer acute care treatment, health and wellness programs, health coaching, behavioral health assistance and chronic disease management.
Not all on-site facilities are right for all employers, but many different-sized companies are finding models that make sense for them.
“Studies have shown that only about 25 percent of large, self-insured firms offer some type of workplace center,” said Leonard Eisenbeis, director of Clinical Health Operations for UPMC WorkPartners, an affiliated company of UPMC Health Plan. “But, studies have also shown that the number of companies planning to open a worksite center doubled between 2007 and 2011 because employers are looking for a way to lower health care costs and support their bottom line.”
Smart Business talked with Eisenbeis about on-site services and why they can make sense for some employers.
What are some of the benefits that employees receive in on-site centers?
An on-site health management center is attractive to employees because it provides convenient and timely treatment for a set of acute conditions. It also replaces what, for the employee, would be a more costly visit to an emergency room or urgent care facility. Additionally, the center can monitor employees’ chronic conditions, which can easily be relayed to their primary care provider or medical home, improving overall total health management.
What are some of the benefits employers see with on-site centers?
Employers like the fact that on-site centers reduce employees’ lost time from work, which increases productivity. In addition, a good on-site center can help generate employee awareness through physician referrals by engaging at-risk employees in a comprehensive management of lifestyle behavior and disease management. Also, directly avoidable health care costs — such as physician visits, urgent care and emergency room use — can be diminished through on-site centers.
What are some features you can expect at an on-site center?
On-site center staff provide primary care support and on-site care for acute health care services, such as headaches, minor injuries, sore throats, sprains and strains.
You can expect the center to be a front door to occupational health services, where occupational injuries can be reviewed quickly and triaged, and occupational health exams, drug testing and OSHA reporting could take place. Good on-site total health management centers provide health and wellness education and referrals. Employers may include prescription medication services by providing a courier service to deliver prescriptions to employees.
Is there one model for on-site centers?
No. Employers can choose from several delivery methods to find the one that works best for their individual companies. For instance, they can have on-site health centers, or they can have a ‘near-site’ center within several miles of the employer’s campus to be used by employees who work at different sites. Another form of on-site services is mobile medical units, which are a cost-effective option for targeted medical services or testing.
Employers also may take advantage of telehealth technology within an on-site center to effectively service a number of worksite campuses. Telehealth is a remote health management application that links employees from an on-site health center to a physician or provider using interactive videoconferencing, voice and data systems, and embedded peripheral devices.
Telehealth is becoming more popular because this technology could allow an employer to install telehealth equipment with a nurse or medical assistant and transmit a patient encounter to a provider, greatly increasing the affordability of on-site care and financial return on investment. There are many options in the deployment of telehealth that make providing total health management care very scalable to companies of all sizes.
Leonard Eisenbeis is a director, Clinical Health Operations at UPMC WorkPartners. Reach him at (412) 454-4960 or email@example.com.
Save the date: Join UPMC WorkPartners for an upcoming webinar, “The Next Generation Worksite Health Center,” at 10 a.m. April 24. To register, contact Lauren Formato at (412) 454-8838 or firstname.lastname@example.org.
Insights Health Care is brought to you by UPMC Health Plan
More information leads to better decisions, and big data is providing companies with enough background to take much of the guesswork out of decision making.
“The larger the data set, the greater the context. Big data promises the tools to make observations much sharper and guide decisions based on facts or highly likely predictions, as opposed to intuition or sheer courage,” says Satyendra Rana, vice president at HTC Global.
Smart Business spoke with Rana about how companies can take advantage of big data and its potential for improvement and innovation.
What is big data?
Big data is a paradigm shift in the way businesses view and use data. For a long time, businesses focused on people, process and technology; data was considered a pain rather than an asset or an opportunity. Companies need to innovate and can no longer do so with the old approach. The new triangle is people, process and data, with technology as a substratum enabling all of those.
The first step to using big data is to look at what business outcomes are desired, then work backward and determine what data needs to be captured to glean those insights. A lot of that data might be internal, but business is not conducted in a vacuum — it needs to be understood in the context of markets, customers and suppliers. So there may be a need to gather external data to be correlated with the internal data. People have conceptions that big data initiatives have to necessarily use outside data, or that it’s only about outside data such as social media. It’s really more about what is done with the data than the source.
There are opportunities to collect data through various applications and sensors. Historically, it was a problem to collect data because it wasn’t readily available. For example, surveys were the main mechanism for collecting market data; you would need to approach 100 people to get 10 to respond. Now, people are volunteering information through mobile platforms and social media. Data is also being collected through instruments such as sensors on cars. Technology has made it cheaper to collect and store data, but businesses still have to take another step and leverage that data.
What are some of the applications?
The applications are everywhere, even though the most frequent uses are seen in marketing. Understanding customers better leads to improved relationships and more cross-selling and upselling. But big data insights can also improve operational efficiencies. For example, supply chain decisions about what products to stock in the warehouse can be influenced by big data. Insights could also lead to entering into new lines of business that weren’t considered. Further, a consumer using his or her credit card at a large retailer might be sent an alert offering a coupon for lunch at a partnering restaurant. The credit card company knows from its data that the customer eats lunch at this time and one of its restaurant partners is nearby, so it tries to predict behavior in real time. When the person uses the coupon, the credit card company gets a share. That’s a new line of business based on information the company had and was not utilizing.
How can companies get started on big data initiatives?
That’s an issue companies are struggling with. A data governance strategy is needed to deal with the amount of data that is received. You have to understand what is coming in and how it can be used. The most important step is to realize that big data is not just a technology issue, which can be a difficult task internally. Big data requires the business and IT sides to work together more closely than in the past. If big data is approached as an IT issue, its full benefit will not be realized. If it’s a business process and IT is involved only in terms of what storage to buy or application to install, companies may not quite understand what is possible.
Big data is changing the way businesses approach the fundamental need to innovate and create differentiation. For the past 20 years, innovation was about streamlining processes such as supply chains. Big data provides a new field for innovation by providing insights quickly and in more creative ways. Eventually, businesses will not have a choice; they will have to deal with big data in order to innovate and survive.
Satyendra Rana, Ph.D. is vice president at HTC Global. Reach him at (512) 773-0357 or email@example.com.
Insights Technology is brought to you by HTC Global Services
The new year means we are closer to the 2014 changes under the Patient Protection and Affordable Care Act (PPACA), the health care reform bill.
While we’re approaching the implementation of major changes to the way care is delivered in this country, some provisions are pending guidance and structure, so many employers are in a holding pattern until things are clearer.
“The best thing an employer can do is become familiar with upcoming changes and talk to their insurer and financial planners now,” says Marty Hauser, CEO of SummaCare, Inc. “Though they might not have all the answers to your questions, it’s a good time to begin the conversation.”
Smart Business spoke to Hauser about what provisions have gone into effect and what we can look forward to this year and into 2014.
What provisions exist now?
In 2010, early provisions included coverage of children with pre-existing conditions; coverage of dependents up to age 26 and 28 under federal and Ohio law, respectively; elimination of lifetime limits of coverage; regulation of annual limits of coverage; prohibiting rescinding of coverage; and 100 percent coverage of certain preventive services.
In 2011, more provisions were implemented, including extending 100 percent coverage of certain preventive services to Medicare members; medical loss ratio requirements; and changes to Federal Savings Accounts (FSAs).
Last year, women’s preventive health services were added to services covered at 100 percent, when received in-network, and insurers were required to distribute Summary of Benefits and Coverage (SBC) documents to potential enrollees upon application and renewal. Employers were also required to include aggregate costs of employer-sponsored health coverage for the 2012 tax year on W-2 documents provided to employees earlier this year.
This year, employers will be required to notify employees of the availability of state exchanges, now referred to as ‘marketplaces.’ There is also a $2,500 cap on FSA contributions.
What provisions are next?
In 2014, one provision impacting consumers will be guaranteed issue of health insurance policies. Guaranteed issue will provide access to affordable coverage to hundreds of thousands of individuals who may have previously been denied coverage because of pre-existing conditions.
Another provision impacting consumers is the implementation of state, federal and partnership marketplaces. A marketplace, in essence, is a state-based transparent and competitive insurance shopping and buying website administered by a governmental agency or nonprofit organization, where individuals and small businesses with up to 99 employees can buy health insurance plans. On Jan. 1, 2014, marketplaces will open to individuals and small employers, and some consumers will qualify for a subsidy from the federal government, helping to offset the cost of coverage purchased through the marketplace.
Additionally, on June 28, 2012, the U.S. Supreme Court ruled the individual mandate constitutional. It’s considered a tax that will be reported and paid when filing income taxes. The individual mandate takes effect Jan. 1, 2014, meaning all persons will be required to have health insurance or pay a tax penalty.
At the same time, the employer mandate also goes into effect, meaning employers who employed an average of at least 50 full-time employees, with full-time equaling an average of 30 hours per week, are required to offer employees and their dependents an employer-sponsored plan or the employer pays a penalty. Penalties don’t apply to employers with fewer than 50 full-time equivalent employees and there is no penalty if affordable coverage is offered. Employers with 25 or fewer employees may be eligible for a health insurance tax credit if they offer insurance, but the credit is only available on the marketplace in 2014.
Lastly, in 2014 employers will be allowed to offer wellness incentives of up to 30 percent of the cost of coverage.
What can be done to prepare for 2014?
Talk to your health insurer and financial adviser to find the best health insurance option for your employees next year.
Marty Hauser is the CEO of SummaCare, Inc. Reach him at firstname.lastname@example.org.
Website: To learn more about health care reform, visit www.summacare.com/healthcarereform.
Insights Health Care is brought to you by SummaCare, Inc.
If you haven’t been paying use tax, your business probably owes the state money.
Most business owners think Internet purchases are all that use tax covers, says Chad A. Bice, CPA, principal and director of Tax Services at Rea & Associates, which means many people are unsure or don’t think they have a problem with use tax.
“However, when we review their fixed asset purchases and expenditures, it’s a real eye-opener for them. We show them where problems are commonly found and they come to understand on what purchases use tax is paid. In many instances, they discover that they do in fact owe use tax,” he says.
Fortunately, Ohio has an amnesty period that began on Oct. 1, 2011, and ends on May 1, 2013, which allows businesses owing use tax a once in a lifetime opportunity to avoid interest and penalties on their unpaid tax. For businesses with sufficient tax due, an interest-free payment plan is available for up to seven years.
Smart Business spoke with Bice about the amnesty program and the types of transactions that are likely to incur use tax liability for businesses.
What types of transactions are subject to use tax?
Use tax is owed on the storage, use or consumption of tangible personal property and certain services. When a business or individual buys something and there is no Ohio sales tax on it when there should have been, then you owe use tax. That applies whether it’s purchased through the Internet, mail order or in person. It doesn’t matter if it’s from an Ohio business or an out-of-state business. The Ohio use tax rate is the same as the sales tax rate and the same exemptions that shield some purchases from sales tax also apply to use tax.
Transactions from out-of-state vendors are probably the biggest area where use tax is due. Many out-of-state vendors do not have Ohio sales tax nexus and, therefore, do not have an Ohio vendor’s license. They are under no legal obligation to charge an Ohio business sales tax. Many businesses purchase goods out of state in order to save 6 to 8 percent and many haven’t been paying the use tax.
From an in-state perspective, a lot of use tax is incurred through taxable services — building maintenance and janitorial, electronic data processing and temporary employment services, just to name a few. Many times these are services offered by smaller businesses that don’t know they should be charging you sales tax. If they’re not charging sales tax, it is the consumer’s responsibility to pay use tax.
In-state purchases of taxable tangible personal property are also an exposure item that many businesses overlook. This could range from the local hardware store to the large safety equipment supplier.
What penalties do businesses face if they don’t remit use taxes?
The initial maximum penalty upon audit is 15 percent and interest is between 3 to 4 percent annually, which can really add up. The state is taking an educational approach with the amnesty program. In addition to being interest and penalty free, the program has a seven-year interest-free payment plan available and a limited look-back only to Jan. 1, 2009. If you don’t file for amnesty before the end of the program, the state can go back further in an audit.
How likely is it that the state will come after you if you don’t pay?
The state is aware of more than 300,000 businesses that owe use tax in part because it has linked computer software programs. They know who is registered with the Department of Job and Family Services, who has payroll tax accounts, the businesses that have been filling sales tax returns, who has use tax accounts, etc. It’s very easy for the state to find the businesses that have many of these accounts, yet don’t have a use tax account.
Why not forgo amnesty, register and pay moving forward?
Those companies that have been in business for 10 or 20 years and suddenly register for an account are going to raise some eyebrows. You might as well go back to 2009 now, pay what you owe, and benefit from the waiver of interest and penalties and the favorable payment plan.
Businesses considering amnesty should not register for a use tax account until they’re ready to submit their application.
Chad A. Bice, CPA is a principal, director of Tax Services at Rea & Associates. Reach him at (740) 454-3198 or email@example.com.
Event: Join us for our webinar, Bracing for Impact: What You Need To Know About Health Care Reform, on March 26. Register at http://bit.ly/1355BYM.
Insights Accounting is brought to you by Rea & Associates
Retirement plan sponsors, now more than ever, need to be diligent in carrying out their fiduciary responsibilities. The Department of Labor, IRS and other agencies have eyes on the industry, especially with new retirement planning fee disclosures and a soon to be proposed expanded definition of “fiduciary.”
“The business owner who says, ‘I’m hiring these service providers to run the plan and I don’t have to worry about it’ is nonetheless ultimately responsible if there are problems,” says Paula M. Lewis, Manager, Client and Advisor Experience, at Tegrit Group.
Smart Business spoke with Lewis about what business changes could signal that retirement plan adjustments are necessary.
Who do plan sponsors deal with?
Plan sponsor decision-makers depend on industry experts for assistance in managing their roles and responsibilities. Although some parties may serve multiple roles, the sponsor may engage an accountant, an investment advisor, an actuary, an ERISA attorney and a third-party administrator (TPA), with each having important and distinctive functions impacting the plan’s operation.
Despite having all these providers in place, the ultimate responsibility for the plan still lies with the plan sponsor. Employers sometimes put in a retirement plan and just let it ride, but then no one is ensuring the plan grows and changes with the company and its employees.
In this dynamic environment, it’s crucial that all parties communicate. It’s best if you know that your service providers work well together, which lessens the risk of something being missed, and the best course of action is being charted.
What changes need to be communicated?
Usually, over time there are changes to the employee demographics, financial standing and even the goals of a company. The company’s retirement plan should also change over time to reflect these changes in employees, finances and objectives. Certain changes always should be communicated to plan service providers, including:
- Changes in ownership.
- Acquisition or divestiture of another company.
- Family members becoming employees of the firm.
- Major compensation changes of key personnel.
- Retirement plan goal changes of key personnel.
It’s confusing to know who to tell what, but generally, the investment advisor and TPA should be made aware of all of these changes, as they may impact fiduciary considerations and compliance. The investment advisor, along with the TPA, should be able to analyze any changes, determine which parties need to be informed, and make any plan changes to avoid any problems or penalties and ensure the plan is designed to maximize the benefits and goals of the company.
What can happen if changes aren’t reflected in the plan?
There are various penalties that are imposed if a plan falls out of compliance because of changes at the plan sponsor level. Late amendments and failed compliance testing are but two. For instance, if the spouse of the owner of one company purchases a separate company, the two companies can be considered a ‘control group,’ and for plan purposes are ‘one.’ Upon an IRS audit, the less generous company may have to increase its plan contributions, which could be an expensive correction avoidable with advance planning and appropriate plan designs.
When acquiring a company with a pension plan, you acquire its liability, especially if it’s underfunded — unless the acquisition agreements are carefully worded. Without advance planning, closing a division could produce a costly surprise as it could be considered a partial plan termination, requiring that the terminated employees be 100 percent vested.
Another area that can cause compliance issues is how certain family members of owners becoming an employee impacts the retirement plan. According to the IRS, he or she is considered highly compensated regardless of their salary. That could cause a plan to require corrective contributions. It is crucial to keep the lines of communication open with your advisors and TPA.
Paula M. Lewis, QPA, QKA, manager, Client and Advisor Experience, at Tegrit Group. Reach her at (330) 983-0485 or firstname.lastname@example.org.
Website: Visit Tegrit’s Advisor Resource Center at www.tegritgroup.com/arc for additional retirement planning tips.
Insights Retirement Planning Services is brought to you by Tegrit Group
The Internet is the first place most people go to look for a business, yet 72 percent of small businesses in Ohio do not have their own website, says Ryan Niddel, CEO of Brain Host.
“It’s surprising because having a website seems so commonplace,” says Niddel. “But if you find businesses in the Yellow Pages or the state business registry and try to pull up their domains, you see they don’t have a Web presence.”
Smart Business spoke with Niddel about the reasons businesses need websites and the costs and options of building and maintaining an online presence.
Why do so many businesses not have websites?
People think it’s more difficult, expensive or time consuming than it is. Small businesses don’t understand that someone can operate the site for them and it’s not going to cost thousands of dollars.
Businesses can get a website for free as part of a Web hosting contract costing as little as $15 a month. That way they can test the marketplace and see if their ROI increases and they’re making more money before expanding the site or getting involved in a social media marketing program.
Is a website a necessary tool for every business, no matter the product or service?
Yes, based on the number of people who search for businesses from a smartphone, tablet or computer. People look for restaurants and small businesses online before becoming customers. They want to see a website that shows products and services offered, price points and testimonials.
E-commerce stores, businesses that actually sell products online, are a small piece of the marketplace. Most websites are informational; it’s giving a consumer peace of mind about what they’re getting into before doing business with a company. Websites can benefit service industries, nonprofits, specialty shops and everything in between.
What is the advantage of a website compared to a free Facebook page?
Websites give additional validity to businesses because everyone knows Facebook is complimentary. When someone sees you’re willing to invest in your brand, it gives an additional level of comfort. Also, Facebook is a couple of pictures and quotes about your company, whereas a website can be much more in-depth.
What is essential to having a good website?
A good website not only provides insights into your business, but also enables you to capture and consistently follow up with visitors. You should leave any visitor with a hook that allows you to stay in touch periodically and keep them engaged with your brand. A company selling golf equipment — and that golf equipment doesn’t have to be sold online — might have a free download or brochure about how to take five strokes off of your game. Potential customers give an email address, and you send them specials or information about clinics or new locations.
Circle back with Twitter and Facebook accounts by sending an email that offers a 5 percent discount coupon if they ‘like’ your Facebook page or follow you on Twitter. Then, potential customers get an automatic update every time you post something to Facebook or Twitter; you’re getting an entire marketing package at no cost.
Websites have been referred to as a modern equivalent of an ad in a telephone directory. Is that accurate?
That’s correct. Catalog-size paper telephone directories are a thing of the past. About 95 percent of consumers will do some sort of online research before setting foot in your establishment. If they do an Internet search on a small business and all they see are sites with reviews or contact information, that doesn’t make them very comfortable about the business.
If you have a competitor nearby that has an Internet presence and they come up right away on a Web search, consumers are twice as likely to go to that storefront because they will not feel as engaged with your brand.
In today’s market of Internet savvy consumers, it’s imperative for small businesses to maintain a solid web presence or risk becoming obsolete.
Ryan Niddel is the CEO of Brain Host. Reach him at (419) 631-1270 or email@example.com
Insights Internet is brought to you by Brain Host
When business owners decide to borrow funds from a bank, one of their major decisions is whether to take a fixed rate or a variable rate of interest.
“There really is no correct answer, whether to choose a fixed rate or a variable rate when borrowing,” says Alfred DeFlaviis, chief lending officer and senior vice president and Gabe Makhlouf, first vice president of commercial lending, both at First State Bank.
Studies have found the borrower is likely to pay less interest overall with a variable rate loan versus a fixed rate loan. But, that doesn’t take into account that the longer the amortization period of a loan, the greater the impact a change in interest rates will have on payments. However, by asking a few questions, borrowers can make their final decision easier.
Smart Business spoke with DeFlaviis and Makhlouf about what you should take into account when deciding on a fixed or variable rate of interest.
What is the purpose of the loan?
Companies borrow for many different reasons, but the funds can be classified into two categories — short-term or long-term financing.
Short-term loans can be for, but are not limited to, payroll and accounts payables. Borrowers typically use a line of credit and repay the funds advanced as they collect their accounts receivable. Because you borrow the funds short term, borrowers typically elect a variable rate of interest. The variable rate is less than a fixed rate. Borrowers also repay the funds quickly so there’s a lower risk of interest rate fluctuations.
Examples of long-term borrowing could include equipment purchases, plant/office expansions, real estate purchases and business acquisitions. Borrowers typically need a loan term of three to 10 years or a real estate mortgage loan, usually amortized over 15 to 20 years. In this scenario, the funds are based on a longer repayment program, so you usually choose a fixed rate of interest. The repayment comes from cash flow generated from business operations. So, a fixed principal and interest payment amount factors into your company’s budget, and therefore is not subject to interest rate variations.
What is the current and projected interest rate environment?
When deciding between fixed and variable interest rates, you should take the current and projected interest rate environment into consideration.
For example, if interest rates are currently low and projected to stay that way for 12 to 24 months and you are considering a three- to five-year loan, a variable rate of interest could work. In this case, the fixed rate of interest offered will be higher initially so the variable rate option would be better. And should rates rise, if your cash flow allows, you can always accelerate the repayment by making additional principal payments to reduce the risk and the principal outstanding.
However, if interest rates are projected to rise, you might want to borrow on a fixed rate because you will have the security of a fixed monthly payment, whether rates rise or not.
Keep in mind that virtually all fixed rate loans come with a ‘prepayment penalty,’ which is enforced if the loan is paid off early.
What is your current financial position?
As with any obligation, borrowers must consider their ability to repay loans should interest rates rise dramatically, or even slightly.
If you have the financial ability to weather a spike in interest rates over the course of the loan, a variable rate might be the best option. Again, the initial rate of a variable interest rate will be less than a fixed rate and, therefore, the borrower will incur less interest cost.
If you have projected the repayment of the loan based on future revenues, rather than current, a fixed rate loan would be a better option. This reduces the risk of rates rising, which allows business owners to always know exactly what they will be billed monthly.
There really is no correct answer whether to choose a fixed rate or a variable rate when borrowing. The decision is based on so many variables that there is no fixed solution.
Alfred DeFlaviis is a chief lending officer and senior vice president at First State Bank. Reach him at (586) 775-5000 or Adeflaviis@thefsb.com.
Gabe Makhlouf is a first vice president, commercial lending, at First State Bank. Reach him at (586) 445-4856 or Gmakhlouf@thefsb.com.
Website: To compare business loans at First State Bank, visit www.thefsb.com/businessloans.
Insights Banking & Finance is brought to you by First State Bank
As sustainability continues to gain momentum, business leaders need to address how this movement will influence the way they run their organizations. Doing so can lead to immediate savings in power and other costs, and boosts the market value of the property.
“It’s a change in culture versus something that’s just an on-and-off switch,” says Greg Martin, partner and National Real Estate & Hospitality Practice leader at Moss Adams.
Smart Business spoke with Martin about what’s happening in the field of sustainability and how an accountant or adviser can help.
What’s happening with sustainability today?
Sustainability and Leadership in Energy and Environmental Design (LEED)-certified buildings have been talked about for some time. Early sign of sustainability in practice started out simply with hotel properties putting out signs about reusing towels or unplugging phone chargers. Then, many moved on to using low-flow showerheads or locally sourcing food. That sentiment has crossed over into the expectations of commercial building tenants, many of whom got the idea, at least in part, from attending conferences in energy-efficient hotels.
From a real estate perspective, more and more tenants in a commercial office building want to see sustainable practices followed in their workplaces. Those companies that can show they are concentrated on green living can use that as a competitive advantage. Eventually, sustainability will be part of our everyday psyche, so you want to take advantage of these competitive strengths when you can.
How does going green translate to the bottom line and profits?
It’s expensive to put energy-efficient measures in place, such as those that limit water or power consumption. But in doing so, you can significantly reduce your operating costs from day one and possibly attract sources of capital — some investment groups will only invest in properties or companies that have sustainability policies and procedures in place.
A number of studies found increased operating incomes and higher market values and returns for sound sustainable properties versus non-sustainable properties. A green label such as LEED or Energy Star raised market rents and values of commercial space, including a 16 percent increased sale price, according to a 2010 University of California, Berkeley study of 10,000 U.S. office buildings. A Davis Langdon study estimated upfront costs for high-sustainability design can be $1.50 to $3 per square foot, but those outlays also can bring up to 14 percent reductions in energy costs. In addition, PNC Bank put together a study of their LEED-certified branches compared to non-LEED branches, and found LEED branches had more income, deposit accounts opened and consumer loans.
As more data becomes available on the returns, cash flow and market appreciation of sustainability, we’ll likely see more and more benefits from following these types of policies and practices.
How can an accountant or adviser help with sustainability reports and programs?
CPAs are getting involved in reporting on whether companies are meeting sustainability policies and procedures. Often, an independent and objective CPA will look at the data provided by the management of the company on what they have done in the area of sustainability, referring it back to the company’s policies and procedures. The CPA basically concludes whether they are in agreement or not with management’s assertions. It lends another level of credence and credibility by generating a report based on benchmarks.
Another value-added service that’s gaining momentum is our sustainability consulting group, which consults with companies on setting up green policies and procedures as well as a process to monitor how companies are doing against their goals.
Is this a newer aspect of sustainability — showing that you are accountable?
It’s catching on. Is there some set of rules that say, ‘Thou shalt,’ like the SEC says that public companies shall present audited financial statements? Not really — it’s a best practice. It shows how the company is serious enough that they are going to bring in a credible, objective, independent party to verify what they have represented to others.
Sustainability is not a fad. Ignoring it is not going to make it go away. And because it’s here to stay, it will only continue to gain importance.
Greg Martin is a partner, National Real Estate & Hospitality Practice leader at Moss Adams. Reach him at (415) 677-8277 or firstname.lastname@example.org.
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It’s tempting to always want the latest technology for your business, but it’s more important to determine what you actually need in a Web hosting service before rushing after the flavor of the moment.
“Cloud service is the way the market is going because it’s efficient and effective. But it doesn’t make sense to push everyone to the cloud. A local pizza shop that has only 1,000 visitors to its site each month could go with a $4 per month hosting package on a shared server that will fit their needs very well and they’ll be very happy with it,” says Ryan Niddel, CEO of Brain Host.
Smart Business spoke with Niddel about what to consider when selecting a Web hosting service.
What’s the first step a business should take when shopping for a Web hosting service?
The first step is to research the type of hosting services available, and then evaluate your needs. Hosting services are predicated on a few key performance indicators from your site’s traffic: the number of visitors, the bandwidth necessary to accommodate the amount of traffic on the site and your anticipated growth plans for the site. Choose a hosting solution that reflects your company’s goals.
What hosting options are available, and how do you know which is right for your business?
The focus is on need, but your budget is always a consideration. To host a small business site for a mom-and-pop pizza store, you could comfortably utilize a shared hosting environment for $4 to $15 a month.
From there, you jump up to a virtual private server (VPS) solution, which is having a piece of a server configured only for you and your business. It’s as if you’re the sole owner of a quarter of a box and you can do whatever you want with it — you own all the bandwidth and all the metrics.
Then you can upgrade to a dedicated server — basically the entire box. It’s ideal for larger, traffic-heavy sites or for someone who wants to segment out their own box and resell pieces of it.
Finally, there’s the environment where much of the world is headed, which is the cloud. It’s fully scalable and accessible in real-time, so the amount of bandwidth you need can actually be adjusted at any given point throughout the day, week or month. You pay only for what you use — no more and no less.
In a VPS situation, if you’re using more service than you purchased, it can take several days or even several weeks to increase the amount of traffic you can send to your site. Cloud hosting allows you to simply turn a virtual knob on a screen, and all of a sudden, you have all the bandwidth you need.
How do you know which Web hosting service is going to have less downtime?
Everyone providing a Web hosting service is going to promise you the world and it’s going to be tough to for them to deliver it. The best way to know for sure is to ask where their servers are located and what contingency plan is in place when problems arise.
You want someone with a clear plan and a cascading effect. If the main servers on the Eastern Seaboard go down, the hosting company should be able to recognize that and then quickly switch to an alternate server. Or in the event that there is a power outage, the minute that power goes out, a backup generator or another server should instantly kick back on in another part of the world, leaving you with only a few seconds of interrupted service. It should be an automated process, rather than one that requires people to monitor the servers and physically flip switches behind the scenes.
The red flag for a Web host is lack of transparency. If they refuse tell you what they do and how they do it, then it will difficult to believe that they will be able to deliver on all that they are promising.
Ryan Niddel is the CEO of Brain Host. Reach him at (419) 631-1270 or email@example.com.
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