Emerging technologies in the banking sector, such as remote deposit capture services, enable companies to reduce costs while improving efficiencies.
The image capture solution allows businesses to scan checks at their office location and deposit them by transmitting an image file. By eliminating the need for delivery or mailing of paper items, transmitted deposits can enter the collection stream faster and with less effort, cost and risk than with traditional methods.
Customers taking advantage of this technology have longer processing hours as well as improved funds availability and deposit reporting all without leaving their office.
“Now is the ideal time to take advantage of the benefits that remote deposit capture has to offer,” says Joy Gilmer, senior vice president of treasury management for Comerica Bank’s Western Market. “As more and more banks are exchanging check images rather than paper checks, remote deposit capture puts a business in the right position to take advantage of the savings and convenience of image technology.”
Smart Business spoke with Gilmer about advances in banking technologies and the benefits that remote deposit capture provides to businesses.
How have advances in technology improved the ways that businesses can handle their banking needs?
Through technology, businesses are able to quickly communicate financial information to and from their financial institution. With the advent of remote deposit capture, companies are taking advantage of later deposit windows, better processing float, simplified deposit creation and better record-keeping.
How does the concept of remote deposit capture work?
The concept is simple. A scanner is installed at the company and customers access the Web-based application from their PC workstation or laptop. Checks are scanned and an electronic deposit ticket is created. Once the information is loaded into the deposit capture system, the information is transmitted to the bank and made available for deposit processing. Since it is data versus paper checks being delivered to the bank, processing/desk float and manual processing errors are reduced significantly. Remote deposit capture services have proven to be a significant value in disaster recovery plans. Recent fires in California, for example, caused road delays that impacted the ability to deliver paper checks to the bank. With remote deposit capture, there are no ties to commute-related issues.
In what ways can this function improve record-keeping?
Deposit information, including images of deposited checks and electronic deposit tickets, is stored and available for retrieval as needed. Having quick access to this information improves response time to customer inquiries and reduces research expense. The capture process gives a company the ability to update account receivables systems directly. Reports can be accessed from anywhere using the Internet.
How can utilizing remote deposit capture increase productivity while reducing costs?
Remote deposit capture enables a company to make deposits without the checks physically leaving the office, thus, reducing expense associated with time out of the office, courier services and/or third-party depository banks. Deposit preparation time is reduced as information is scanned versus keyed or written. With the recent enhancements in the marketplace to Web-based solutions, deposit capture functionality is improved even further. A company with multiple locations can review consolidated reports, perform research functions and approve transactions remotely from any location. A company can now utilize the convenience of browser-based remote deposit technology.
What role do you envision technology will play in the future for banking?
Technology will continue to play a significant role in the financial arena. The movement and management of financial transactions is a complex process. Timing of obtaining and reporting information is critical to the health of a business. Having the right systems in place to improve processes is necessary to the ever-changing needs of the financial community.
JOY GILMER is senior vice president of treasury management for Comerica Bank’s Western Market. For more information on deposit capture technology or Comerica Bank's Business Deposit Capture, you can reach her at (714) 435-3931 or email@example.com.
In today’s fast-paced business environment, the need to secure credit approval for merchandise purchases or services in a timely fashion has never been greater. Unfortunately, for many companies, the process of working with vendors, suppliers, financial institutions and other creditors can be a slow and arduous task.
In order to speed up the credit approval process, Comerica is offering services called credit mitigation tools.
The portfolio of services has a number of benefits, says Syd Saperstein, senior vice president, division manager of Comerica’s Special Corporate Financial Services Division. “Companies using this service can increase their profitability, increase their market penetration and increase customer satisfaction,” he says.
Smart Business spoke with Saperstein about the importance of obtaining credit approval in a timely manner and how the process can be facilitated.
Why is it so important for companies to be able to obtain credit approval in a timely manner?
Fulfilling customer orders in a timely manner is critical to any good customer service position that retailers or wholesalers need to maintain. If they can’t get credit approval in a timely manner for the goods they would like to order, then their customers will not get the product in the time frame that they expect it.
How does the composition of the supply chain affect credit decisions?
Products in a supply chain may go through as many as five or six wholesalers and distributors before they get to a retailer. Manufacturers usually don’t sell direct to retailers or consumers. Manufacturers sell to distributors who sell to wholesalers who sell to regional wholesalers who sell to retailers who sell to consumers. Every step where goods change hands is a credit risk decision that is going to be made by credit managers or the policy of a particular company about how and when they want to be paid and whether they are going to ship goods before they’re paid.
What are some methods that can be used to facilitate the credit approval process?
We substitute a trustworthy payer in the middle of the distribution chain I just mentioned. Instead of a wholesaler/manufacturer/distributor having to decide how much to trust a customer with a net worth of say $250,000, we substitute the customer with the bank that has $58 billion in assets. We replace the risk that would have been assumed by the wholesaler/manufacturer/distributor by putting the bank in the place of the customer.
Of what does the credit mitigation tools portfolio of services consist?
The portfolio of services is devised to put reliance on the creditworthiness of the bank in place of the higher risk ‘promise to pay’ of the distributor or retailer. To put it into a consumer context, let’s say you want to purchase a product from an online Web site and it costs $350. You would supply your credit card or checking account number to that seller. The seller would immediately collect the money from your account. When the seller gets the money, it tells the wholesaler/manufacturer/distributor to drop ship those goods that you just bought.
If the Internet seller has a credit line with a supplier and hasn’t exceeded its allotted credit for the month, then the wholesaler/manufacturer/distributor will ship the goods within four to five days. The customer is happy, and the retailer is happy.
The wholesaler/manufacturer/distributor incurs a risk because it has a sale but does-n't have any money yet. It has to wait until the end of the month and see if the retailer is going to actually pay the bill. So there is a limitation on how much credit the supply chain will permit to the retailer. The credit mitigation tools portfolio addresses these concerns.
How can companies benefit from this service?
In addition to increasing profitability and market penetration, companies using this service can increase the depth of product availability because they will never be out of stock. They can increase the breadth of products that they can offer for sale because they will no longer have barriers that will keep them from being able to fulfill their orders. If they were buying only from those suppliers where they have established credit, they would not be able to buy enough variety. For example, they may only have four or five manufacturers who grant them the credit they need. Credit mitigation tools can reduce this risk. Also, companies will be able to speed up the turn of inventory to whatever the consumer-driven demand is.
SYD SAPERSTEIN is senior vice president, division manager of Comerica’s Special Corporate Financial Services Division. Reach him at (415) 477-3246 or firstname.lastname@example.org.
As employers continue to struggle with escalating health care costs, the practice of offering mini medical health
plans is gaining momentum. Also known as limited benefit plans, mini medical plans charge individuals as little as $50 per month for routine medical care.
“Mini medical plans are generally significantly cheaper than individual plans because employers are in a better position to negotiate group rates with insurance companies, whereas individuals cannot,” says Stephen J. Peck, president of Kapnick Insurance Group’s Benefits Division.
Smart Business spoke with Peck about mini medical plans, how they can benefit employees and employers alike, and what considerations should be taken into account prior to launching a mini medical plan.
What are mini medical plans?
Mini medical coverage is essentially a limited health plan designed to replace major medical coverage for those individuals who would not normally be able to afford their employer’s insurance. Though mini medical plans provide coverage, it is very limited to routine medical visits and prescription drugs. In the event that the employee needs coverage for a major medical event, this would most likely not be covered. Also, mental health coverage is typically not covered.
However, the Business Journal reports that almost 95 percent of Americans do not accrue more than $1,000 in medical costs on an annual basis, so this plan may be ideal for a large majority of the population.
How can employers benefit from mini medical plans?
These plans were once only attractive to small businesses with only a few employees. However, large retailers, employers with lengthy waiting periods and employers with high fully insured deductibles are now opting for these benefits for several reasons. First, employers do not need to contribute to the plan in order to offer it. Secondly, participation level requirements are significantly lower than typical major medical plans, generally only 25 percent. Employers also have an edge on their competition with regards to recruiting qualified employees. Companies that offer these plans appear more attractive to hardworking, devoted employees versus another company without this coverage option or no coverage at all.
How do employees benefit from mini medical plans?
Employees benefit immensely from these plans, as most that enroll have never had the opportunity to purchase health insurance before. With these plans, employees have access to doctors and can pay for prescription drugs. For many, this is the only way that they would be able to afford these necessities to remain healthy. Since the plans are so economical, it only makes sense for employees to obtain this type of coverage. For instance, for $50 per month, an employee can purchase a $95 monthly prescription for a $10 co-pay, saving the individual $35 per month.
In addition, these plans are also extremely beneficial for employees subject to waiting periods before coverage will kick in with their employers. By allowing employees to have coverage right away, albeit a bit less than a normal plan, they at least have some coverage to tide them over until their major medical plan begins.
What factors should be taken into consideration before introducing a mini medical plan?
Although these plans appear to be a great option for those that could not otherwise afford health insurance, there are several downfalls that employers and employees must take into account. First, employers typically do not contribute to these plans, unlike the 50 to 100 percent contributions often made to traditional major medical plans.
Secondly, employees who do face major medical bills because of an injury or illness will accrue expensive hospital bills without coverage. Though the policy may cover $500 in prescription drugs and routine doctor bills, it may only cover $300 of the hospital costs. Even if the employee does not face major medical problems, these plans typically have a cap that is fairly low. If the individual has a series of routine doctor visits, the plan will not exceed coverage beyond the cap for any reason.
Employees also can run into problems when applying for traditional coverage later down the line. Since they were not covered under a traditional plan, many carriers will not recognize mini medical plans as credible coverage. Thus, the employee appears as though he or she has not been covered, which may lead to no coverage for a pre-existing condition. In addition to these concerns, mini medical coverage is also not recognized as HIPAA-credible coverage.
Finally, many of these plans have preexisting condition clauses in place. Although these plans are beneficial to employers because they are protected from rate increases, employees may cancel their plans after getting denied claims.
STEPHEN J. PECK is president of Kapnick Benefit Services. Reach him at Steve.Peck@kapnick.com or (888) 263-4656 ext. 1147.
Lung cancer is one of the most common malignancies in both genders. In terms of new cancer cases each year, it ranks second only to breast cancer in women and second to prostate cancer in men. There are approximately 170,000 new lung cancer cases annually, and each year about 160,000 deaths are attributed to it.
As a result, says Dr. Jay M. Lee, Surgical Director of the Thoracic Oncology Program at the David Geffen School of Medicine at UCLA, “Lung cancer is the deadliest malignancy and the leading cause of cancer-related mortality in both women and men.”
Smart Business spoke with Lee about lung cancer, how it is detected and what steps can be taken to reduce the odds of getting this form of cancer.
What are the different types of lung cancer?
Lung cancer is a malignancy where cancer cells grow in the tissues of the lung. There are two major types of lung cancer, nonsmall-cell lung cancer (NSCLC) and small-cell lung cancer (SCLC). NSCLC is much more common and accounts for 80 percent of lung cancer cases. By the appearance of the cancer cells under the microscope, several histologic subtypes have been classified for NSCLC. The common subtypes include adenocarcinoma, squamous cell carcinoma, large cell carcinoma and carcinoid tumors.
What are the possible signs of lung cancer?
Lung cancer can be present with no symptoms, particularly in its early stages. However, when symptoms do occur, they can include nonspecific and often subtle symptoms such as:
- Chronic cough
- Hemoptysis (coughing up blood)
- Unexpected weight loss or loss of appetite
- Difficulty breathing
- Bronchitis or pneumonia
- Chest pain or discomfort
Because these symptoms are also present in other lung problems, you should consult your doctor to find out the cause of the condition.
How is lung cancer detected?
Patients with suspected lung cancer are detected in two scenarios: 1) The onset of symptoms prompts a visit to the doctor or 2) in the case of asymptomatic individuals, a routine examination and radiologic testing leads to the finding of an abnormal spot [tumor] in the lung. In both situations, the doctor will evaluate a person's medical history, assess risk factors and obtain a family history of cancer. The doctor will also perform a physical examination and may order a chest X-ray or a specialized X-ray called a chest CT scan. Although the radiologic studies allow the detection of abnormal spots in the lung, they do not provide tissue confirmation of lung cancer. Therefore, to make a diagnosis of lung cancer, the doctor will need to obtain a sample or biopsy of the lung tumor. If you are diagnosed with lung cancer, the doctor will do further radiologic testing to find out whether the cancer has spread outside of the chest and to other parts of the body.
This information will help the doctor stage the lung cancer and plan the most effective treatment.
How can lung cancer be treated?
Individual treatment plans are generated on the basis of several factors, including the type of lung cancer, stage and the overall health of the patient. Treatment strategies may be used in varying combinations to treat or palliate lung cancer. There are three main treatment modalities: surgery, chemotherapy and radiation therapy.
What steps can one take to decrease their chances of getting lung cancer?
The most common risk factors associated with lung cancer development are smoking, secondhand smoke, radon exposure and asbestos exposure. Smoking cigarettes or cigars is the most common cause, resulting in almost 90 percent of lung cancer cases. Secondhand smoke is also a risk factor and is attributed to about 3,000 lung cancer deaths annually. Thus, smoking cessation and avoidance of secondhand smoke are obvious lifestyle modifications to reduce cancer risk.
Radon is a natural radioactive gas and a known lung cancer carcinogen and cannot be seen, smelled or tasted. However, its presence in your home or workplace can pose a danger to your health. Radon has been shown to be the leading cause of lung cancer among nonsmokers, accounting for approximately 20,000 lives annually. Testing for excessive levels is encouraged.
Asbestos is a mineral fiber that was once used in building construction materials. Although its use has been banned, asbestos can be found in older homes, in pipe and furnace insulation materials, paints and other coating materials. It’s a well-known carcinogen that can cause lung cancer and mesothelioma. Avoidance or safe handling of asbestos fibers is important.
DR. JAY M. LEE is Surgical Director of the Thoracic Oncology Program at the David Geffen School of Medicine at UCLA. Reach him at JaymoonLee@mednet.ucla.edu or (310) 794-7333. For more information, visit www.lungcancer.ucla.edu.
Typically, nonpublic companies obtain an audit of their financial statements only if it is required by a third party, such as their financial institution, other lender or investor. However, there are a number of reasons why obtaining audits can be beneficial even if there is no third-party requirement.
One example, says Don Carobine, CPA and vice president of Gumbiner Savett Inc., is when a growing company requires outside funding in order to finance future plans and goals. “Having audited financial statements at least one year prior to this need will ease the process when negotiating with financial institutions, other lenders or investors,” he explains.
Smart Business spoke with Carobine about the advantages of regularly conducting audits, how often they should be obtained and the new audit standards.
What advantages can a nonpublic company gain by regularly having audits?
A company may have future plans to go public or be acquired by or merge with a public company, which will require the audit of three years’ balance sheets and two years’ income statements. Having regular audits beginning at least two years prior to the year a company plans to go public will ease the process and ensure the company is ready. The decision to obtain audits may also go hand in hand with the owner’s individual life plans. That is, after working hard to build a valuable business throughout his or her career, an owner may want to slow down and enjoy a certain quality of life. Having several years of audits in place will ease the sale process when the time comes and help ensure a top-dollar sale price.
Another reason owners may want to obtain audits is to provide them with a level of comfort that the internal accounting records are accurate. Finally, a good auditor will learn about the business and operations of the company and provide valuable advice to the owners that may include more efficient and cost-effective ways to operate, ways to improve upon internal controls to ensure accurate reporting, and ways to minimize taxes through keeping up with ever-changing tax laws.
How often should audits be conducted?
Audits are typically conducted on an annual basis at the end of a company’s fiscal year. There are situations where an audit may be helpful at an interim period, such as when a company is sold, but such a scenario would be dictated by circumstances. A company may want to consider having a review performed during interim periods, such as quarterly or semiannually, if it would be beneficial. A review is smaller in scope than an audit and includes inquiries and analytical procedures.
Does a company’s size or rate of growth affect how audits should be conducted?
Yes. Auditors consider many factors when determining how they will conduct an audit, including the company’s size and rate of growth. The first phase of an audit is planning. The auditor learns as much as possible about the business, operations, internal controls, current year developments, risk areas and possible areas of fraud concern, among many other things. Obtaining this knowledge helps in the determination of how the audit will be conducted.
How important a role do audits play in identifying and reducing risk?
Audits are performed on historical information. That is, they are performed after the fact. Although auditors may identify areas of risk during the course of an audit and provide recommendations for reducing such, a company should not rely on the audit process for identifying and reducing risk. Instead, company management should develop a customized system of internal controls over financial reporting that is appropriately designed and that takes into consideration risks that have been identified by management. These internal controls should be monitored periodically through compliance testing to ensure their design is effective and that they are operating as intended. In addition, the internal control structure should be revised when changes occur at the company, such as the addition or deletion of personnel, a change in accounting software or the addition of a new line of business.
Are there any new audit standards of which companies should be aware?
There are eight new statements on auditing standards that were issued by the American Institute of Certified Public Accountants last year that are effective for the upcoming audit season. They are referred to as the risk assessment auditing standards and require that, among other things, the auditor obtain a more in-depth understanding of a company’s internal controls and that the controls be tested by the auditor before arriving at conclusions as to the design and effectiveness of a company’s internal controls during the audit. This will require that companies provide their auditors with more in-depth documentation of their internal control system than they may have in the past. Management should begin discussions with the company’s auditors now to learn what will be expected of them in relation to these new standards for their next audit.
DON CAROBINE is a CPA and vice president of Gumbiner Savett Inc. Reach him at email@example.com or (310) 828-9798.
Competition runs rampant in the retirement services sector. Banks, mutual fund companies and insurance companies are all vying for a slice of 401(k) business.
However, not all retirement plan providers offer the same level of commitment when it comes to making sure employees are well-versed in eligible plans.
After all, getting employees to participate involves more than merely letting them know a plan is available. Education is an important component that providers should bring to the table.
“Commitment to the education process is key,” says Frank Ricchiuti, vice president and retirement plan consultant at Comerica Bank. “A successful 401(k) plan usually has good participation levels. Education is the driver to good participation.”
Smart Business spoke with Ricchiuti about what functions a retirement plan provider should be responsible for, how often a retirement plan should be reviewed and how service providers can assist in employee education.
What are some key factors to consider when looking for a retirement plan provider?
The wish list is obvious: competitive pricing, quality investments, efficient service and great technology. Unfortunately, this reads like every providers’ marketing brochure. Some plan sponsors know what they want; many know they have a problem but don’t know how to fix it; and some don’t know what they don’t know. So the combination of product marketing and not knowing enough to cut through the spam makes it very difficult for a plan sponsor to identify and evaluate those key factors.
What functions should a retirement plan provider be responsible for?
The three main components are record-keeping, administration and investments.
The less obvious but equally important issues are compliance oversight, ongoing due diligence of the investments and the level of commitment toward participant education (preferably live meetings). These services do not totally relieve the plan sponsor of fiduciary obligations, but they can certainly assist the employer to make prudent decisions in selecting a provider.
Once in place, how often should a retirement plan be reviewed?
This is a huge fiduciary liability issue, and many plans have now established investment policy statements for guidance in this regard. Investments move in and out of favor, so they should be reviewed at least annually.
Larger plans review their investments quarterly, which may be the result of a very specific investment policy. We also believe that plans should have an administrative review to measure the overall efficiency and competitiveness of the program in a fast moving industry. We find that many of our clients are not being offered these reviews by current service providers.
How can a company encourage its employees to participate in retirement plans?
This varies by employer. A high-tech company or a law firm does not have the same issues educating participants as a manufacturing company has.
Employers concerned by productivity and thin profitability margins are often reluctant to make 401(k) plan enrollment meetings mandatory. We also see successful 401(k) plans where enrollment meetings are presented in other languages (e.g. Spanish) with enrollment materials to match.
The new Pensions Protection Act brings a potential solution to the problem automatic enrollment and auto deferral increase options we expect plan sponsors to consider in the future.
How should employees be educated about retirement plans?
Ultimately, it is the fiduciary responsibility of the employer to provide that information. The employer achieves this by partnering with effective resources.
Those resources can be the actual service provider and/or a good broker or consultant who will focus on developing and driving an effective ongoing action plan. Multiple tools are available now with more being developed all the time. We’re seeing live workshops with worksheets and pencils in hand (even PDAs); seminars to existing participants on different investment-related topics; Webinars; Internet-based education and financial planning models; and user-friendly investment options that promote asset allocation through target retirement date funds. The key is choosing the right team, because a dedicated retirement plan consultant can make all the difference.
FRANK RICCHIUTI is vice president and retirement plan consultant at Comerica Bank. For a no-obligation assessment of your current retirement plan, reach him at (714) 433-3235 or firstname.lastname@example.org.
Hypertrophic cardiomyopathy is a heart condition for which there is presently no cure. The severity of symptoms varies greatly among individuals, but in some cases the affliction can lead to death.
Screening high-risk patients is the best way to avert potential fatalities, says Dr. Michael S. Lee, the Associate Director of Interventional Cardiology Research and Assistant Clinical Professor of Medicine at UCLA Medical Center. “Hypertrophic cardiomyopathy is a complex disease that may have catastrophic consequences. Patients may have debilitating symptoms, which severely affect their quality of life,” says Lee. “Someone, especially young athletes, who may be viewed as a picture of health may suddenly die without any warning.”
Smart Business spoke with Lee about hypertrophic cardiomyopathy, how it is diagnosed and what treatment options are available.
What is hypertrophic cardiomyopathy?
Hypertrophic cardiomyopathy is a condition in which there is excessive thickening of the heart muscle or hypertrophy. The heart muscle may thicken in normal individuals due to hypertension or prolonged athletic training. However, in hypertrophic cardiomyopathy, muscle thickening occurs without an obvious cause. Microscopic examination of the heart muscle shows myocardial disarray or irregular, disorganized alignment of muscle cells.
How common is this condition?
Hypertrophic cardiomyopathy is a relatively common genetic cardiac disorder, which affects about one in 500 adults in the general population.
What causes hypertrophic cardiomyopathy?
The cause of hypertrophic cardiomyopathy is not fully known. Although the majority of cases are inherited, others have either no evidence of inheritance or there is insufficient information about the individual's family to assess inheritance. More than 400 genetic mutations have been identified in patients with hypertrophic cardiomyopathy, most of which are genes that encode contractile proteins of the cardiac sarcomere. The condition usually passes from one generation to the next in affected families, and generations are not skipped.
What are some common symptoms?
Hypertrophy more commonly develops in association with growth and is usually apparent by the late teens or early twenties. While some patients are asymptomatic, others may experience chest pain, shortness of breath, fatigue, palpitations, light-headedness, dizziness, and blackouts. Other complications include arrhythmias (like atrial fibrillation and ventricular tachycardia), and endocarditis (or infection of the heart).
However, the most devastating manifestation is sudden death, which may occur with little or no warning.
How is hypertrophic cardiomyopathy diagnosed?
Hypertrophic cardiomyopathy may be suspected because of symptoms, a murmur, or an abnormal electrocardiogram, but the diagnosis is made by an ultrasound scan of the heart called an echocardio-gram. Family screening of first-degree relatives will also identify children and adolescents with the condition.
What are the treatment options in patients with hypertrophic cardiomyopathy?
Although there is no cure, treatment options are available to improve symptoms and prevent complications. Medications like beta-blockers and calcium antagonists can reduce symptoms. Anti-arrhythmic drugs like amiodarone can be used to reduce the risk of sudden death. Patients should also take antibiotics before invasive procedures like teeth cleaning to prevent an infection of the heart valves called endocarditis.
If severe symptoms persist despite drug therapy, surgical myectomy (removal of muscle) can successfully relieve symptoms in patients whose left ventricular outflow tract is narrowed and causes obstruction of blood flow. Another option for patients with severe symptoms is non-surgical myectomy, in which a small amount of alcohol solution is injected into a minor branch of the coronary artery that supplies the upper septum, thus destroying this part of the heart muscle.
The best way to prevent sudden death is to screen and identify high-risk patients for sudden death and implant a defibrillator, a small device under the skin in the chest, which records and delivers an electrical shock when normal electrical action is absent. Patients may be advised not to participate in competitive sports or other strenuous physical effort.
DR. MICHAEL S. LEE is the Associate Director of Interventional Cardiology Research and Assistant Clinical Professor of Medicine at UCLA Medical Center. Reach him at (310) 825-8811.
Enterprise value is an amount that represents the entire economic value of a company. In essence, it is a measure of the takeover price that an investor would need to pay in order to acquire a firm. Calculated by adding a corporation’s market capitalization, preferred stock and outstanding debt together and then subtracting cash and cash equivalents, enterprise value is a more accurate reflection of a company’s takeover cost than market capitalization alone.
In order to increase enterprise value says Lou Savett, managing principal of the strategic transaction services group for Gumbiner Savett Inc., it is important to position your company for future earnings growth. “The way to increase earnings is by taking a hard look at your marketplace and seeing to what extent you can expand it,” he explains.
Smart Business spoke with Savett about enterprise value, the importance of having a strong management team in place and how to best preserve the value of a business when in the selling process.
What steps can a company take to increase its enterprise value?
First of all, a company has to make a determination about where they fit in the marketplace. There are wholesalers, retailers, manufacturers and service companies, each of which has a separate group of component ingredients that make them more or less valuable. Underlying all of that is the fact that the enterprise value of a company is almost always determined by some version of discounted future cash flow. If you are able to diversify your market, if you are able to get into areas where there is less price resistance, if you are able to get into rapidly expanding marketplaces, then you are increasing enterprise value because the future cash flows will be greater than they are now. We also know that pricing multiples change with regard to the future components of the company’s vision. If you are not growing then you are unlikely to get a high multiple. If you are growing very rapidly, in a way that people believe will continue, you might get a multiple that is two or three times higher.
What is the main driver that affects the enterprise value of a business?
The main driver will always be earnings and the question will always be: What sort of future earnings will a prospective buyer be convinced can be attained? The higher this number is the better off you will be. Philosophically speaking, there are only two ways to increase a business. One way is to sell the same product to more people. The other, is to sell the same people more products. You need to do both of those things. Wells Fargo Bank, for example, recently bought an investment banking group and a national insurance brokerage company, expanding the services that they can sell to their clients.
How can a strong management team increase enterprise value?
A company needs to take a hard and sincere look at its management. Generally speaking, when we walk into a company there is usually one key person. If you ask that person, he will quickly tell you that the company is what it is because of his efforts. If you tell that to a prospective buyer the pricing multiple will be reduced nobody wants to take a chance on the genius being there forever. On the other hand, if you can say we have a management team that through thick and thin can run this company for its highest and best purposes then the amount of enterprise value goes up.
What role does enterprise value play in succession planning?
Enterprise value comes to the fore with any type of exit strategy because it accurately predicts what the person or group who is exiting will get in the way of benefits. When you do your succession planning, you want to build your enterprise value up to a certain point. For example, let’s say that your succession planning is to put together an Employee Stock Ownership Plan. Your contributions to the plan are in percentages of your capital stock, so if the enterprise value keeps going up, you put less shares in the plan and keep more for yourself. You will get a bigger bang for your buck tax wise if you continue to increase enterprise value while you’re in the midst of succession planning.
How can a business owner best preserve the value of their business when in the selling process?
We advise our clients when they’re in the selling process to bring together their core management group and get them involved in the selling process. If you don’t do that people will get scared that their job doesn’t have a future and either leave to a competitor or make other plans that aren’t in your best interest as a seller. As you move forward in the selling process it is important to determine what to tell your customers and vendors and when to tell them. All of this has to be handled very delicately. If you don’t, and something goes wrong in the selling process, you’re going to lose a lot of value.
LOU SAVETT is managing principal of the strategic transaction services group for Gumbiner Savett Inc. Reach him at (310) 828-9798 or email@example.com.
Since the 1980s, leveraged financing has become more widespread in the middle market. By increasing the amount of debt relative to equity, companies can enhance the return on equity. Of course, there are significant risks, and not every business is well suited for this type of financing.
“Leverage can increase returns to equity, but it can also cut the other way if things don’t work as planned. The art is determining how much is too much and how much is just right,” says Edmund Ozorio, senior vice president of Comerica Bank’s Western Market.
Smart Business spoke with Ozorio about financial leverage, the risks involved and current market terms and conditions.
What is leveraged financing?
The generic term ‘leverage’ refers to the amount of debt relative to either the value of a company’s assets or its cash flow. Today, the term ‘leveraged financing’ is generally understood as debt financing in excess of the value of a company’s assets. This means that debt is replacing part of what is traditionally funded with equity.
Because debt is cheaper than equity, the average cost of capital is lowered and the return on equity goes up. Since nothing is free, this increased return comes with increased risk. The trick is to use the ‘Goldilocks’ amount: just enough to get the increased return on equity, but not so much that a minor downturn causes payment problems.
How can a company determine if it is a good candidate for leveraged financing?
The best candidates are businesses with reliable cash flow over a fairly broad spectrum of scenarios. While nobody can predict the future, banks look at likely projection scenarios and past performance under various economic conditions.
The best candidates have a strong market position and barriers to entry, meaning their products will continue to sell even in a moderate downturn and are difficult to displace by competitors. Branded products are common examples of this type of business. Other good candidates include businesses with low fixed operating costs.
Less attractive are businesses that are highly cyclical with high fixed costs, or those that consume large amounts of capital due to growth.
When is leveraged financing used?
Common uses center around changes in equity structure. The most frequent example is an acquisition, when a new owner borrows against the cash flow of the company in order to buy out the former owner.
Leveraged financing is also used to fund distributions to owners and equity holders for other outside investments. Over the past several years, banks have seen many business owners increase the leverage on their operating businesses to provide the equity for commercial real estate investments or to finance unrelated businesses that might not qualify for financing on their own.
What are some common mistakes, and how can they be avoided?
The most common mistake is taking on too much leverage relative to the level of reliable cash flow. In today’s fast-paced and highly competitive marketplace, businesses can be affected much easier and faster than ever before. The debt structure has to leave some buffer for drops in revenue and cash flow. This means one of two things: either less leverage or debt structured in such a way that there is some flexibility in repayment terms.
One of the best ways of achieving a fairly high level of leverage is a combination of bank debt and mezzanine, or subordinated, debt. The bank debt generally amortizes early and the subordinated debt later.
What terms and structures are commonly used?
Commercial banks will usually want keep the company's bank debt at three times cash flow or less. Subordinated debt lenders might provide an additional one to two times cash flow. There are extraordinary circumstances that might increase or decrease these levels by as much as 50 percent. Banks may also require that the amount of financing in excess of asset values amortizes more quickly than other debt.
On rare occasions when the business has a very strong model and cash flow but extremely limited hard assets, the analysis is based on the value of the intangibles and amortization is set accordingly.
The terms are a function of the risk involved. While premiums for leveraged financing have come down over the past few years, it remains more expensive than traditional financing. The spread over comparable rates for debt fully covered by assets will generally range from 1 percent to 4 percent. Fees might increase by a quarter to one-half. Some lenders will also take warrants instead of part of their fees, lessening the cash drain on the business.
EDMUND OZORIO is senior vice president of Comerica Bank’s Western Market. Reach him at firstname.lastname@example.org or (619) 338-1512.
While nearly everyone has the occasional heartburn, if the burning sensation caused by acid in your esophagus persists, you could have GERD. The disease may be more common than you think.
Gastroesophageal reflux disease, commonly referred to as GERD, is a condition where the contents of the stomach come back up into the esophagus. The regurgitated liquid usually contains acid produced by the stomach. While your stomach is designed to handle the acid it produces, your esophagus is not.
“Between 10 percent and 15 percent of the population in the United States experiences GERD on a monthly basis,” says Dr. Mary Maish, assistant professor of surgery and surgical director of the UCLA Center for Esophageal Disorders.
Smart Business spoke with Maish about GERD, the symptoms associated with this disease and how it can be treated.
What causes GERD?
There are some known causes as well as many unknown causes. One thing that can cause GERD is a hiatal hernia, which is when part of your stomach pushes up into your chest. The esophagus extends from the neck through the chest and into the abdomen. In normal people, the stomach stays in the abdomen. For people with a hiatal hernia, the top portion of the stomach herniates, or pushes its way up into the chest, which is abnormal.
Another cause is that as we age our tissues tend to become more lax. The laxity in the diaphragmatic muscle does not provide the same sturdiness or strength that it needs to keep the stomach in the abdomen.
Also, patients that are very obese are more prone to GERD. Large amounts of fat put pressure on the stomach and can cause a hiatal hernia. Carbonated liquids, caffeine, alcohol, spicy foods and heavy fatty meals can also exacerbate reflux.
What are some of the symptoms associated with this affliction?
Heartburn occurs in about 80 percent of the patients with GERD. They may also have epigastric pain, chest pain, changes in their voice and respiratory symptoms such as recurrent bronchitis, recurrent pneumonia or a persistent cough. Other possible symptoms include ear, nose and throat issues like persistent dental caries, recurrent earaches, persistent sore throats and hoarseness. Gastrointestinal symptoms may include bloating, gassiness, nausea, vomiting and diarrhea.
How is GERD diagnosed?
There are a number of objective tests that can be used to diagnose GERD. A barium swallow allows us to not only look at how the esophagus is moving, but also helps us determine whether or not there is reflux of material from the stomach back up into the esophagus. Manometry testing consists of a small catheter placed in the nose, down the esophagus and into the stomach where it measures pressures along the esophagus. Most importantly, it measures the pressure of the lower esophageal sphincter that connects the esophagus to the stomach. If the pressure is low then we know that the patient is likely to be experiencing a lot more reflux than an average person who has normal pressure.
A pH probe test measures the total amount of acid that is dispensed over a 24-hour period of time. There are normal amounts of acid that come up from the stomach into the esophagus in every individual, but this test will measure how much acid, based on the pH, that someone is being exposed to. Finally, an endoscopy allows us to look at the lining of an esophagus and determine if there are any complications from GERD.
How is it treated?
Patients with mild GERD, or occasional reflux, are generally treated with acid inhibition medicine, or what we call proton pump inhibitors. These medicines include Prilosec, Nexium and Prevacid. It can also be treated intermittently with H2-blockers such as Pepcid, Tagamet and Zantac.
If complications persist, what surgery options are there?
If the symptoms are persistent and severe, or if there is any indication of complications from reflux then surgery can be considered. The type of surgery that we recommend is called a Nissen fundoplication. During this surgery the top part of the stomach is wrapped around the bottom part of the esophagus in order to create a new valve because the old valve is not working properly. The procedure is done laparoscopically with minimally invasive techniques and generally there is only a one- or two-day hospital stay.
DR. MARY MAISH is assistant professor of surgery and surgical director of the UCLA Center for Esophageal Disorders. Reach Esophageal Center Coordinator Rebecca Allegretto, RN, MBA, at email@example.com or (310) 825-6167 or through the Web site www.esophagealcenter.ucla.edu.