As more and more businesses enter the global marketplace, a question they all want answered is, “What’s the outlook for foreign exchange rates?” Businesses want to know the direction that the currencies of their trading partners are headed in relation to the U.S. dollar, but no one knows. Former Federal Reserve Chairman Alan Greenspan once said, “To my knowledge, no model projecting directional movements in exchange rates is significantly superior to tossing a coin.”
“Currency markets are volatile, and they are affected by economic growth expectations and interest rate differentials,” says Don Lloyd, senior vice president, Capital Markets at Associated Bank. “Today’s big drivers include the fear of a Euro Zone debt crisis evolving into a Euro Zone banking crisis, which, in turn, could easily cause a world recession. Sluggish U.S. growth and Euro Zone concerns continue to drive an accommodative stance in U.S. interest by the Federal Reserve. But U.S. interest rates are only one side of the equation. The other side is the interest rates affecting the other countries that you’re dealing in.”
Smart Business spoke with Lloyd about how to take advantage of hedging strategies to protect your money overseas.
Where are businesses facing the most volatility with regard to currency markets?
Given the recent issues of the European debt crisis occupying the media, one immediately is drawn to the 17 member countries within the Euro Zone. The stronger Euro Zone partners, Germany and France, face leading the charge of recapitalizing the banking system of weaker member countries. However, with inflation in Germany hovering just above target levels, interest rates remain firm compared to those of the U.S. Likewise, concerns over the sustainable, consistent growth of China add uncertainly to an already fragile global economy. These two core economic drivers have created uncertainty and nervousness within the foreign exchange markets. U.S. growth seems to be dependent on the future of both Europe and China.
How can companies doing business overseas reduce volatility in their income statements?
Organizations can reduce volatility and more accurately forecast cash flows by using tools to hedge their foreign exchange risks. Some people mistakenly associate hedging with speculation and think they’ll be taking on more risk, but hedging limits your risk.
There are three categories of hedges. First, the forward outright purchase or sale allows you to lock in a rate today to be used at some time in the future. Money doesn’t change hands until settlement day, and you lock in your profit margin on goods you are selling.
The value of this hedge is the certainty it provides. Some companies use this hedge, and then, if currency rates have moved in their favor before the transaction settles, are not happy because they would have come out ahead had they done nothing. Right idea, wrong product. What those businesses want is another type of hedge, an option.
Options use a strategy similar to options on interest-rate swaps. They allow you to protect against the downside and, in some cases, benefit from the upside. You lock in the right, but not the obligation, to sell at a specified price. You pay an up-front premium for an option, with the amount dependent on the strike price you choose. You get 100 percent protection from adverse exchange rate movements but dollar-for-dollar gain if the currency moves in your favor.
However, some companies don’t want to pay a premium up front because of cash flow issues. In that case, you may want to consider a structured option, which allows you to put two or more options together to reduce or eliminate the premium. Start by buying a regular option, which costs some premium, but to reduce this cost, you also sell an option to your FX provider. You earn premium for the option you sell, which reduces or eliminates your overall cost of the structured option. You will be fully protected if the currency moves against you, but you limit the benefit if it moves in your favor. By limiting your dollar-for-dollar benefit, your premium is reduced.
What kinds of companies should consider a hedging strategy?
Five types should consider hedging. First is any company that buys and/or sells goods overseas; any company that makes or receives payments in more than one currency could potentially benefit from hedging.
Overseas subsidiaries of companies based in the U.S. also should consider hedging, as they face two kinds of foreign exchange risks. First is transactional risk, which applies to accounts payable and receivable. Any time money trades hands and two currencies are involved, there’s a risk that could be mitigated with a hedging strategy. The second is translational risk, which applies to your balance sheet. For example, say a company buys or builds a plant overseas and pays for it in foreign currency. At the end of each year, it has to put a value on the plant in U.S. dollars for the balance sheet. It might lose equity because of changes in the exchange rate but could hedge this risk. Some companies may decide not to hedge because they plan to operate in the foreign country forever, in which case the exchange rate may not matter. But sometimes, years later, the company closes the foreign plant and takes a large loss because the exchange rate has changed and it did not hedge the exposure.
Another type of organization that should consider hedging is local subsidiaries of foreign-owned companies. Sometimes the foreign exchange risk is handled by the parent company, but others prefer to have each subsidiary handle its own. Firms that send payroll overseas may also benefit from hedging. If a company has to meet payroll in a foreign currency, there’s an exchange rate risk that can be hedged. Finally, anyone who invests overseas, such as fund managers, foundations and pension funds may want to consider hedging, as this is by far the largest segment of the foreign exchange market.
Associated Bank, N.A. is a Member FDIC and Associated Banc-Corp. Equal Opportunity Lender.
Donald Lloyd is senior vice president, Capital Markets at Associated Bank. Reach him at Donald.Lloyd@associatedbank.com.
In every business’s growth plan, performance goals are set for specific business units with corresponding resource budgets allocated to support the plan. It used to be assumed that anything “tech” was under the purview of the IT department. So responsibility for building and maintaining the first corporate websites naturally evolved in the IT area.
“As digital tactics have become major channels in business marketing today, key ‘tech’ performance requirements have shifted,” says Kevin Hourigan, President and CEO of Web design, Web development and Internet marketing agency, Bayshore Solutions. “A critical element in today’s business growth plan is to make sure resources, ‘ownership’ and accountabilities are properly aligned when it comes to your website.”
Smart Business spoke with Hourigan about how to align the accountability and ownership of your business website to bring your business its best results.
Who should 'own' my business website?
Companies excel when marketing generates leads and sales. Increasingly, this lead generation and customer acquisition is accomplished by leveraging the company website as a tool, a facilitator, or a direct driver of results.
Businesses that are not using their website to its fullest potential as a lead and sales generator are missing out. It is only a matter of time before not addressing the situation will allow competitors to pass you by, and put you out of business.
For most businesses, website results expectations have transitioned from the IT realm to the marketing realm. If you are expecting marketing to deliver web business results, then marketing has to have the ownership to enable their accountability
How does IT technical expertise contribute?
The technical knowledge and skill base of IT and Marketing professionals is still an “apples and oranges” type of scenario. However, the skill sets of today’s digital marketers and IT professionals are closer than in the past, such that they can coexist, communicate and complement each other on the same corporate team, in pursuit of the same company goals: leads, sales and growth. Most marketers are not tech experts. IT professionals aren’t typically marketing experts. However, because of the very technical nature of digital marketing, a good relationship between IT and marketing needs to exist to ensure successful web results.
Marketing will be best at the dynamic and continuous iterations of market messaging, content and design that drives digital channels including online advertising, web page optimization, content marketing, and social media marketing and integration. An essential tool to enable your marketers to “market” your website is a Content Management System (CMS). This tool facilitates quick and easy messaging, styling, and implementation of proper coding for tracking, analytics and user experience functionality.
IT is best positioned to set up and deploy the infrastructure of your business website to help it optimally deliver the results that marketing (and you) expect to gain from it. IT support for a business website is often essential in implementing the recommendations of webmaster tools and other website monitoring discoveries. These include implementing ongoing redirects that avert SEO error penalties in the search engines, preventing hacking attacks and spamming to your site, and seamless handling of website stress loads (like ensuring the bandwidth to allow thousands of holiday shoppers to purchase through your website shopping cart simultaneously.)
How do I bring this all together?
Unfortunately, I have seen marketing and IT divisions within organizations that are non-communicative and even adversarial. A common factor I see in these instances is a perspective of territorial resources, misaligned expectations and communication barriers.
I have also seen many examples of great collaboration between IT and Marketing arms of a business that uncover opportunities for educating each other on the dynamics of their respective specialties, and discover ways to implement better, track better, interpret metrics better and produce much greater business results though best utilizing each other’s talents.
Executive clarification of the lines of responsibility, creation of the resources to fulfill that responsibility and enabling the means for cross-functional communication with IT and Marketing will improve your business results. Often a business may find that it is not able to quickly or economically accommodate the time or staff necessary to synergize IT and marketing with respect to driving website results. This is where partnering with a firm that specializes in digital marketing (and is fluent in the technical language involved) can alleviate overhead costs and streamline the integration of technology and marketing that brings next-level business results from your website.
In my experience, I have seen that businesses who are getting the best web results have assigned website accountability to marketing, and have forged a synergistic relationship between marketing and IT. This relationship allows IT to help evaluate, set up and implement the tools that marketing needs to produce great results. It also alleviates a burden on IT to keep up with the constant flux of digital market dynamics and focus on the IT infrastructure central to the business. Most importantly, the relationship provides for the communication and cross training that assures mutual understanding of each team’s processes and contribution to the company’s goals.
Assigning responsibility and resources for website presence and performance to your marketing team will free up your IT team to better focus on the infrastructure management items that are mission critical to operating your business. A healthy IT-Marketing relationship and the right tools for the job will allow your marketing experts to use the best digital marketing techniques to grow your business.
<< For a snapshot of Bayshore Solutions Web marketing methodology, visit: http://www.BayshoreSolutions.com/method
Kevin Hourigan is the president and CEO of Bayshore Solutions. Reach him at (877) 535-4578 or www.BayshoreSolutions.com.
Volatility has been crazy! The S&P 500 third quarter total return was -13.9% followed by +10.9% for October and now back to declines in November. The Russell 2000 index of smaller stocks returned -21.9% and +15.1% for Oct-Nov. Volatility also reigned in the fundamental world during Q3, as economists cut their +2.5% 2011 U.S. GDP estimates to +1.0% with higher odds of a double-dip recession before reversing to 2H 2011 growth of 2% and higher odds of sustained economic expansion through 2012. One factor in the volatility was the debt ceiling crisis, which was wholly unnecessary but extremely alarming as an indicator of governmental dysfunction. The global outlook was likewise far from stable, as the sovereign debt/banking system crisis in Europe added to the craziness in the financial markets.
I wish I could say this had no impact on the Market Meter, but that was not the case. The volatility of the markets, the economy and politicians translated into numerous changes in our Market Meter inputs. By early October as the volatility was nearing its apex, the Meter had plunged to -2 from +5 in May! This was by far the steepest dive in the history of the Market Meter, but with two points regained this month, it popped back up to 0. Looking into the history books again, we see the quickest roundtrip from bearish to bullish took place in the spring/summer of 2009, which by coincidence was the last time the world didn’t quite come to an end.
In early May, all Market Meter inputs were rated +1 (except the Major Trend which was neutral). The S&P had just reached a new high for the 2009-11 rally at 1370. We were projecting +3.0% to +3.5% 2011 GDP, but were concerned about the negative impact of the severe winter weather, Arab Spring-related oil price spike, and the Japanese earthquake shock to the manufacturing supply chain. We proved to be overly optimistic in our expectation that these were transitory and would reverse by late summer. As we awaited signs of improved growth, the issues discussed above combined to instead cause a manic-depression that captured consumers, businesses and investors alike.
Only two Market Meter inputs were unchanged over the May-November period. The good news is that the Federal Reserve remains totally committed to averting recession/deflation so it is unchanged at +1. The not-so-good news is that the Major Trend (secular trends lasting years or even decades) held at a weak 0 rating. As we have stated many times, the bursting of the credit bubble engendered deleveraging headwinds that may keep risk aversion at the forefront of our investment strategies for years to come.
We’ve been bullish for two years which helped us to earn positive results for our clients, but with the Major Trend and inputs from external research sources flashing longer term caution signals, we viewed the remaining Market Meter inputs with a wary eye. Consequently, as economic forecast and earnings estimate revisions gave warnings of turning negative, we downgraded Economy from +1 to -1 and Valuation from +1 to 0. No such bias was required for the Technical inputs as the selloff quickly cut them to -1. The net result was the +5 to -2 overall drop and we followed the Meter by reducing our exposure to more-cyclical (risk-on) equities and raising cash reserves in client accounts.
Our Autumn Market Message was titled “Whistling Past the Graveyard” and investors suddenly decided to do just that in October. Recession fears were mollified by the surprising +2.5% Q3 GDP report and progress was made on the European debt crisis. The early-October “test” of the August lows was successful, so Short Term Technical flipped from -1 to +1 and that two point swing returned the Market Meter to 0. Thus, for the first time in nearly a year, we increased our equity market exposure by redeploying a portion of the cash reserves raised this spring/summer. Volatility needs to subside for us to see further improvement in the Market Meter, but the European crisis and Congress’s Super Committee failure have kept volatility high.
All of these factors must be taken into account as we develop our economic outlook and investment strategies for 2012. Potential shifts toward more defensive or more aggressive tactics will be determined by the outcomes of that effort. For now, we are maintaining a relatively neutral stance toward the markets.
The opinions and information contained in this message have been derived from sources believed to be accurate and reliable, but FirstMerit Bank, N.A. makes no representation as to their timeliness or completeness. This message does not constitute individual investment, legal or tax advice. All opinions are reflective of judgments made on the original date of publication and do not constitute a guarantee of present or future financial market conditions.
Have a question about investments or investment services? Contact Bob Leggett, Chief Investment Officer, FirstMerit Wealth Management Services, at email@example.com.
In today’s economy, it’s natural for employers to be more focused on cutting back than on adding to the budget. But there are certain areas of the business that are always going to require investment.
Perhaps the primary place that employers should always be striving to improve is human capital. Businesses cannot afford to lose their best employees to competitors that offer better opportunities for career advancement, and keeping employees sharp will only improve a business’s competitive position.
“The reward definitely outweighs the cost,” says Jessica Ford, vice president of operations at Ashton Staffing. “You do not have to start out with guns blazing, offering paid college tuitions. Look at your budget and tailor your training plan around it.”
Smart Business spoke to Ford about making sure your business is preparing employees to meet challenges in today’s tough market.
In today’s competitive market, why is employee training and career development important?
The importance of training your employees — both new and experienced — cannot be overemphasized. Effective training of new employees reduces turnover because employees will have a positive feeling about the company, and it saves them time with getting initiated into their job.
But employee training doesn’t end with new workers. Manager training and development is equally important to workplace safety, productivity and satisfaction. Among the most useful skills that can be addressed are manager communication, employee motivation and employee recognition.
A continued education program for experienced workers based on their job duties helps to alleviate sloppy, inefficient and even unsafe work habits.
Why do some employers hesitate to put any formal training or employee development in place?
Employee training is essential for an organization’s success. Despite the importance of training, many companies initially encounter resistance from both employees and managers. Both groups may claim that training is taking them away from their work.
Given the current economic climate, some employers are also hesitant to allocate the necessary funds to train their employees.
What kinds of offerings should employers make available to employees?
Start slow. Companies do not have to roll out an elaborate training plan in the beginning. This will de-motivate some staff and also overwhelm them. Look at each position in your company and where each could improve. Choose the job class that is most effecting your bottom line and that is where you begin. Initially the training will need to be required in order to get everyone on the same page.
Training is available in many ways, the most popular being online training, particularly for management. A great investment is a company trainer. They will research your company’s situation thoroughly before developing a customized training plan by using many different resources to determine your company’s training needs, such as company goals, HR complaints and legal obligations.
Many standards by the Occupational Safety and Health Administration (OSHA) explicitly require employers to train employees in the safety and health aspects of their jobs. Other OSHA standards make it the employer’s responsibility to limit certain job assignments to employees who are ‘certified,’ ‘competent,’ or ‘qualified’ — meaning that they have had special previous training, in or out of the workplace. These requirements reflect OSHA’s belief that training is an essential part of every employer’s safety and health program for protecting workers from injuries and illnesses.
From an HR perspective, a growing number of states are requiring workplace harassment training for employees, specifically requiring employee sexual harassment training. This is yet another example of the importance of employee training.
What are the cost implications?
If you choose to start small and train for specific results, many online training sites will provide you a bulk discount. A growing number of employers are turning to online employee training for a hands-on, interactive way for employees to learn. More economical in both time and money than conventional training, this form of training has become more and more popular as Internet technology has improved.
How can employers make sure they are making the most of training in the workplace?
You must have employee buy in for any program to be successful. Make the training fun when you can. Offer pay increases to those who have successfully completed the training and make sure to mention their accomplishment during their annual review. As employees complete their training, offer certificates and make sure to congratulate them. When possible, send out an e-mail blast to the company as a whole or display the graduates’ pictures holding their certificated in a break room.
A successful training program is always a work in progress, and the training cycle isn’t complete without an evaluation of training’s effectiveness, which leads to decision-making and planning for future training.
Jessica Ford is vice president of operations at Ashton Staffing. Reach her at (770) 419-1776 or firstname.lastname@example.org.
Estate planning opportunities abound for those who are paying attention. Now is the time to sit down with your estate planner to take advantage of tax law that likely will change in the coming year.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 increased the applicable exclusion amount for the estate, gift, and generation-skipping transfer (GST) tax to $5 million from $3.5 million. If Congress doesn’t act, the gifting exemption goes down to $1 million per person on Jan. 1, 2013.
“Those who can benefit from this opportunity should act now before the rate changes,” says Sally Day, director, Crowe Horwath LLP. “This creates significant estate planning opportunities, which need to be acted on as soon as possible.”
Smart Business spoke to Day to learn more about how to take advantage of current estate planning opportunities.
What is the significance of this exemption?
This is a record-setting estate, gift and GST exemption.
Prior to Jan. 1, 2011, the exclusion available to each individual for estate tax purposes was $3.5 million, reduced by the portion of the exclusion previously used to offset lifetime gifts. Before 2011, however, an individual could only use up to $1 million of this exclusion against gifts during his or her lifetime. Therefore, any gifts in excess of $1 million would require that gift tax be paid (at the applicable rate of 45 percent in 2009 and 35 percent in 2010).
Beginning Jan. 1, 2011, the 2010 Tax Relief Act increased the estate tax exemption from $3.5 million to $5 million, but, more importantly, now allows an individual to use up to the full $5 million against gifts made during his or her lifetime. The practical effect of the new law is to allow individuals to gift an additional $4 million during 2011 or 2012 and not pay any gift tax on the gift.
It should be noted that all of these figures are in addition to the ability to gift up to $13,000 per recipient per year without being required to count those annual exclusion gifts toward the $5 million lifetime exclusion.
Why do individuals need to act now?
Unfortunately, the $5 million exclusion is only effective until Dec. 31, 2012. Therefore, individuals who have sufficient assets to provide securely for their living expenses and maintain their current lifestyle should consider making gifts now to use up their $5 million exemption — before the exclusion is reduced in the future. If Congress does nothing before the exemption expires on Jan. 1, 2013, today’s $5 million exclusion will drop back to $1 million, and this window of opportunity will be lost.
The taxable amount of gifts made is measured by the fair market value of the property on the date of the gift, so now is the perfect time to gift away assets that might have a lower fair market value in today’s economy, but have the potential for future growth, such as shares in a family-owned business, units in a family limited partnership, or real estate that has declined in value. After property has been gifted away, not only is the asset itself removed from the donor’s future taxable estate, but the donor is not subject to any additional estate or gift tax on subsequent appreciation on the property.
What does the current GST tax mean for taxpayers?
The 2010 Tax Relief Act also retroactively increased the GST exemption from $3.5 million in 2009 to $5 million for all of calendar year 2010 and through the end of 2012. The GST rate was zero in 2010 but is synchronized with the estate and gift tax rate of 35 percent for 2011 and 2012. Just like the estate and gift tax, the GST portion of the 2010 tax relief act will expire on Jan. 1, 2013, when the GST exemption will revert to $1 million and the GST tax rate will become 55 percent, unless new legislation is passed.
For taxpayers, this means that as they are making large gifts (as recommended above) they should not transfer the assets directly into the ownership of their children, since those assets will be taxed again at the child’s death. Instead, they should consider gifting property either to grandchildren (or other skip persons or more remote descendants) or into a trust that can benefit both the donors’ children and grandchildren without being taxed in the child’s estate.
By properly structuring GST transfers either directly to grandchildren or in trust for their eventual benefit, $5 million of assets can bypass or skip over potential taxation by the donor’s children’s estate.
With the exclusions high and the tax rates low, now is the ideal time for taxpayers to make transfers to their children and grandchildren or anyone else they wish to benefit. It is not known what will happen to the rates when the clock strikes midnight on Dec. 31, 2012, so take advantage of the opportunity while it exists.
Sally Day is a director with Crowe Horwath LLP in the Tampa, Fla., office. She can be reached at email@example.com or (863) 603-4810.
Nexus is a Latin word for a common tie or a connection, and, in today’s business environment, it is also a key term in determining the tax jurisdiction that applies to state business taxes.
Because of the interconnected nature of our economy today, the discussion of state tax nexus has clear implications for many business owners. They often find themselves operating in multistate environments but may lack the expertise and the means to limit their tax liability and audit risk.
And as a result of that lack of technical expertise, business owners may find themselves stymied by a state tax nexus questionnaire, says Timothy A. Dudek, a director of tax strategies at Kreischer Miller in Horsham, Pa., and chair of the firm’s State and Local Tax group.
“Nexus questionnaires are not to be taken lightly,” says Dudek. “Incorrect responses on the company’s part to what can be very confusing questions — questions that prompt only yes or no answers — may give rise to unsuspecting and irreversible results. This, then, leads to being subject to the multitude of taxes within each jurisdiction.”
Smart Business spoke with Dudek about how to approach a nexus questionnaire and how to proceed should your business receive one.
Why would a business receive a nexus questionnaire?
In the current economic landscape, more and more states are feeling the impact of the budget crunch. In an effort to increase revenue, states are sending nexus questionnaires to out-of-state businesses that they suspect may be underreporting and underpaying taxes in their jurisdiction. Choosing to ignore these questionnaires may be dangerous for a business, as these states may take steps to impose arbitrary assessments and force companies to then defend themselves, ultimately resulting in a lot of professional fee expense for the business.
How do state and local taxing jurisdictions obtain their mailing list of companies to target?
It’s not too difficult to reason how they get the names of companies that may be liable for some type of tax liability within their jurisdiction. State auditors research potential business links such as customs reports, FAA logs, boating registries and realty transfer transactions.
Other revenue officials may roam trade shows and business centers, peruse telephone directories and websites and watch bridge crossings to target companies whose names are not already listed on the state database. Advanced technology allows for interdepartmental inquiries within each given state, with wage tax systems interacting with corporate tax systems.
Lastly, because of state tax compacts (information sharing agreements) signed among a number of neighboring states, the audit of one company leads to information about another company, and so on.
What types of taxes are subject to these inquiries?
While the list of taxes that are subject to these inquiries would be beyond the purview of this article, it’s essentially any tax or fee that can be imposed under that state’s taxing ordinance. This would encompass everything from corporate income and franchise taxes to unclaimed property reporting to sales and use taxes to wage taxes.
What danger do these questionnaires pose to businesses that are not familiar with them?
The answer is twofold. First, a company needs to understand the concept of nexus, which is defined differently for the different types of taxes involved. Companies may or may not be subject to state taxes based on a variety of state tax concepts, such as physical presence, constitutional nexus, economic nexus, affiliate nexus, agency nexus, or Public Law 86-272, which addresses the circumstances under which a multistate business may owe state income taxes.
Second, the questions asked on the nexus questionnaire can be quite broad in nature. A company may think that the response to a particular question should be a simple ‘yes.’ However, a more accurate answer may be, ‘Yes, except for … ’ In other words, if a company answers ‘yes’ to a particular question without providing further explanation of that answer, it becomes easier for the state to conclude that the company has nexus. Being able to provide a further explanation may provide a solid basis for concluding that the company does not have nexus.
Because of that it is a very good idea for companies to review their answers with their state tax professional before returning the questionnaire to the state. Once submitted to the state, it becomes extremely difficult to retract answers that were originally given in good faith but that were incorrectly submitted.
What other factors should companies be aware of regarding nexus questionnaires?
Companies should continuously assess their operations in any state or local jurisdiction where they do business. If you find that you have established state tax nexus, the law requires you to register in those jurisdictions and begin paying taxes.
However, before you register, if there is a possibility that state tax liabilities may have existed for your business in earlier years, first talk to a state tax professional about your options. There may be voluntary disclosure, amnesty or exemption programs that your business can utilize to resolve its tax requirements.
Timothy A. Dudek is a director of tax strategies at Kreischer Miller in Horsham, Pa., and chair of the firm’s State and Local Tax group. Reach him at (215) 441-4600 or firstname.lastname@example.org.
Most people get a physical checkup at least once a year. Such things as blood pressure and heart rate tell a lot about one’s health and the direction it is going. Why not do the same with your business’s financial health as well?
Nicholas Browning, president and CEO of FirstMerit Bank’s Akron region, says the idea of a fiscal — rather than physical — checkup is not a new one. However, it is typically overlooked in the rush to meet other deadlines.
“Many business owners get regular medical or dental checkups,” Browning says. “Yet, when it comes to evaluating their relationship with their bank and bankers on a regular basis, they fail to do so. Periodic evaluations are a must for business owners.”
Smart Business spoke to Browning about why the right bank and banker are essential as a company attempts to achieve its business goals.
Why are periodic evaluations with a bank important?
Regular evaluations are important primarily because companies evolve constantly. The banking industry is dynamic: consolidation and personnel turnover are constant within it. Therefore, it is important to assess your ever-changing needs and how your bank is meeting those needs.
As the business evolves, you need to evaluate if the bank can and/or will grow with you. You should ask whether your banker possesses the required skill set and whether the bank has the credit appetite and expertise to grow with your company and industry.
Banks and bankers — which are separate entities — need to be evaluated individually. You might discover that the banker may be right for your needs, but the bank is not. Or vice versa. You might have to change one or the other — or both — in your own best interest.
How do you know which bank to choose?
You should look at where the bank directs its money, energy and resources. Does the bank have a focus on commercial banking? If it does, what size companies does it serve best? A bank that focuses on very large institutional clients may not be the right fit for small or middle-sized businesses. A bank that claims to specialize in all sizes will be forced to spread resources over a wide array of clientele.
It is absolutely a necessity to have a bank that has accessible senior management and other decision-makers who can help process requests quickly, act as your advocate and respond consistently to credit needs.
How do you evaluate a banker?
The level of commitment and interest in the company is extremely important. A banker should want to learn how your company makes money and what is changing in the industry.
Personal attention is also a determining factor. Is your banker ready to handle the next problem — personally — if needed? Does your banker understand your company’s financial goals and operations? Does it know your key personnel?
Does the banker have the ability to act as a sounding board for your company? The more experience a banker has, the more likely he or she is able to help with unique business situations. Your company may have never had operations in a foreign country, but the banker may have worked with other companies that have.
Does your banker have strong decision-making skills? Can he or she make a decision quickly or have access to the people who can? All these factors determine the quality of your banker and should be evaluated regularly.
Who else should be consulted?
At least once a year, all of the individuals that are part of your banking team should review your relationship, just like an annual exam with specialists called in. Treasury management is the most common specialty area in which banks provide expertise. A private banker, international banker and your retail branch manager may be others who should be included in your team.
Is it more important to have the right banker or right bank?
Both are extremely important. A company that does not have the right banker is not going to get access to the right people or the right services. A banker can be extremely talented, but if the bank can’t deliver when opportunities arise, you need a different bank.
The right bank and banker combination delivers a relationship that is valued and beneficial. Having a strong relationship with a bank allows a company to take advantage of opportunities as they arise, especially when there are periodic checkups to keep the relationship strong and healthy.
Nicholas Browning is president and CEO of FirstMerit Bank’s Akron region. Reach him at email@example.com or (330) 384-7807.
There are as many different types of employee handbooks as there are different types of employers. Some run 70 or 80 pages and have a rule for everything. And then there are the bare-bones handbooks that only contain a few company policies. There is no right or wrong way to write an employee handbook. In fact, there is no law that requires you to have one at all. Still, I think every employer should write one. It is just a good idea and might even help you if you get into legal trouble.
Below, I’ve condensed a series of blog postings on writing an employee handbook. I got the idea of blogging on the topic after a client suggested the best way to put together an employee handbook is to write it as if you were writing it for your own company. My company? I never actually thought about writing a handbook that way. Until now.
Let’s call my fictitious company Zo’s. And because I’m a lawyer, let’s assume it is a service company rather than a manufacturing company. So, let’s write a handbook.
The first thing I’ll include is an introduction, which sets the tone for the company. It may be light, like mine is going to be, or more formal if that is your corporate culture. It also gives us a chance right up-front to introduce the at-will concept. That is, you want to be able to let employees go for any reason or for no reason and with or without notice. And you want to tell them this in a non-threatening way. Not that you will ever fire someone without a reason, but why give away your right to do so?
Page two of my handbook is going to contain “The Rules.” Here are the rules we expect you to live by here at Zo’s:
Rule 1: Be professional.
Rule 2: When doing your job or anything else at work, see Rule 1.
That’s it. Two rules that we expect you to follow whenever you are representing the company, dealing with a client or with each other, or just doing your job. By “be professional” we mean use that good judgment we know you have, always be honest, reliable and committed to doing your best. Be a team player and take personal responsibility for your actions.
These two simple rules cover everything you do at work. Thinking of starting a romantic relationship with a coworker? See Rule 1 and think again. Thinking of harassing someone? Is that really professional? See Rule 1. Want to exaggerate the performance of the company’s products in an Internet chat room? Rule 1 again.
For the record, I borrowed these rules from the Tribune Company handbook way back in the Spring of 2008. You can see the article here. I defy you to find a situation that Rule 1 and Rule 2 won’t cover.
Page three is our Equal Employment Opportunity (EEO) policy. You need to have a policy like this to provide at least some protection if you have a charge of discrimination filed against you. So this particular policy is going to read a bit more like it was written by a lawyer. Mine reads like this:
"It is the policy of Zo’s that no employee or applicant for employment, will be discriminated against based upon age, race, color, creed, religion, sex, sexual orientation, national origin, disability, veteran status or other protected class or characteristic established under applicable federal, state or local statute or ordinance.
Zo’s will not condone, permit or tolerate discrimination as described above. Persons who engage in such discrimination will be subject to appropriate discipline up to and including termination of employment.
If you feel you have been subjected to discrimination, or have witnessed any discrimination, please report it immediately to your supervisor, HR or straight to Zo. Any complaint of alleged discrimination will be carefully investigated. Should there be any violation of this policy, appropriate actions will be taken to correct the matter. Zo’s will not tolerate retaliation against anyone who in good faith lodges a complaint under this policy."
Here are a couple of additional things you should know. First, sexual orientation, which is included in the list of things we won’t discriminate against, is not a protected category under Michigan or federal law. But we include it anyway at Zo’s because we think it is the right thing to do. Second, you don’t need to allow people to report directly to the owner of the company, but you do need to give employees at least a couple of options.
While there is no statute that specifically requires you to have an anti-harassment policy, the U.S. Supreme Court says that if you want to take advantage of a certain defense to a sexual harassment charge, you have to have a policy. And when the Supreme Court says it thinks it is a good idea that you have a policy, we lawyers tend to agree.
One more thing to keep in mind is the title. I like something like “Policy Against Harassment.” Do not call it a “Harassment Policy.” The former makes if clear you won’t condone harassment, the latter makes it sound like you allow harassment as long as you do it by the rules.
It is also a good idea to make sure employees know you won’t tolerate harassment based on any protected category, not just sex or gender. The kind of harassment we are talking about in this policy is harassment based on one of the protected categories. What about a boss who continually and forcefully reminds employees to do their jobs? That doesn’t count as harassment.
At Zo’s, everyone has a computer, e-mail account and unlimited access to the Internet. And that, as you know, can cause some problems. We need a computer use policy. And at Zo’s, “computer use” includes how you use your e-mail account, the Internet and social media. So our computer use policy is going to say that Zo’s can monitor use of company-provided computers and computer systems, including e-mail.
In addition, my policy will contain a reference to Section 7 of the National Labor Relations Act — even though Zo’s is a non-union employer. Basically, the National Labor Relations Board says a social medial policy that broadly prohibits employees from doing things like making disparaging remarks about the company is a violation of Section 8(a)(1) of the NLRA. And that is true if you are a union employer or not.
SOCIAL SECURITY PRIVACY
"Zo’s understands the importance of protecting the confidentiality of its employees’ Social Security numbers and those collected in the ordinary course of Zo’s business. Neither Zo’s nor any of its employees will unlawfully disclose Social Security numbers obtained during the ordinary course of business. Zo’s will limit access to information or documents containing Social Security numbers to those employees who need the information to do their jobs.
In addition, Zo’s will shield Social Security numbers displayed on computer monitors or printed documents from being easily viewed by others. Unless required to do so, Zo’s will not use Social Security numbers as personal identifiers, permit numbers, license numbers, primary account numbers or other similar uses
Zo’s may use a Social Security number to perform an administrative duty related to employment, including, for example, to verify the identity of an individual; to detect or prevent identity theft; to investigate claims; to perform a credit check, criminal background check or driving history check; to enforce legal rights; or to administer benefits programs.
All provisions of this policy are subject to the language of the Social Security Number Privacy Act of the State of Michigan."
I also would include a policy on solicitation and distribution of literature. We could argue about this one way or another, but I think it is a good idea to say that we want to keep these sort of non-work disruptions to a minimum. If you want to sell Girl Scout cookies for your daughter, do it on your breaks and make sure the people you are pestering are on break, too.
And that is it for my small company. Zo’s isn’t big enough for a Family Medical Leave Act policy, but your company may be. How about leaves of absence? We will deal with them as they come along. Other types of policies that larger companies might want to consider deal with time off, personal relationships, attendance policies, drug testing and holiday pay.
If you employ hundreds of people, you also might want to consider a workplace violence policy. But if you need to tell people they can’t hit or threaten co-workers or bring a weapon to work, you might want to rethink your hiring practices.
I think we can always fall back on Rule 1: Be Professional.
Steven A. Palazzolo is a labor lawyer with the Michigan law firm of Warner Norcross & Judd LLP. Reach him at firstname.lastname@example.org or (616) 752-2191. Read Steve’s blog at http://zomichiganemploymentlaw.wnj.com.
As 2011 draws to a close, now is a good time to start reviewing all available tax credits to determine if implementation before year-end is warranted. One easily overlooked yet extremely powerful credit is the New Hire Retention Credit. This credit was included in the Hiring Incentives to Restore Employment Act of 2010 (HIRE), signed into law on March 18, 2010, and allows a credit up to $1,000 for each qualifying retained worker. HIRE does not limit the number of qualifying retained workers.
The credit applies to qualified employers for tax years ending after March 18, 2010, that hired and retained qualified workers during a consecutive 52-week period starting after February 3, 2010, and ending before January 1, 2011. The credit is the lesser of $1,000 or 6.2 percent of the employee’s wages paid for the consecutive 52-week period. Wages are defined as wages for income tax withholding purposes. In addition, the credit only can be claimed if the employee’s wages for the second consecutive 26-week period are not less than 80 percent of the employee’s wages for the first consecutive 26-week period.
To be a qualifying retained worker, the part-time or full-time employee:
- must begin employment after February 3, 2010, and before January 1, 2011
- must complete Form W-11 or a similar statement under penalties of perjury declaring that the employee was not employed more than 40 hours during the 60-day period ending on the hire date
- cannot be employed to replace another employee, unless the previous employee was terminated for cause (including downsizing) or voluntarily terminated
- cannot be a relative of the taxpayer employer
The credit is part of the general business credit under Internal Revenue Code Section 38(b) and is claimed in the period the consecutive 52-week period is first satisfied. For calendar-year taxpayers, this will be the 2011 tax year; for fiscal-year taxpayers, the credit can be claimed over two years. Form 5884-B is used to calculate the credit, and Form 3800 is used to claim the credit. Partnerships and S corporations calculate the credit, and pass it to the owners via Schedule K-1. No part of this specific credit can be carried back to any tax year beginning before March 18, 2010, although any unused credit can be carried forward 20 years.
For help determining the potential benefits of this or other credits for your business, contact your BKD tax advisor or e-mail Bryan Handley at email@example.com.
Article reprinted with permission from BKD, LLP, www.bkd.com. All rights reserved.
Once strategic objectives are set by a company’s executive team and its board of directors, managers must move to enable the business’s operations to achieve these goals.
All businesses face risks in pursuing objectives. Operational assessments assist businesses in mitigating process design and execution risks associated with the achievement of the operational objectives.
“Operational assessments assist organizations in achieving their objectives by ensuring that strategic goals are appropriately translated into process design and execution objectives, and that the risks associated with the achievement of these operational objectives are mitigated,” says James P. Martin, CMA, CIA, CFE, managing director of Cendrowski Selecky PC. “Different procedures must be followed depending on which of these assessments is being performed.”
Operational assessments, however, are not without their own pitfalls. This month’s issue concludes a three-part series of interviews with Martin by examining frequent operational assessment pitfalls. Pitfalls pertaining to both process design and execution assessments are addressed.
Interested readers are encouraged to view Cendrowski Corporate Advisors’ Operational Assessment Guide, included in this month’s issue of Smart Business, as well as previous months’ interviews with Martin at www.cca-advisors.com/articles.php.
Smart Business spoke with Martin about pitfalls commonly encountered in process execution assessments and process design assessments.
What are some common pitfalls in process execution assessments?
One of the first steps in performing process execution assessments is interviewing employees. By conducting interviews, an assessor can determine the tasks that are performed by process operators, as well as the risk mitigation procedures they follow in performing those tasks.
Interviews, however, can present an assessor with misleading information and a potential false sense of security. For instance, an employee may be able to readily identify risk mitigation procedures associated with his or her tasks; whether or not the employee actually follows these procedures is a different story.
In order to guard against this issue, an assessor should not only interview process operators but also observe them as they perform their tasks. Observation will, preferably, occur after a professional rapport has developed between the assessor and the process operator, and the process operator feels comfortable in the presence of the assessor. If an operator is fully conscience of an assessor’s observation, and is uncomfortable with the observing party, he or she may alter usual behavior.
This is undesirable, as an assessor most wants to observe how a process operator conducts himself in the absence of out-of-the-ordinary supervision.
What are some common pitfalls in process design assessments?
A process design assessment examines risks that prevent the achievement of process design objectives and, indirectly, strategic objectives. A portion of this assessment involves the evaluation of the impact and likelihood of process design risks by process designers. (The impact associated with a risk represents organizational consequences in the event that the risk is realized, while the likelihood represents the chance or probability that the risk will occur.) Process designers may have differing views regarding the impact and likelihood of risks, and in some instances these differences may be significant.
When an assessor encounters such differences, it is essential that he take the time to examine the discrepancies, as well as consensus impact and likelihood values. When a process designer views a risk differently from his peers, he may have unique knowledge of a risk. This knowledge may arise from the designer’s intimate involvement with a process, his knowledge of the organization’s internal environment, or through other means.
No matter why they occur, discrepancies in risk estimates represent an important component of operational assessments, and one that assessors must carefully analyze and not gloss over.
Once an assessment has concluded, how can those who conducted an operational assessment ensure that recommendations and improvement plans are followed subsequent to the assessment’s conclusion?
Follow-through on recommendations and plans begins with the assignment of clear roles and responsibilities to team members who take charge of the improvement effort. The success of an improvement initiative depends on the success of each individual team member; if one fails to achieve his or her individual goals, this failure may derail the entire improvement plan.
Monitoring by higher-level managers and/or the board of directors serves to mitigate this risk. In addition to monitoring, merit pay tied to the achievement of improvement items may be awarded to further incentivize leaders to achieve established goals.
What additional resources exist for organizations looking to perform operational assessments?
Interested parties should sign up to receive Cendrowski Corporate Advisors’ complementary Operational Assessment Guide at www.cca-advisors.com/operational-
assessments-overview.php. It’s an excellent starting point for any organization looking to perform an operational assessment.
James P. Martin, CMA, CIA, CFE, is managing director for Cendrowski Selecky PC. Reach him at firstname.lastname@example.org or (248) 540-5760.