Businesses have been able to keep their heads above water during the recession — and the agonizingly slow recovery — by increasing efficiency and reducing expenses. However, many find sales growth more elusive.
“Their focus has been belt tightening, cutting expenses and doing more with less, but that’s not going to carry them through the next five years,” says Larry Goddard, CTP, managing director at SS&G Parkland. “The challenge is to focus on growth in a slow-growing economy, and everyone is going to have to be better at sales strategy and execution.”
Sales strategy, however, often gets less attention than lowering costs, as you’re dealing with an uncontrolled environment of customers and competitors, he says.
Smart Business spoke with Goddard about the questions business owners should ask themselves when sales are stagnating.
Are you operating in markets that are conducive to success?
Business success is always tough, but it is even tougher when operating in markets that make success harder to attain. Markets that are shrinking, low margin, or dominated by formidable and powerful competitors invariably make sales growth harder to achieve. Businesses that do not operate in markets that are conducive to success are likely to be consistently disappointed with their sales performance — unless they have strong ways to counteract unattractive markets.
You can make markets more attractive by changing markets, finding growing niches within markets, or changing or adding distribution channels. You might differentiate your product or form a marketplace alliance to gain a competitive edge. For example, a company made cameras that could be attached to news helicopters, a shrinking market, so it modified the product to work in the military, where cameras give tank drivers a bird’s eye view of their surroundings. This small switch increased sales from $4 million to $100 million per year in six months.
Do you have compelling value propositions?
Businesses that don’t differentiate themselves in a way that customers can clearly see the value provided put themselves at a major disadvantage. Value propositions are the customer’s perception of differentiation — not the company’s. Too many businesses, when asked about their differentiation, will say their service — without having compelling facts to support this claim. This response frequently comes from the top three or four competitors in the same market, but they can’t all have the best service. To make this claim, a business should be able to document that its on-time delivery or its resolution of customer complaints or some other important aspects of service are superior.
Even the best salespeople have trouble selling without compelling value propositions. How successful do you think Zig Ziglar would be selling encyclopedias, typewriters or pay phones today? Conversely, how good does the salesperson have to be to sell an iPhone? The iPhone value proposition is so strong that the product virtually sells itself.
Generally, at the macro level, there are two types of value propositions — product and nonproduct. It’s important to know the difference because it changes your sales strategy. Product value propositions are usually more tangible and easier to sell.
Are you using the best people for the job?
Just like most quarterbacks don’t make good linemen and seldom are pitchers good hitters, not all salespeople are good at generating new business. Being comfortable meeting new people, dealing with rejection and persisting in the face of defeat are traits that only a small percentage of salespeople enjoy. These traits are usually essential for success in new business development. Frequently referred to as ‘hunter’ salespeople, most businesses are fortunate if one in four of their salespeople fits this description.
Salespeople who don’t fit this description are known as ‘farmers.’ Farmers are vitally important salespeople, but they should play a different role — their jobs should be to work with, service and grow relationships with existing customers.
Most businesses don’t differentiate between hunters and farmers and expect both types of salespeople to generate new business and service existing customers. This is a mistake because hunters are generally not good at customer service and farmers, while trying valiantly to succeed, are usually poor at new business development.
Do you provide salespeople with the tools and support to be successful?
Here are some important resources and tools you need to equip your sales force with.
- Training — Salespeople need training in selling skills and product knowledge.
- Collateral materials — Effective brochures, websites, business cards, etc., are essential.
- Lead generation and qualification — Because hunters are so hard to find, the good ones should not be bogged down looking for and qualifying leads. Companies should conduct market analysis, identify and prequalify leads. The best leads should then be given to hunter salespeople to pursue.
- Plans and goals — Salespeople need to know the sales plan, strategy and goals. It is harder for the sales team to be effective without this information.
- Accountability — Just like other employees, salespeople will generally be more effective if they are held accountable for achieving their goals.
- Leadership and coaching — Most salespeople need effective mentoring, guidance, encouragement and appreciation.
It is easy to blame the sales team for poor sales results. Incompetent, unmotivated or disorganized salespeople could be part of the problem. However, unattractive markets, the lack of compelling value propositions, expecting farmers to be successful in new business development and not supporting the sales team are more likely to be the root cause of slow sales growth.
Larry Goddard, CTP, is a managing director at SS&G Parkland. Reach him at (440) 394-6150 or LGoddard@SSandG.com.
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Borrowers often assume that because they have made all their payments in a timely manner, renewing their line of credit will be as easy as it has been in the past. However, this is not the case, says Kenneth R. Cookson, attorney with Kegler, Brown, Hill & Ritter.
“The lending environment is different now and the conditions that allowed some borrowers to run the lines up to the maximum amount and simply pay the interest have passed,” says Cookson. “While in earlier years, it was almost automatic that timely payment of the monthly interest alone would make renewal easy, today, being a ‘loyal customer’ is nearly irrelevant to the renewal process.”
Smart Business spoke with Cookson about the lending environment and how changing conditions have affected it.
What challenges are banks currently facing?
In the post-Great Recession regulatory environment, banks are facing a combination of focused regulations and declining values in real estate portfolios and borrowers. They have pressure on their capital requirements and reserve requirements. When a loan is classified as less than perfect, there has to be a reserve established from a bank’s capital to offset the portion of the loan that is in jeopardy, which can eat into capital reserves quickly.
Banks are being subjected to a loan-by-loan analysis by regulators and they are trying to get ahead of that by going through their own portfolios to figure out which loans are speculative and which are not.
Further, a bank may feel regulatory pressure when it has a high concentration of loans in one industry with similar borrowers, so it may hedge its risk. The borrower may be surprised that the line of credit is not extended because the business has made payments on time, but the bank may feel that it is too exposed in that particular area.
How are banks coping with these regulatory requirements?
They are certainly increasing their lending standards. The ratio of loan-to-value has come down, particularly in the real estate market, where a 70 percent loan-to-value ratio is not an unusual request. When you couple that with a decline in real estate values, it really amplifies the state of the conditions and the difficulties for both lenders and borrowers.
What is happening to borrowers?
Borrowers, in many cases, are being caught unaware. They have had a line of credit with a bank for many years and don’t deal with a commercial banker very often. They will send in financial statements annually, the revolver is generally renewed and the rate goes up or down according to market conditions.
Now, bankers are having trouble renewing those lines of credit and are reducing them, or imposing other requirements that have not been enforced previously, such as not allowing borrowers to take out the maximum on their line and just pay the interest for a full year. The borrowers express surprise, asking, ‘Why shouldn’t making timely payments make the renewal of that loan automatic?’
The answer begins with the regulatory requirements on banks and concentration issues, the value of the portfolio of the collateral supporting the loan, an increase in loan-to-value ratios and cash flows.
If it is a real estate loan or one backed by accounts receivable, and the value of either or both has gone down, leading to the appropriate ratios established in the loan document to not be in line, the loan could be classified downward. Borrowers need to understand a bank’s regulation reviews, internal reviews and lending policies, and be prepared for that.
What can borrowers do to help themselves through this?
Borrowers should make sure that their financial statements are current, accurate and complete. Look at your internal records and make sure that your accounts receivable are all good, and if they are not, work to discover the problems before the bank does.
Also, know your business plan and what your five or 10 largest customers are doing. If you learn that of your two lines of business, only one is profitable, you should shift your resources to the more profitable of the two.
Companies can get weighed down by the history of their operations and not take a critical look at their business model, business plan, customer array and pricing policies. Examine your business model as if you were starting fresh.
There is no shortage of examples of businesses that hypothetically have grown but their profits have not gone up proportionally. Increasing sales doesn’t necessarily mean higher profits because of other factors, such as margins and collectability issues. You have to scrub the numbers to see what you are doing right. You may have to cut back sales to better serve customers at higher margins in order to make more money.
How can banks and borrowers each adjust during this period of transition?
You have to assume that we are going to come out of this Great Recession and that the economy will be back in growth mode. This takes patience and understanding from both lenders and borrowers.
Lenders want to make loans. They need to lend money because that is how they get a return on the capital that has been invested. And borrowers need to be granted loans in order to make that happen.
Kenneth R. Cookson is an attorney at Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5445 or firstname.lastname@example.org.
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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 email@example.com.
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This is Part 1 of two articles addressing the trials and tribulations of a company’s growth and development. First, let us set the scene: A company is on the path to success … great growth … exciting leadership … but has very little management.
This start-up, entrepreneurial company is driven by personality, and not just one, but a combination of personalities that create a unique cultural fingerprint of the company. It is not a formulaic approach; instead, it develops over time. This merging of personalities is an exciting time, driven by a common purpose and the excitement of building something unique. Things are flowing smoothly, and everyone begins to settle into a comfortable rhythm, says William F. Hutter, president and CEO of Sequent.
“This rhythm of early stage companies is a lot like that favorite recipe — the unique combination of foods and spices that make it smell and taste perfect,” says Hutter. “Remember visiting your grandparents’ house after you have been away for a long time? That smell of Grandma’s favorite recipes is deeply imbedded in your memory. Just one hint of that smell takes you right back to the comfort of Grandma’s kitchen. This same thing occurs in an organization during the early stage.”
Smart Business spoke with Hutter about the early stage of a company’s development and the role of the gun slinger.
How does the combination of personalities impact an organization?
The combination of personalities creates a feeling of comfort for those who helped create the collective personality. The founder/entrepreneur who has always run with his or her hair on fire is the head cheerleader. Everyone becomes comfortable, and the company’s cultural fingerprint becomes more established.
In the early stage, leadership is focused on sales, service and growth. The basic needs of the business — cash flow, growth, scale and bench strength — require that these factors repeat for continued growth. The leadership operates intuitively and influences the organization every day with necessary circumstantial decision-making. They are focused on a single objective — growth. This is the way the company operates and it is an exciting time.
What is the role of the gun slinger in this environment?
In the early stages, the importance of the gun slinger role is staggeringly important, because the gun slinger drives growth. We all know a gun slinger or two. They are in every organization. They get things done. It may be the founder/entrepreneur, or someone who has the courage to take on a tough project. They take risks and blaze the trail. The gun slingers in business are a lot like the gun slingers in old westerns. They are hired to do a tough job. They may move from town to town to ‘fix’ a problem, challenge the status quo or lead a group through troubled times.
In a growing business, the modern-day gun slinger is instrumental in driving the growth and the vision and is a constant reminder of the action and effort that are a necessary complement to the rest of the staff. The role of a gun slinger within a company requires creativity, quick thinking, calculated risk taking, gauging of skills, analysis of the objective and a superior level of individual talent. The role also allows for longevity of service and a willingness to accept individual accountability. Modern-day gun slingers must be self-motivated, willing to invest unrelenting effort with a purity of focus and have the ability to execute without regret. What organization wouldn’t want an employee or two with the skills of a gun slinger?
When does the gun slinger come under fire?
As the company grows, both internally and externally, the original entrepreneurial spirit and attitude begin to wane, and the gun slinger comes under fire. Early stage success brings with it the realization that this new company may very well have a long life. Therefore, a transition that ‘feels’ necessary begins to manifest.
Logic sets in. The organization has grown, and the early stage leadership realizes that planning for the next stage is imminent. Financial reporting is hazy, and people begin to point fingers rather than taking responsibility or working together to analyze procedures and methods. So a decision is made to look at what has been an ‘intuitive’ formula.
Time is spent documenting processes and systems to improve efficiency and move from an intuitive formula to one that is more prescriptive. The company also starts to see the risk of having leadership in such a crucial role. As a result, questions emerge — questions that involve re-evaluating what led the company to where it is today. Questions include:
- What do we do if something happens to the leader?
- The company is now a significant asset to its investors. How will the assets be protected?
- How do we document knowledge? How do we establish leadership as a mentor for sharing their unique knowledge?
- Can we decentralize to improve integration of departments?
- Do we need more management oversight?
All of these questions are legitimate, but we sometimes fail to recognize the consequence of seeking answers to these questions.
What happens when the gun slinger is no longer welcome?
In evaluating the factors that led to the early stage success, what had been the company’s strength is now examined as the company’s weakness. Often, when objectives have changed, the esteem once commanded by the leadership is questioned. They are no longer viewed as the strong gun slinger. Just as in old westerns, modern-day gun slingers, while welcomed in times of need, find their welcome has run out once their job is completed.
Next month, watch for Part 2 of the story, “Death of the Gun Slinger.” Learn how the changes fostered by the re-evaluation questions produce separate and distinct outcomes, which ultimately lead to the death of the gun slinger.
William F. Hutter is president and CEO of Sequent. For more information, visit www.sequent.biz. Reach Hutter at (888) 456-3627 or firstname.lastname@example.org.
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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 email@example.com.
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Missouri is focused on attracting and retaining businesses by creating a positive economic environment. One way the state has worked to enhance its economic position is by implementing tax laws that benefit the business community. For instance, during 2012, three bills were passed by the state legislature that expand current exemptions and deduction opportunities for businesses that meet certain criteria.
“Missouri is attempting to assist businesses during this time of economic recovery,” says Susan Nunez, the state and local tax principal in the Tax Services Group at Brown Smith Wallace LLC, St. Louis, Mo. “The state is looking for ways to enhance business and the passing of these tax laws demonstrates those efforts.”
As a result of the recently passed bills, purchasers now have a more direct avenue for obtaining refunds of overpaid taxes, more businesses may take advantage of expanded transportation asset exemptions, and partnerships and S corporations now can claim a job creation deduction that was previously only available to corporations.
Smart Business spoke with Nunez about the bills that were passed and what opportunities these tax laws may introduce for businesses.
How is Missouri streamlining the process for obtaining refunds for overpaid taxes?
House Bill 1504 (HB1504) creates an avenue for a purchaser to obtain overpaid sales and use tax directly from the Department of Revenue and sets forth steps on how to obtain refund claims. Prior to the passing of HB1504, if a purchaser realized that it overpaid taxes to a vendor, the purchaser was required to contact the vendor and request the vendor to file a refund claim with the Department of Revenue on behalf of the purchaser. If a vendor was not willing to cooperate, the purchaser lacked authority to pursue a refund of the overpaid tax with the Department of Revenue directly and thus lost the opportunity to obtain the refund of taxes it erroneously paid.
Meanwhile, if the Department of Revenue sent a notice to the vendor in response to a purchaser’s request for a refund, that purchaser may have missed its opportunity to respond or appeal due to the lack of due diligence on the part of the vendor. Overall, it was a struggle for purchasers to obtain refunds for taxes they paid to their suppliers. Additionally, vendors who did cooperate with their customers request to submit refunds potentially had an additional risk of being audited by the state.
With the passage of HB1504, the purchaser receives its refund from the state, not the vendor, so the process is more efficient and effective. A purchaser who has overpaid taxes must contact the vendor in writing requesting the vendor to assign its right to the refund. If the vendor agrees and signs the letter, the purchaser can file a refund claim directly with the state and include a copy of the letter. Once the claim is filed, reviewed, and approved by the Department of Revenue, the state will notify the vendor and, upon approval, will refund the overpaid tax directly to the purchaser.
Because the refund is paid directly from the Department of Revenue to the purchaser, the process is streamlined and can easily be audited. In addition, it relieves some of the vendor’s burden because it does not need to utilize its own resources to obtain such refunds.
How has Missouri expanded the exemption for transportation assets?
Historically, there have been transportation asset exemptions that applied to assets used for the transportation of persons or property for hire by common carriers. Since the original exemptions were adopted, the U.S. Department of Transportation has changed the rules regarding common carriers, and many businesses have obtained and now operate their own fleets of qualifying assets. To allow more businesses to take advantage of the exemption, the new law enhanced the existing exemptions by the addition of a transportation asset exemption.
The new exemption applies to purchases or leases by all motor carriers that operate motor vehicles that have a licensed weight of 54,000 pounds or more. Additionally, this new exemption is a bright line exemption. If a business operates as a motor carrier, with a truck licensed for the requisite weight, the exemption requirements may be met.
How can partnerships and S corporations now take advantage of a job creation deduction?
When original legislation was passed providing a deduction from income tax for new jobs created in Missouri for certain qualifying small businesses, the language in that bill limited the tax opportunity to corporations. It did not apply to partnerships or S corporations because those are pass-through entities that do not pay income tax, as they are taxed at the owner level. Missouri recently passed a remedy to correct this oversight in the original law, which allows owners of partnerships and S corporations to pass the deduction through to their owners. This change is reflected in House Bill 1661, and it is great news for small businesses of all types that are creating jobs in the state.
What steps should a business take to determine eligibility for these tax advantages so it can reap the benefits?
First, business owners should present their fact patterns to their attorneys or accountants when discussing whether these opportunities will apply to them. Do they operate a fleet of trucks that transports goods? Are they currently claiming a transportation exemption? Are they creating jobs in the state?
A knowledgeable professional can provide guidance by reviewing a business’s operations, its tax posture, understanding the scope of the particular law and how these laws may affect the taxpayer’s everyday business.
Susan Nunez is a state and local tax principal in the Tax Services Group at Brown Smith Wallace LLC, St. Louis, Mo. Reach her at (314) 983-1215 or firstname.lastname@example.org.
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In the current economic environment, many businesses are finding financing difficult to come by. But with the proper preparation, gaining funding for your business is not impossible, says David Shaffer, director, Audit & Accounting, Government Contracting Industry group leader at Kreischer Miller.
“Getting your business in order and presenting a strong case to your banker can improve your chances of getting financing,” says Shaffer. “It’s not as easy as it once was, but even in difficult economic times, banks and other organizations are still providing financing to businesses.”
Smart Business spoke with Shaffer about how to position your business to succeed when seeking financing.
What does a business need to have ready prior to looking for financing?
Whether you are a new business or have 50 years of history, anyone looking to provide financing is going to want to see the plan of how the business is going to repay the loan. Most lenders do not want to have to liquidate the collateral to collect the loan; they want to set up reasonable terms and conditions so the business can repay the loan, over time, and the lender can make a reasonable profit.
In most cases, this means providing the lender with a monthly budget of the business’s income, balance sheet and sometimes cash flow for 12 months, and an annual budget for at least two years from that point. The lender will use these statements to create financial covenants, so management must be comfortable that they can meet, or preferably exceed, the budgets.
Lenders are also going to review management’s history and the business’s history of repaying debt. If there have been any issues with historical debt, this should be discussed with the lender up front, prior to the bank discovering it on its own.
If you are an existing business, three years of historical financial information should also be provided. Audited financials are best, but in most cases, reviewed financials will be sufficient. If the company does not have audited or reviewed financial statements, compiled or internal financial statements should be provided, but if this is the case, be prepared for more due diligence from the lender. If there have been historical losses or other items that might give a lender concern, discuss the issues with the proposed lender prior to sending.
If this is the first time through the process, owners should consider having their CFO/controller involved, or involve their CPA or legal counsel who is familiar with typical terms and conditions of business loans. But even if you have done this before, no matter how experienced you are, make sure that you have an experienced attorney who has knowledge of these loans review all documents prior to signing.
How long does the process typically take from start to finish?
Most banks need 45 to 60 days from the initial meeting to the time of funding a loan. If the loan is more complex, it may take longer.
What collateral will a lender typically request?
Most banks will request that all business assets collateralize their loan (assuming they are the only lender) and, in most cases, will require the business owners to personally guarantee the loan. If the loan is very risky, they might also request liens on specific owner assets such as stock portfolios, personal home, and/or cash surrender value of life insurance.
What interest rate can businesses expect in the current environment?
Banks and other lenders determine their interest rates based upon the perceived risk of the loan. Most business loans that are not high risk have variable interest rates ranging from prime minus .5 percent to prime plus 1 percent. Fixed rate loans will vary depending on the length of the loan and the collateral.
Other than banks and personal savings/assets, where else can a business seek funding?
President Obama recently signed the Jumpstart Our Business Startups Act, and one aspect of that, called crowdfunding, provides up to $1 million of loans for businesses. Transactions must be administered by a broker or a funding portal that is registered and complies with the Securities and Exchange Commission requirements.
The Small Business Administration and other government-guaranteed loans also provide funding alternatives to businesses. The SBA can provide loans up to $5.5 million. Such loans require a lot of documentation from a business, but their rates are very competitive. In most cases, a bank will still need to be involved to underwrite the loan, and many banks have specific lenders specializing is SBA loans.
Some companies also consider joint ventures. However, this is quite risky because it requires a strong leader to bring together a group of businesses so that each member of the group understands the risks and responsibilities involved. It also requires the involvement of an experienced attorney who can write a joint venture agreement that everyone understands and is willing to sign. Joint ventures are often used to complete a specific project for a customer when one company does not have all the skill sets to complete the contract on its own, so will go out and find a ‘partner’ with those necessary skill sets to propose on the project.
Venture capitalist/private equity is also viable, especially if the business is promising and can grow quickly with the proper funding. Typically, these companies will get an ownership in the business. Some firms have been willing to lend money to a company, but it is typically at a much higher interest rate than a bank may charge. The advantage of venture capital/private equity, however, is that the business now has the network of contacts of the venture capitalist or private equity provider at its disposal.
David Shaffer is director, Audit & Accounting, Government Contracting Industry Group leader, at Kreischer Miller. Reach him at (215) 441-4600 or email@example.com.
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Certificates of insurance play an important function in doing business. Companies need a certificate to get work. A contractor needs one to get onto a jobsite. A trucker needs one to be able to pull up to deliver a load of cargo. A real estate company needs a certificate of insurance to go to settlement to buy a new building.
“It is the lifeblood of industry from an insurance standpoint,” says Joyce Shefsky, vice president, client services at ECBM. “There are so many issues involved with certificates, it can be a time-consuming and difficult process to get them issued and accepted.”
For example, a bank or general contractor will thoroughly examine a certificate of insurance to make sure everything is in compliance with the contract requirements, she says. If it isn’t, the insured could be held in breach of contract, or business could be delayed while the certificates are amended.
Smart Business spoke with Shefsky about the role that certificates of insurance play in doing business and how to properly use them.
What is a certificate of insurance and what should be included on it?
A certificate of insurance is evidence that certain insurance coverage is in existence as of the date the certificate is issued. It shows the insurance carrier providing coverage, the effective and expiration dates, policy numbers and limits of insurance.
Certificates of insurance are usually issued in conjunction with a contractual relationship between a third party and the named insured on the insurance policy. The contract typically stipulates the coverage and limits required.
It should include:
- Current policy information (limits of insurance, policy term, etc.)
- Name of the insurance carrier and the NAIC number
- Signature of agent
- Correct name and mailing address of certificate holder
If additional insured status or waiver of subrogation is required, a copy of the endorsement to the policy should be included.
Certificates of insurances are very critical to the construction industry, although other industries depend on them, as well. Often, it is the last thing businesses deal with, and it can be very costly if the insurance requested is not what the named insured has purchased. For example, a company will bid on a construction contract and not bother looking at any of the insurance requirements. Then, when it gets a job, all of a sudden it has to purchase more coverage, and its profit decreases or it is held in breach of contract.
When employers receive certificates of insurance, how should they review them?
The contractually required insurance, amounts, types of coverage and endorsements should be compared to the certificate provided. A procedure also should be in place to verify receipt of renewal certificates when the policies expire. In addition, a system to manage storage of the certificates is crucial; at the time of a loss, it is critical that the insurance certificate be available.
When requested to provide a certificate:
- Verify that your current coverage meets or exceeds the required insurance; this must include all endorsements requested.
- Always have your insurance consultant review the insurance requirements prior to signing a contract.
- Realize that adding additional insured status means you are sharing your limits with the additional insured, and you may want to consider purchasing higher limits to protect yourself.
What incorrect assumptions do employers make about certificates of insurance?
Some business owners mistakenly assume that certificates of insurance are binding. They might wrongly believe that just because a certificate has been issued to them that they are covered for any loss. Finally, all additional insured endorsements are not the same. Each is issued for a specific purpose, and the preparer of the contract must be specific as to the form of additional insured required.
How do subcontractors and policy renewals play into certificates of insurance?
When you hire a subcontractor to do work for you, request that a certificate of insurance be provided prior to the start of work. It is very important that the contractual agreement contain all of the indemnity and insurance requirements that are required in your contract with the owner or general contractor.
For policy renewals, a system needs to be in place to follow up for renewal certificates. The certificates need to be reviewed for compliance with your contract.
How have states taken legislative and/or regulatory action to address issues pertaining to certificates of insurance?
Often, insurance agents are asked to amend the Acord certificate form. It is copyright infringement to change the wording on the form. The wording that is printed on the form cannot be amended. There is legislation in most states forbidding an insurance agent to amend coverage by issuing a certificate. The policy must be endorsed for coverage to apply.
No business owner wants to be held in breach of contract because of a problem with the certificate of insurance. It also can slow business down — a job may not start, cargo may not get off a truck or a building owner cannot go to settlement. Therefore, take the time to ensure that everything is in order and properly reviewed to keep your business moving.
Joyce Shefsky is a vice president, client services at ECBM. Reach her at (610) 664-8299, ext. 1205, or firstname.lastname@example.org.
Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants
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 email@example.com.
Natalia Paich, CPA, AIFA®, is Wealth Relationship Manager with First Commonwealth Financial Advisors, Inc. Reach her at (412) 562-3232 or firstname.lastname@example.org.
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Many myths surround alcohol and alcohol abuse, and those myths can often affect attitudes in the workplace, as well.
The most common myth may be that people who abuse alcohol are easily identifiable as “bums,” or “losers,” and that they are unlikely to be employed. The truth is that only a small percentage of alcoholics could be so categorized and that 90 percent of alcohol abusers are employed.
“There are hidden costs with alcohol abuse that employers don’t always see,” says Albert Moore, account representative for LifeSolutions, a division of the UPMC Insurance Services Division. “Its effect shows up in absenteeism, lower productivity, workplace injuries and accidents, increased health care costs and even workplace morale.”
Smart Business spoke with Moore about alcohol abuse in the workplace and how employers can address it.
Is there a reliable estimate as to how much alcohol abuse costs businesses each year?
The National Institute on Alcohol Abuse and Alcoholism estimates that untreated cases of alcohol abuse costs businesses $185 billion a year. For an individual company, it is estimated that alcohol abuse costs a company about $7,000 a year per employee, and that affects in some way 15 percent of the work force. That means that a company with 500 employees is probably spending more than $500,000 a year on the effects of alcohol abuse.
How should an employer react when there is a suspicion that an employee has an alcohol problem?
Supervisors and managers often lack confidence that they can effectively address problems that appear to be the result of alcohol abuse. But each potential situation provides an opportunity to demonstrate leadership. The employee’s peers will gain respect for a supervisor’s problem-solving ability and appreciate the concern expressed for a co-worker. Untreated abuse always gets worse. The sooner the intervention, the better the result for the employee, the employer, and the workplace.
Are there specific things a supervisor can do?
Many factors can complicate a supervisor’s ability to take action, including the fact that alcohol consumption is legal and employers have no way to control the behavior of employees away from work. However, employers can do what is necessary to ensure that their employees perform their duties effectively and safely, which includes banning alcohol on a work site. An employer has the right to set rules that can discourage or eliminate alcohol in the workplace.
How does a supervisor know when it’s time to act?
It helps if a supervisor is both aware and available. Listen to employees and take note of problem behaviors. Sometimes employees might confide in a manager or supervisor, sharing the fact that they are struggling with an alcohol problem or admitting that they are worried about their drinking.
In such instances, a recommendation that they contact an Employee Assistance Program (EAP) is often all the motivation and direction they need. A manager should always refer to company policy and/or speak with a human resources representative regarding self-disclosures to assure confidentiality.
How can EAPs be of assistance?
EAPs are a good place to turn to for help if you have an alcohol problem because these programs can recommend very specific things you can do to start to address the problem. The service that EAPs provide is confidential, and because most EAPs are independent of the employer, they are trusted by employees. EAP representatives are experts in this area and have the experience to steer employees in the right direction.
An EAP health or alcohol addiction coach is a great place to start. Many people are hesitant about asking for help because they are embarrassed, or in denial, or worried they might not like what they hear. However, even the best athletes in the world need a coach, someone who can take an objective view and provide that fresh look at things that you may be missing. This is what alcohol abusers need.
EAP coaches will often refer someone with an alcohol problem to other experts who can help, depending on what they need. In this way, EAP coaches are like brokers. They know the business and can help find the best deal in terms of care and counseling.
What are some signs employers can look for that may be indicative of alcohol problems?
An impaired employee may be the last to recognize the problem. It is essential for a supervisor to focus on job performance, documenting specific examples of behaviors that are unacceptable or substandard per company policy.
Again, it is recommended that the manager consult HR before speaking to the employee. Focusing on behaviors, instead of opinions or diagnoses, allows a supervisor to avoid potentially inflammatory reactions. EAP consultation can help identify signs of deteriorating performance.
There are times when a supervisor or manager may have to deal with an employee who is impaired on the job. This requires prompt action to ensure the safety of the employee and others in the workplace. EAPs can offer guidance on making a referral and on handling the employee.
Albert Moore, MPM, CEAP, SAP, is an account representative for LifeSolutions, a division of the UPMC Insurance Services Division. Reach him at (412) 647-8124 or email@example.com.
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