It is important to remember that a good decision is seldom an accident. Usually it is the result of research and effort. Also, the right people need to be making the decisions.
“Management and leadership are two different things,” explains Robert Bjorklund, chair of management in the school of business at Woodbury University. “Decisions that have to do with planning, organizing and controlling are for the managers. The decisions that have to do with the vision, setting the direction of the company and lining the units up need to be made by a senior leader.”
Smart Business talked to Bjorklund about the considerations that a business leader should take when making an important decision, the importance of avoiding rash decisions and why it’s a good idea to seek input from employees.
When making an important decision that affects the entire fabric of a company, what considerations should a CEO or business owner take?
You need to understand your motives for the change, as well as what the company’s needs are. Anything that is called the entire-fabric decision is obviously long-term and strategic. Probably, it involves a fair degree of uncertainty, so you might also be asking if your company has the capability and the capacity to carry out what is called for.
This includes resources like leadership strengths, people, finances, credit ratings and so forth. It’s always good to look at best-case and worst-case scenarios. Can the company digest the risk that you’re taking if the worst case comes to be?
Once a decision has been made, should you focus on looking back or moving forward?
You have to look back to find the weak spots that need to be shored up and strengths that you can count on. An example is the background of your people. You may uncover a competency area that you didn’t know about. It’s sort of like opening a package and finding two gifts in it. One of them is something is that you really weren’t expecting.
As far as the future, you need to look there to decide what the leadership is going to have to do. With direction setting, there is a long horizon and managers need to take care of doing things right, in the present.
Do you think the adage of moving fast on reversible decisions and slow on nonreversible decisions is a good philosophy?
There is a little known corollary to Parkinson’s Law that says we spend time considering matters in an inverse relationship with their importance. That is, we deliberate endlessly on minute decisions and then jump quickly on really important decisions.
Irreversible decisions are, right or wrong, important, and they deserve your best and most important consideration. Once you make the decision, go for it, and try not to look back.
And remember, if it isn’t broken, maybe you should break it. Some systems that work well might be doing the wrong thing.
Why is it important to avoid making rash decisions?
Deciding too quickly, without important pieces, is a mistake. Decisions are like puzzles. If the pieces are not on the table, you are not going to get the full picture. I recommend that a decision maker think of the people around them as if they each had pieces to that puzzle in their pockets. Then find a way to get them all on the table. It may take more time, and it may make you impatient, but it’s the right thing to do. You need to have at least enough pieces on the table so you know what the puzzle is going to look like.
With whom should a business leader brainstorm to gain fresh ideas and explore alternate solutions?
You might as well get all of the pieces [staff members] to the table. You’re already paying for them why not use them? You may never get the entire puzzle put together, but you want to know when you’re done if it’s going to be a picture of an eagle or a turkey vulture.
If a decision is made without a group consensus, what are some of the ways to motivate the individuals who are not fully committed to the verdict?
The first steps in the process are to build a coalition and seek its help in getting stakeholders onto the bus. Motivation is from the inside. People can be good soldiers if they are at least part of the process, so get them on board. If not, you are not going to be in the driver’s seat.
Robert Bjorklund is chair of management in the school of business at Woodbury University. Reach him at Robert.Bjorklund@woodbury.edu.
She got a job with the freight distributor as an administrative assistant while still attending law school at The Ohio State University and quickly rose through the ranks to become president. In an industry dominated by men, many were initially surprised when they asked to speak to the boss and were greeted by a female voice. But over the years, more women have entered the field, and Kauffman has made it a point to serve as a mentor.
Since she assumed the role of president, annual sales at Quick/CPS have risen to nearly $13 million.
Smart Business spoke with Kauffman about a typical day and how the business has changed since she got into it.
How did you get started in the shipping industry?
I went to law school after being married and having two kids. At the end of my second year in law school, I went to work in the summer for this company.
I started as an administrative assistant in 1980 and graduated from law school in 1981 from Ohio State. I became president within a couple of years, and have stayed with the company ever since.
What is a typical day for you?
There is no such thing, but I usually start each day with e-mails. I handle strategy, administration, finance for the company, and every day is completely different. We have five facilities, so each day varies.
What differentiates Quick/CPS Delivery Systems from other freight distributors?
We are what’s called a pool distributor, so our niche is that we have national accounts that have a couple of hundred stores in our region. We get the freight in store order for them.
It comes into us in trailers that are loaded in no order, just everything in our area. Then we unload the trucks, put the different boxes by store number on skids, shrink wrap those skids and then deliver within a two-hour window the next day to the store.
We are their labor-intensive arm. So it’s very different from the normal freight company, who would pick up one box from you and deliver it somewhere else.
How has the shipping business has changed over the past few years?
No. 1, it’s becoming more demanding, and there is more measurement of everything. We measure everything we do for accuracy and on-time delivery. That means getting the shipment to the right place at the right time with the right number of boxes.
We expect 99.5 percent accuracy, and we expect above 95 percent on-time delivery. Sometimes you have flooding or roads closed, and we cover a pretty wide area. Everything is measured that we do, which was not the case previously.
It allows us to have much higher quality.
How do you manage the growth of your company?
We believe in restrained growth. Right now, we are building two new facilities in Pittsburgh and Cleveland. We’re constantly growing in a steady way, and continue to be profitable.
How do you see Quick/CPS Delivery Systems evolving over the next five years?
I think we are going to do the same thing, which is continue our steady growth and look for customers that fit into our system that we can do excellent work for.
What qualities do you look for when hiring?
We don’t look for anything different than any other company looks for. We look for loyalty, integrity, hard-working and honest employees.
As the female president of a shipping company, have you faced resistance within the shipping circles?
When I first got in the business, customers would call, they would always ask to talk to my boss, even though I was already president of the company. They had the mindset that if a woman was on the phone, they must be a lower-ranking employee.
Now, the mindsets have changed and I believe that women in the industry are accepted. As a matter of fact, I’ve been a mentor to women. My vice president of operations in Columbus is a woman and my CFO is a woman. In Cleveland, my head of terminal affairs is a woman.
How to reach: Quick/CPS Delivery Systems, (614) 492-0000
In order to prosper in this challenging economic climate, it’s important to have a professional wealth manager who understands your goals and objectives. Such an adviser can help you build a long-term investment plan with diversification across multiple asset classes.
For optimal results, communicating regularly and directly is paramount.
“As an investor, don’t be afraid to ask questions. And don’t be afraid to say, ‘No, that’s not the strategy that I want,’” says Dennis Gilkerson, senior vice president and Western Market group manager for Comerica Bank. “A portfolio manager works for the client.”
Smart Business spoke with Gilkerson about how to recession-proof wealth, why it’s important to have ready lines of credit and what to look for in a portfolio manager.
What steps can individuals take to recession-proof their wealth?
In order to recession-proof one’s portfolio, it’s important to look at capital preservation and deleverage as much as possible. What I mean by this is paying off excess debt, such as home equity lines of credits, unsecured lines of credit and credit cards. It’s inevitable that we’re going to have mortgage debt and automobile debt, but as we work to recession-proof our portfolio, building liquidity is paramount.
Why is it so important to have ready lines of credit?
Having a line of credit available provides cash flow for emergencies. I tell my clients it’s like an insurance policy on your income or cash flow. It’s important to maintain some type of a line of credit so you can meet unanticipated expenses; however, you want to make sure that you have the ability to repay it within a relatively short period of time. In this recession, things are happening so quickly. It’s easy to find our income adversely impacted. A line of credit is a backstop.
Credit is currently tight; do you have any recommendations?
It’s critical to maintain one’s present obligations. A ready line of credit will not help someone if he or she suddenly stops making credit payments. In order to obtain or even retain credit, it’s also important to establish a relationship with a bank that is going to be there for the long run. We talk to a lot of clients that have multiple banking relationships. As one of the commercial banks currently lending money, we find that it’s helpful to consolidate banking relationships into one place. An individual’s balance sheet is composed of the liquidity, or cash piece, as well as the liabilities side: credit lines, mortgages, automobile loans, etc. By consolidating all of these pieces, your financial institution will be able to do more for you.
How should one go about evaluating one’s investment portfolio?
In this environment, it’s important to be actively involved with your portfolio manager. Even if your portfolio manager has discretionary authority — they can buy or sell based on their investment strategy — it’s important to communicate on at least a quarterly basis. Individuals who fail to communicate with their portfolio manager have greater exposure to volatility.
What advice would you give to someone who has available cash on hand?
First, ask yourself if you need the cash for short-term needs. Are there upcoming life events, such as paying college tuition, having a child get married or a business opportunity requiring an outlay of cash? If so, the advice is to hold on to that cash — keep it in relatively short-term, liquid instruments like a money market or CD.
On the other hand, if there isn’t an immediate need for cash, you need to evaluate your appetite for risk. If you’re comfortable owning equities for the next five years or so, there are some good equity strategies available to execute. If you’re not comfortable with the equity strategy, there are some solid short-term, fixed-income instruments that can match a life event and one’s level of risk tolerance. There are some great opportunities available for someone who has cash and a long-term outlook. That’s why it’s important to have an investment adviser or portfolio manager that you feel comfortable communicating with.
What qualities should an investor look for in a portfolio manager?
There are a number of attributes an investor should look for in a portfolio manager. One is longevity. For example, if a portfolio manager who has spent decades as a large-cap growth manager suddenly appears as a fixed-income or small-cap adviser, it should raise a red flag. The ability to communicate effectively is also important. Are you able to understand the strategy that the portfolio manager is executing? Are you comfortable with the portfolio manager? Do you trust the person?
Finally, there is performance. I put performance as the last on my list, not because it’s the least important but because portfolio managers need to have longevity in the particular discipline they’re focused on and experience in the industry, and you have to be able to communicate with them. These screening criteria can be helpful whether you’re evaluating your current portfolio manager or looking for a professional wealth manager.
Dennis Gilkerson is senior vice president and Western Market group manager for Comerica Bank. Reach him at (310) 712-6767 or firstname.lastname@example.org.
In 1995, Michigan’s Natural Resources and Environmental Protection Act Part 201 on Environmental Remediation was amended to encourage and stimulate the reuse of contaminated properties. The amendments created baseline environmental assessments (BEAs) as a method for protecting new owners and operators of contaminated property from liability by establishing a method for distinguishing old contamination from new.
In 2005 the Michigan Department of Environmental Quality (MDEQ) began a multiphase process of evaluating and redesigning the Part 201 cleanup and redevelopment program. The consensus was that changes had to be made to protect the public health, safety and welfare while providing new owners and operators of contaminated property a means of protection from potential liability.
“The proposed redesign will continue to apply a causation standard for liability. It will also continue to apply a risk-based cleanup analysis,” says Roy Cole, partner at Secrest Wardle. “However, the liability protection for new owners and operators of contaminated property will be changed from the baseline environmental assessment procedure to a due care focus.”
Smart Business spoke with Cole about Part 201, how the proposed changes affect businesses and what type of legal liabilities can arise from environmental issues.
When will the program redesign be introduced?
The specific requirements for new owners and operators of contaminated property to qualify for due care liability protection have not been finalized or implemented. MDEQ is currently conducting stakeholder input meetings on various topics for the cleanup program redesign. This includes input on liability protection and due care noncompliance consequences. Tentatively, MDEQ plans to seek introduction of legislation this summer.
How do the MDEQ changes affect business owners?
During the past few years the declining economy has had a significant impact on business development in the state of Michigan. The cleanup and redevelopment program redesign envisions a significant degree of self-implementation of the remediation of contaminated property by liable parties. MDEQ’s role in the remediation process will shift toward conducting audits of remedial cleanup work performed. Implementation of recommendations that have been compiled in the cleanup and redevelopment program redesign is being done in phases.
Part 201 of Michigan’s Natural Resources Environmental Protection Act provides for the use of BEAs to protect purchasers of contaminated property from liability for cleanup of pre-existing contamination on the property. The redesign of the Cleanup and Redevelopment Program will significantly change the requirements that a new owner and/or operator of contaminated property must comply with to secure liability protection when purchasing contaminated property. Specific requirements for the due care process in the redesign may be revised through the stakeholders’ input meetings and legislative process, so they are subject to change.
Businesses contemplating the acquisition of potentially contaminated property in the near future are confronted with the uncertainty of the final statutory requirements for securing due care liability protection. Companies should address the current law and anticipate changes in contracts for the acquisition of a commercial property. In doing so, companies should also evaluate whether or not the acquisition and BEA process can be successfully concluded prior to the effective date of the expected changes in the law.
What type of legal liabilities can arise from environmental issues?
An owner or operator who is liable under Part 201 is jointly and severally liable for (1) all costs of response activity lawfully incurred by the state, (2) any other necessary costs of response activity incurred by other persons, and (3) damages for the full value of injury to, destruction of, or loss of natural resources. Response activity includes evaluations, remedial actions or health assessments to protect the public health or environment. In the event the contamination migrates from the owner or operator’s property, they may also be liable to affected property owners for remediation costs and other damages. A company or person may also be exposed to other legal liabilities depending on the specific contaminants and extent of the contamination involved.
How should a company proceed if it is faced with an environmental lawsuit?
If you are served with a complaint in a lawsuit, you should immediately consult with an attorney. In state court, a response to the complaint must be filed within 21 days or 28 days of service depending upon the type of defendant and manner of service. Generally, if the complaint has been filed in federal court, the defendant’s response must be served within 20 days after being served with the summons and complaint. Failure to respond to the complaint in the time provided by the applicable court rules can result in a default judgment against the defendant.
If the company has an insurance policy, it may provide coverage for one or more of the environmental claims in the lawsuit. A copy of the summons and complaint should be forwarded to the company’s insurance agent and/or insurance company as soon as possible.
Retention of electronically stored information and company documents should be discussed with an attorney in the early stages of litigation.
ROY COLE is a partner at Secrest Wardle. Reach him at (248) 539-2813 or email@example.com.
Hiring employees with an eye toward diversity, whether it’s ethnic, gender or age-related, can help fuel excitement and creativity. For the long-term growth of a business, it’s beneficial to have employees who share the same core values, such as a passion for their chosen field, but who offer a variety of perspectives and can communicate with all types of customers.
After all, points out Melissa Pollard, senior vice president and group manager in Comerica’s Orange County Middle Market Banking Group, your customers will be from a diverse population. And you should be able to reflect the kind of customer that you have.
“Creating a culture that is welcoming of all, regardless of their race, sex or age, opens up a company’s opportunities,” she says. “Having a diverse work force allows you to better serve your clients’ needs.”
Smart Business spoke with Pollard about the virtues of diversity, what types of initiatives are most effective and how a company’s creativity can be enhanced by hiring a heterogeneous group of employees.
In what ways can companies benefit from having a diverse work force?
From my experience — having been in banking for 21 years — it seems as though, initially, diversity was the politically correct thing to do. We’ve come to find out, however, that not only is having a diverse work force the politically correct thing to do, it is also the smart thing to do financially. When you look at companies that rank high in terms of diversity metrics, they tend to outperform other companies financially.
What types of diversity initiatives are most effective?
Through all of our diversity initiatives we’re trying to empower our colleagues by strengthening their internal and external connectivity. Our focus internally is to attract, retain, mentor and promote our diverse colleagues within the bank. Externally, we want to champion the benefits of having a diverse work force and work with as diverse a client base as possible.
Periodically, we have internal events that provide educational programming and are designed to be a mentoring/ learning/connecting type of event for internal colleagues. Our external events, such as investment seminars, are designed for business development opportunities.
How should a company go about providing equal opportunity for leadership positions?
The key is to hire and develop talent with an eye towards diversity, provide mentors with similar backgrounds and then provide adequate training so new hires can be groomed to reach their goals. Almost half of the officers at our bank are women. Over the years, women have been well represented here, which gives us a unique advantage. When you have a well-balanced work force, there is less of a disparity between the sexes in leadership positions. When you combine all of our initiatives — women’s, African-American, Hispanic, Asian-Pacific — they represent the majority of our work force.
How can a company’s perspective and out-reach be broadened by having a diverse work force?
If you have a homogeneous work force, then everyone will be like-minded; when faced with decisions and questions, you will only get one answer. The benefit of having diversity is there are many different perspectives that can be shared and all of the different backgrounds will make your organization stronger.
Let’s say you have a dozen people in the room that share the same background and you pose a problem to them. You’re probably going to get the same type of feedback from each of them. But if you have a dozen people in the room and they are all representing different cultural backgrounds and various upbringings, you will likely get a dozen different responses. Creativity is enhanced and solutions can be customized and tailored to fit each client’s needs.
Speaking from a banking perspective, the clients and marketplace that we serve are diverse. We are trying to create a friendly business environment because we believe there is strength through diversity. Having individuals that represent a variety of different backgrounds makes us stronger.
MELISSA POLLARD is senior vice president and group manager in Orange County’s Middle Market Banking Group, and chair of the Western Market Women’s Initiative of Comerica Bank. Reach her at (714) 435-4406 or firstname.lastname@example.org.
Selecting a new bank is a task that should not be taken lightly. It is key, says Mike Silva, senior vice president and group manager of Comerica Bank, to search for a bank that will pay attention to your company’s individual needs.
“For midsized businesses, there are no cookie-cutter deals; there are nuances to every midsized business owner’s financing needs. Selecting a bank that provides flexibility and customization for these needs is extremely important,” he adds.
Smart Business spoke with Silva about selecting a bank in uncertain times, the importance of having a backup plan in place and the benefits of open communication.
How should a company go about selecting a bank in uncertain times?
Now more than ever, it’s important to do your homework as to the financial where-withal of your bank. It’s hard to pick up a paper and not read about banks with problems, failed banks and banks where the Fed has forced acquisitions. In this environment, it’s important for clients to do their homework about the creditworthiness of their lender.
Why is it so important to look for a bank that has a history of supporting its customers through various business cycles?
We live in a very cyclical world, and there have been a lot of new players, including foreign banks and nonbank lenders, who have entered the commercial bank lending arena in the last five years. Just as easy as it was for them to get in, it is as easy for them to get out of the lending environment. It’s very important to find a lender that has extensive experience in the commercial lending arena and has a deep dependence on revenue and income from that area. Banks that focus on other things — but dabble in commercial lending — find it pretty easy to get out in an economic downturn. Other banks that are dependent on commercial lending for revenue can’t exit because it is such an important part of their business. As a result, they are much more experienced and are better positioned to ride through various economic cycles.
What type of service and performance standards should a business expect from its bank?
You don’t ever want to be your bank’s biggest client or its smallest client. You want to make sure that you are an important enough client that you get good service, but not so large that your bank may be hamstrung in terms of delivering credit or other products and services that you need. Every business owner should have a banker who understands his or her business and who consistently underwrites to the same standards. This ensures that changing credit policies or a changing economic environment do not have a significant impact on the way that you borrow money.
Once a selection has been made, what steps can a business take to maximize the relationship with its bank?
It is very important to be openly communicative and to share both good news and bad news on a timely basis. From a business owner’s standpoint, it is critical to develop annual projections and to manage your business to those projections. When there is a negative variance, talk to your banker earlier rather than later. I have had clients who, in certain instances, don’t want to talk about a problem until they can figure out a solution. Sometimes the problem festers or grows and, in some cases, there is no timely answer. We find that it would be much more helpful for us to be supportive of a client in such a situation if we knew what was going on in a timely fashion.
How can a company most effectively transition from one financial institution to another?
Companies should have a backup banking relationship in place. The banking industry is currently experiencing unparalleled turmoil. If you are beholden solely to your bank and it has issues outside of your control, the lending relationship that is so crucial to you could disappear overnight. This can happen even if you are the best customer your bank has ever had. By developing a relationship with a backup financing source — someone who knows you almost as well as your existing bank — you are not starting from scratch if there are issues.
How important a role does communication play in sustaining a positive working relationship?
Communication plays an extremely important role. Businesses should communicate up and down the chain of command with their bank. Clients commonly complain about the turnover among their bankers. Unfortunately, this is often the nature of the beast, so it is important to maintain dialogue and be known not only by your banker but also by his or her boss, in case you need something special or you need someone to champion an exception in the organization for you.
MIKE SILVA is senior vice president and group manager of Comerica Bank. Reach him at (415) 477-3274 or email@example.com.
The American Jobs Creation Act, signed into law in 2004, includes a tax benefit for certain domestic production activities. Designed to aid small U.S. manufacturers that are engaged in domestic production, the tax deduction can benefit a wide swath of businesses ranging from software firms to construction companies.
“The legislation enhances the ability of certain domestic businesses to compete in the global marketplace,” says Valerie Colin, senior vice president of Gumbiner Savett Inc.
Smart Business spoke with Colin about the domestic production activities deduction and how to take advantage of the tax credit.
What is the domestic production activities deduction?
An eligible taxpayer is allowed a deduction for tax years beginning in 2005 or 2006 equal to 3 percent of the lesser of the taxpayer’s qualified production activities income for the tax year or the taxpayer’s taxable income (adjusted gross income in the case of an individual). The deduction increases to 6 percent for tax years beginning in 2007, 2008 and 2009 and to 9 percent for tax years beginning after 2009. The deduction is subject to a 50 percent wage limitation. Every business in the manufacturing industry should be looking at this as a tax deduction.
Why was this tax deduction adopted?
This legislation was a part of the American Jobs Creation Act of 2004, which enacted IRC section 199, a new tax deduction, related to domestic production activities. The legislation replaced the export tax benefit that was ruled inconsistent with U.S. obligations under various international trade agreements. It is available to all U.S. taxpayers that qualify whether their sales are domestic or foreign because the deduction, for the most part, is based on where the goods and services are produced rather than sold. The legislation repeals the Extraterritorial Income regime effective for transactions after Dec. 31, 2004, with certain transition rules.
What activities qualify for the deduction?
The tax deduction targets manufacturing and production activities within the United States. It incorporates a very broad definition of manufacturing. The act extends the definition of manufacturing and production to benefit handlers of agricultural products, software companies, film production, construction companies, engineering firms, architectural firms, and electric, gas and water companies in addition to typical product manufacturers.
How is qualified production activities income calculated?
Qualified production activities income (QPAI) is an amount equal to the excess (if any) of the taxpayer’s domestic production gross receipts (DPGR) over the sum of: (1) The cost of goods sold (CGS) allocable to such receipts and (2) other expenses, losses or deductions, other than the domestic production activities deduction, that are properly allocable to such receipts.
For a business with only one line of business, QPAI will be the same as gross income, CGS will be the same as total cost of goods sold and other expenses will be the same as total expenses. For businesses with multiple lines of business, these amounts will need to be allocated.
In what ways has Congress eased the burden of calculations for small manufacturers?
There are a couple of simplified formulas that smaller taxpayers may use. There is something called a ‘simplified deduction method’ to allocate and apportion deductions between DPGR and non-DPGR, assuming some of your product is imported or produced overseas or you have multiple lines of businesses, some of which qualify and some of which do not. This is available to taxpayers with average annual gross receipts of $25 million or less. The average is based on the three taxable years prior to the current year.
In addition, there is a ‘small business simplified overall method’ to allocate the CGS and deductions based on relative gross receipts. These further simplified computations are available to those with average annual gross receipts of $5 million or less.
How can a business best take advantage of the credit?
If a company is a widget manufacturer producing all if its goods in the U.S., it’s very simple. For 2008, assuming there’s a profit, the deduction would be 6 percent of the net income before the deduction. Simply put, if the net income before the deduction were $100,000, the deduction would be $6,000, therefore, the taxable income would only be $94,000. In this example, the total wages would also need to exceed $12,000 since the deduction is limited to 50 percent of wages. The deduction requires information to be reported on Form 8903. When a company has several different types of activities, some of which involve U.S. manufacturing, some outside the U.S., etc., it is best to consult with your CPA.
Once you understand the ins and outs of what qualifies and how the allocation formulas work, you may be able to restructure some of your operations or materials purchases to maximize the deduction by increasing the percentages of domestic activities. The more complicated the business, the more likely some additional cost accounting mechanisms may need to be implemented to capture the most deductions.
VALERIE COLIN is senior vice president of Gumbiner Savett Inc. Reach her at (310) 828-9798 or firstname.lastname@example.org.
The demand for green buildings is rapidly increasing in the corporate world. The reasons are numerous.
Sustainable buildings have efficient operating systems that ultimately result in cost savings through lower consumption of utilities. Another economic benefit is improved employee productivity. Data suggest that occupants of green buildings are healthier and happier than occupants of traditional buildings, which correlates to reduced sick time and diminished turnover. Finally, there are the environmental advantages such as resource conservation and improved water and air quality.
To make a sustainable real estate strategy work, it is crucial to have buy-in and consistent support from the top of the organization.
“It is much easier for sustainability to trickle down through an organization if management at the highest level is committed to it,” says J Glasgow, senior vice president, principal, Colliers Turley Martin Tucker.
Smart Business learned more from Glasgow about sustainability, the financial benefits that can be achieved from occupying a green building and how a company should go about developing a sustainable real estate strategy.
Why are more and more companies embracing sustainability?
Over the last 18 months, sustainability has gained enormous popularity across not only the real estate industry, but also society as a whole.
In the commercial real estate industry, companies are embracing sustainability because it makes good business sense, it’s been proven sustainable buildings operate more efficiently, and employees who occupy those buildings are more happy and productive. It’s a healthier environment with less chemicals, volatile organic compounds and out-gassing of carpet and new building materials. Ultimately, sustainable buildings have proven to be a good business decision.
What specific characteristics make a building sustainable or green?
It’s more than just being green; it’s the whole approach to a sustainable building, taking in everything from the ecological value to proximity to public transportation to simple things like having bike racks. The health and wellness of employees and occupants of a building need to be considered. And, of course, green buildings should be built with sustainable materials, utilize renewable resources and champion recycling.
What types of financial benefits can be realized from using a green building?
The biggest benefit is that the building will operate more efficiently so ultimately costs will be reduced. By having high-efficiency HVAC systems and high-efficiency lighting, energy costs will be reduced for both the owner and occupant. Secondarily, it has been proven that productivity rises in employees that occupy green buildings.
How do the costs of a green building compare to that of a traditional building?
With green buildings we are seeing a two to 15 percent increase in upfront costs, depending on the scope of the project. As expected, a building with LEED platinum certification will have increased upfront costs. It is important, however, to look at the whole life cycle costs of the building rather than just upfront costs. For example, we have a client with a 550,000-square-foot building in Indianapolis, and by going in and looking at the operations they saved 20 cents a foot on electrical costs alone. That equates to $110,000 in savings just from becoming more energy efficient.
How should a company go about formulating a sustainable real estate strategy?
Regardless if you’re going to develop a green building from the ground up or take an existing building through the LEED certification process, it is important to get your team involved at the beginning. The team, which includes a LEED expert, architect, engineer and general contractor, should be assembled at the front end so upfront costs can be reduced and a long-term strategy can be developed for the building. It takes time and money to make a sustainable real estate strategy work. Organizations need to be committed, and have dedicated resources.
How do you believe the marketplace for sustainable buildings will evolve over the next several years?
We’ve seen dramatic changes over the past 18 months. On the East and West coasts, there has been a surge in sustainable buildings and sustainable practices. The Midwest has been slower to embrace this movement, but in the future, I believe that sustainable buildings will become the norm rather than the exception.
J GLASGOW is a senior vice president and principal for Colliers Turley Martin Tucker. Reach him at (314) 574-7062 or email@example.com.
Senior vice president, principal Colliers Turley Martin Tucker
One of the most important decisions a new business will make is selecting an appropriate tax entity. The form of tax entity that is chosen will have a major impact on future outlays to Uncle Sam.
Because all types of tax entities contain business-related flexibilities and restrictions it pays off in the long run to seek help from qualified advisers upfront.
“It is paramount to seek professional advice from competent advisers in structuring a business,” says David Thaw, vice president of Gumbiner Savett. “The cost of these services is often insignificant compared to the benefits and savings that can be derived from choosing the right entity form.”
Smart Business spoke with Thaw about the importance of properly structuring one’s business, how tax structures of various entities differ and the dangers of operating under the wrong tax entity.
What factors should be considered when choosing a tax entity?
One of the first decisions a start-up needs to make is the form of the business whether or not to incorporate, organize as a Limited Liability Company (LLC) or a partnership. The selection of the proper form of business requires balancing tax and business considerations. From a business perspective, ownership and management structure and liability protection are key factors in choosing the type of entity for doing business. Additionally, consideration must be given to each stage of the entity life cycle: formation, operation and exit. From a tax perspective, an important factor is whether business profits or losses will be taxed directly at the entity or owner level. Another salient factor is whether the economic arrangement between owners allows for the efficient sharing of profits and losses. Other issues include exit and/or succession strategy, state and local taxation, movement of assets, and compensation and benefits.
What are the advantages and disadvantages of incorporation as a C corporation?
From a tax perspective, an advantage of the C corporation form is that the corporation can issue various classes of stock conferring different ownership and economic rights onto its owners, and there are no restrictions on the number and type of shareholders. The financial flexibility and well-understood legal body of law surrounding the corporation may result in a broader array of investors compared to other entities when the company seeks capital.
Another advantage is that the corporation and its owners can participate in tax-free reorganizations with other corporations and/or owners. A possible disadvantage of being taxed as a C corporation is ‘double taxation.’ That is, profits are subject to a corporate-level tax and subject to an additional level of tax at the owner level when the corporate profits are distributed.
How do the tax structures of C corporations, S corporations and partnerships (LLCs) differ?
As mentioned previously, a C corporation is subject to double taxation and allows for multiple ownership classes. Since the C corporation is a taxpayer, however, losses can be trapped at the corporate level and are therefore unavailable to reduce the owner’s current tax liability. Also, a C corporation allows for different types of owners (i.e., exempt organizations and foreign taxpayers).
An S corporation generally does not pay federal taxes at the entity level, rather, its profits and losses are reported on the shareholder’s tax returns. An S corporation, however, may be subject to corporate-level state and local franchise or income taxes, typically imposed at reduced rates. The ability to pass through profits and losses may be quite attractive compared to the C corporation. The S corporation, in contrast to the C corporation, is faced with restrictions upon the number and type of shareholders. Additionally, the S corporation can only have one class of stock outstanding, which may limit profit and loss sharing arrangements.
A partnership or LLC taxed as a partnership does not pay federal income tax. Some states do impose taxes upon partnerships or LLCs. Like the S corporation, partnership profits and losses are reported on the partners’ tax returns. Similar to the C corporation, there is no limit or restriction on the number or type of partners. Furthermore, a partnership offers flexibility in the allocation of profits and losses.
What type of entity is most effective when transferring a business to family members or key employees?
One way to transfer a business interest to a family member or a key employee is through the use of a Family Limited Partnership. The formation of such entities can provide significant advantages and planning opportunities in reducing estate taxes, facilitating family succession and protecting assets.
DAVID THAW is vice president of Gumbiner Savett Inc. Reach him at (310) 828-9798 or firstname.lastname@example.org.
Gumbiner Savett Inc.
Equipment leasing companies have special banking needs. While most financial institutions attempt to place leasing companies in a regular commercial division, a small cadre of banks provide lease funding solutions specifically tailored to meet the needs of those in the equipment leasing industry.
“Independent leasing companies are a niche type of business,” says Brian Griffin, senior vice president, leasing, for MB Financial Bank in Chicago. “Most banks don’t understand how leasing companies work. Leasing companies have a variety of needs that are specific to their industry. Those needs include warehouse lines of credit, equity lines of credit, equity sharing and debt discounting. MB provides all of these products.”
Smart Business spoke with Griffin about warehouse lines of credit, the advantages of an equity line of credit and the importance of working with a bank that understands how leasing companies operate.
Why do businesses typically choose to finance equipment?
Businesses often choose to finance equipment because it’s a large capital expenditure and they don’t want to lay out large dollar amounts upfront. A lot of larger companies’ budgets don’t allow for large equipment purchases upfront, but they will work with independent leasing companies to make monthly payments over a period of time. Also, some companies prefer to have an operating lease treatment, which means they can finance the transaction off a balance sheet: They don’t have to include the asset or liability on their balance sheet; they just include the monthly rent payment that they have on a lease.
What are the advantages of leases over loans?
Leases are most advantageous to companies that are acquiring equipment that is subject to technological obsolescence, such as IT equipment or medical equipment. A lease provides the lessee with the flexibility of little to no down payment, lower monthly costs, and the ability to return or release the equipment at the end of the initial lease. Leases also allow the lessee the possibility of upgrading the equipment prior to the end of the lease term.
What is a warehouse line of credit?
Leasing companies typically fund leases and then get their funding for the transaction from a bank. A warehouse line of credit allows a leasing company to fund a transaction on their own before obtaining their permanent funding from a bank. A good analogy, although perhaps not so good in today’s environment, is a mortgage broker. First, a mortgage broker funds a mortgage. The mortgage broker then gets money from a bank through a warehouse line of credit. Finally, the mortgage broker sells off the mortgage to an investor and gets paid back. Leasing companies work the same way: They bundle leases themselves by using a warehouse line of credit, and then they assign it to another lending source.
How can a leasing company benefit from a warehouse line of credit?
Leasing companies are typically not capitalized well enough to fund large transactions. As a result, they need a bank to, at a minimum, fund the underlying transaction. Traditional financing options, however, don’t help a leasing company that a) wants to fund a transaction without requiring a bank approval; b) needs to fund progress payments on a deal before it goes to term; or c) wants to shop the market for an attractive rate. A warehouse line of credit provides a leasing company with flexibility by having the lender fund the lease or progress payments for a short period of time — typically 90 days — before the deal is sold to a permanent lender.
What are the advantages of an equity line of credit?
A leasing company typically invests equity into a deal, commonly called the residual. This is money that is permanently left in a transaction until the end of a lease term when the equipment is either sold to the lessee, the lease is extended or it is sold to a third party. An equity line is typically for a smaller amount than a warehouse line of credit and requires a fairly strong lessor. It is also for a higher rate of interest than the warehouse line because the line is funding equity and not debt. The equity line of credit is full recourse to the lessor.
An equity line of credit provides lessors with more opportunities to do business as they can leverage their equity. Since banks are providing the equity loan for them, leasing companies can pursue more deals by borrowing the equity in some of their transactions. With greater access to capital, they are able to do more business while still retaining the benefits of owning the equity.
BRIAN GRIFFIN is senior vice president, leasing, for MB Financial Bank in Chicago. Reach him at email@example.com or (847) 653-1874.