Just when the value of pension assets has plummeted, the funding requirements for companies with defined benefit plans are scheduled to rise in 2009. Staying on top of the plan’s funded status, required contributions and financial statement impacts round out the daily to-do lists of plan sponsors.
“It’s not a time to panic, but it’s definitely a time to be vigilant. Plan sponsors are feeling bombarded now with the market swings, so you’ve got to stay on top of your risk position,” says Michael Ford, senior investment consultant with Watson Wyatt Worldwide.
“Make sure you understand your current situation and have the right planning processes in place to do accurate modeling and forecasting, because you really want to avoid surprises,” says Christine Tozzi, retirement practice leader at Watson Wyatt Worldwide.
Smart Business spoke with Ford and Tozzi about how companies should manage their plans in the current environment.
What risks does the current economic volatility pose for pension plans?
Tozzi: The falling asset values will cause the plan’s funded status to decline. This requires employers to infuse cash in order to comply with IRS pension plan requirements. The cash needs will be magnified in 2009 because of the investment losses. In addition, under the new Pension Protection Act if a plan is not funded to minimum thresholds under the law it may need to restrict lump sum payments or temporarily freeze plan accruals entirely until the plan’s funded status improves. Meeting those funding thresholds will be difficult in this current environment. In addition to cash, pension expense in the company’s P&L statement may increase significantly due to asset losses.
Ford: The current environment is different than the last major downturn in the equity market in 2000. This time corporate bond yields have risen as a result of weakness in credit markets and the liquidity crisis. Since pension liabilities are valued using the AA corporate bond yield curve, liabilities have decreased somewhat offering some relief. But, the drop in assets more than offsets the decrease in liabilities, which has led to large decreases in a typical plan’s funding ratio.
Are there other solutions for underfunded plans?
Tozzi: Companies may be able to find some small relief from the significant cash funding that will be required. Sponsors could use an asset averaging method, which would factor in years when asset balances were higher. Alternatively, if employers have made larger-than-required contributions in prior years, they may be able to apply those credit balances to help meet 2009 funding requirements. They also may be able to change to a spot interest rate basis for measuring liabilities to capture the fact that today’s bond yields are higher, which lowers costs. We may see some legislation that will provide temporary relief to plan sponsors to minimize the additional cash that could be required due to the events of 2008.
What are the best funding strategies?
Ford: It’s important to remember that the risk in your plan’s asset allocation model and risk profiles within various asset classes have changed. Review your investment strategy in light of both the increased economic risk and liquidity risk to see if the model will still deliver its intended results. Revisit your plan’s fundamentals and your company’s risk tolerance to see if your plans and strategies are still in line with those philosophies.
Tozzi: Run models to see how the plan’s assets and liabilities will fare under a variety of investment returns and bond yield swings and develop contingency plans to deal with each situation. Preview the numbers more frequently and ride out some of the market’s ups and downs until things stabilize. Continue to monitor your plan governance processes and hold additional meetings to review your programs and investment options.
How should sponsors manage the increased cost for retirement plans?
Tozzi: In addition to updating budgets, it’s important to remember the long-term objectives for offering retirement programs to employees and balance that with the short-term impacts. As long as the retirement program is aligned with the company’s objectives, it is best to be patient. A Watson Wyatt survey shows that very few employers have plans to actually freeze benefits.
Ford: Plan sponsors can also consider and outline alternative asset allocation strategies, which may reduce volatility and the need for cash infusions down the road.
What should plan sponsors communicate to participants?
Tozzi: If the company offers a pension plan, sponsors should reinforce that prior benefits that have been accrued are protected. Update participants about the plan’s funded status and tell them that the company intends to make its scheduled minimum contribution. Plan sponsors want to communicate the truth, but also allay the fears of participants as much as possible.
Ford: Sponsors of defined contribution plans, such as 401(k)s, should communicate the implications of what’s going on in the market in a transparent and empathetic way, but making sure not to offer explicit advice. Remind participants that retirement investing is a long-term proposition and cite prior bear markets as proof that the current situation is not unprecedented. <<
MICHAEL FORD is a senior investment consultant with Watson Wyatt Worldwide. Reach him at firstname.lastname@example.org or (818) 623-4754.
CHRISTINE TOZZI is a retirement practice leader at Watson Wyatt Worldwide, San Francisco office. Reach her at email@example.com or (415) 733-4346.
Frank Lloyd Wright would be a fish out of water in the culture of global architecture and design firm NBBJ. The traditional hierarchical structure is gone, there’s no head office, and professionals are hired for their teamwork skills, not their egos. The firm that designed the headquarter buildings for Reebok, Starbucks and Telenor and collaborated on seven of the top 10 hospitals listed on the U.S. News and World Report Honor Roll, including the Cleveland Clinic, has gone global and left its vertical structure and traditional leadership model behind.
“Beginning about 10 years ago, all of the growth opportunities were centered on a much more diverse mix of clients,” says Doug Parris, partner at NBBJ. “The new projects required a much more collaborative internal process and the ability to pool the best talent from across the firm. At the time, NBBJ was structured in silos, and that soon became an impediment to growth.”
NBBJ hasn’t just survived the transition to a global economy — it’s thrived. In the last five years, NBBJ has experienced double-digit top-line growth, the greatest profits in the firm’s history and total firmwide head count has grown by 200 associates to a total of 780 employees. In 2007, billings were $193 million firmwide.
While the last five years have been successful, the first five years of the global transformation were a struggle and Parris says the journey required a complete restructuring of the firm and a transformation into a learning organization. Parris, a 30-year NBBJ veteran, has also undergone a personal leadership transformation. He no longer manages, he mentors, and he doesn’t command and control. Instead, he facilitates group decisions.
Restructure for the global marketplace
Opening offices in London, Beijing and Dubai gave NBBJ additional dots on the map and the right to claim a global footprint, but as the NBBJ partners soon learned, you can’t just add locations — you have to change the way you do business to succeed in the global marketplace. The international demand for American-style hospitals was voracious, but the new projects were too large for one NBBJ office to handle; they required teams of architects and planners. But expecting professionals to suddenly morph into team players was a pipe dream, and when the firm hit a large growth spurt and struggled, it soon became clear to Parris that things had to change.
“A team of five partners, including myself, traveled to every office and asked our associates for their opinions about how the firm needed to change,” Parris says. “Everything was up for review. The feedback from the associates was pretty consistent. We needed a common structure, and we had opportunities for greater efficiencies in support functions.”
As a result of the feedback, the head office was eliminated, and now all NBBJ offices are equal in stature, which was the first step toward breaking down the silos. Next, Parris and the firm’s partners installed a structure based around practice studios. Practice studios are profit centers that specialize in a building type or client group, and each of the company’s 10 offices has at least one studio. The structure de-emphasizes the role of the individual architect, because all work is completed in teams, and it also focuses the firm’s designs around specific niches like hospitals and buildings for higher education. As projects arise, multidisciplinary teams are assembled from many of the firm’s studios. For example, design of a new Veterans Administration hospital in New Orleans requires 50 firm associates, yet only 30 are based in the Columbus office.
“As a result of the process, we also went through a substantial downsizing and consolidated the administrative functions and marketing into two locations, because we had redundancy in every office,” Parris says. “Now those two offices support the entire firm, so the structure helps us work as one big team.”
Evolve your leadership
Changing the structure was a critical first step in creating a flat organization that functions through teamwork, but Parris says that leaders can’t just flip a switch and expect cultural change. So over the last 10 years, NBBJ has been undergoing a cultural evolution led by a change in the structure and new roles for the firm’s leaders. Now, critical decisions, including project selection, are made by groups of associates, and partnership candidates are nominated by their peers.
“In a true horizontal structure, leadership is built around roles, not titles,” Parris says. “So at NBBJ, the clients and the projects are at the top of the pyramid, followed by the studios and their teams, then the advocacy groups and the firmwide administrative teams, and the partnership is at the bottom of the pyramid. Partners are also practitioners, and the rest of their responsibilities are focused on supporting everyone else and providing the right environment for success.”
NBBJ has 15 partners, including five market leaders, who head up the various niche markets, and many of them are new to their roles. The cultural shift is part of the reason for new leadership, but in addition, three of the firm’s partners in the Columbus office were approaching retirement, so Parris has been instrumental in creating a succession plan and developing the next generation of firm leaders.
To develop bench strength and nurture a cultural metamorphosis, NBBJ partners instituted an intensive training program for new and prospective leaders that focuses on leading change. The associates initially attend a two-week development class and then continue their studies by working with coaches each month. The program is designed after the teachings of author John Kotter in his book, “Leading Change,” and 50 NBBJ associates now participate in the program each year.
Without an autocratic decision-making system, the most vital decisions facing the firm’s leadership team surround project selection. The market for architectural services, especially in higher education has been plentiful, so the team must often choose projects from among a number of opportunities. Profitability is one criterion to consider, but there’s also the cachet the project brings to the firm.
“Frequently, the team disagrees about which projects to take on,” Parris says. “I play the role of facilitator, ask questions and play devil’s advocate just to make sure they’ve thought of everything. For example, I might ask the team if they all believe that the project has high potential. Then, I leave the room and let them decide.”
Parris says that one downside to group decision-making is maintaining business momentum, because reaching decisions with a large number of people takes time and energy. To maintain vigor, he now holds weekly team meetings and each member provides a progress report for their area of responsibility. The team then holds each member accountable for achieving results. Despite the obstacles, Parris says the cultural shift and change to group decision-making is working, because in the last two years, the firm has taken on much higher impact projects, and it is now engaged in the top 15 percent of architectural projects in the world.
As part of his personal transition from manager to mentor, Parris says that he now gives people as much responsibility as they can possibly take and empowers them to make decisions. He’s also learned not to step in and offer help when the group is deliberating over a difficult issue, unless the group requests it.
Parris says that leaders must learn to trust others to make the transition from manager to facilitator and they must also respect their colleagues and not tell them what to do. But it’s not enough to talk a good game. He says the cultural evolution has progressed at NBBJ because he demonstrates those qualities by being calm in every situation and not dominating the discussions.
“I’ve developed an on-board clock, so now I keep track of how long I’m talking and cut myself off before I go on too long,” Parris says.
Become a learning organization
When officials in Istanbul, Turkey, wanted to build a medical facility similar to the Cleveland Clinic, the NBBJ partners soon discovered that patient rooms would require a few modifications to fit with the local culture.
“In Turkey, the entire family stays in the room with the patient 24 hours a day, and they prepare meals on-site,” Parris says. “So we needed to design rooms that could accommodate as many as 10 family members.”
Succeeding in the global marketplace requires any business to adapt to the local culture, but in the design business, it’s crucial because nothing reflects a community and its heritage more than the architectural style of the buildings. Parris says it soon became clear that global expansion would be accompanied by a huge learning curve.
“In many cases, the building environments are much less regulated, and we were dealing with entrepreneurs who had never built buildings before,” Parris says. “They bring a trader mentality to the building process, where they want to debate and negotiate every step of the process on a daily basis. We had to become a learning organization to succeed in global markets.”
The firm instituted videoconferences and Internet meetings where design groups working on international projects could share what they were learning about each country’s culture in real time with their associates, and the firm created a presentation to share with clients in an effort to educate them about the building design and construction process.
In addition, the firm created a learning program called Oregano, which got its name because Parris says the firm wanted to spice things up. Each year, 20 NBBJ associates travel to other countries, build local relationships, and then share their learning moments and experiences with their peers. In keeping with the firm’s leadership philosophies, Oregano participants are nominated by their peers and more than 225 employees have traveled to 25 countries since the inception of the program.
Given all the changes, Parris says that the main consideration for prospective NBBJ new hires is their desire and ability to work in a team environment. But nothing speaks more to the success of the organizational and cultural changes than the number of “boomerangs” working at the firm. Twenty-five percent of NBBJ’s current staff is composed of former employees who left the firm, mainly because they didn’t see a clear path for career progression, and have now rejoined the firm.
“I think the biggest lesson I’ve learned is that sometimes you wait too long to initiate some of these things,” Parris says. “I wish we had made these changes five years earlier. Now we keep our fingers on the pulse and collect 360-degree feedback from associates every year and make the necessary changes.”
HOW TO REACH: NBBJ, www.nbbj.com
Check fraud is on the rise. Annual losses from check fraud among U.S. businesses are estimated at $10 to $20 billion according to sources cited on the eBankLink Web site, and those experts further estimate that fraud will grow by 2 to 3 percent a year. On one hand, technology has created greater convenience for businesses by providing access to many traditional banking functions online, but technology also makes it easy for trusted employees or criminals to commit fraud by gaining access to bank account information and creating knockoffs of company checks. Executives must take precautions to stave off check fraud losses given today’s high-tech environment.
“Check fraud happens more often than you might think,” says Sherri Cope, vice president of Risk and Operations for Fifth Third Bank, Tampa Bay. “It is often committed by a highly trusted employee, who yields to temptation and takes funds, intending to slowly repay the money. Employers must be aware of the risks and take preventive measures so they don’t become fraud victims.”
Smart Business learned more from Cope about how companies can become victims of check fraud and the best ways to prevent it.
How might a company fall victim to check fraud?
Checkbooks or blank checks left out on an employee’s desk or on a printer stand invite fraud, because, in a matter of minutes, a vendor or visitor can take a few checks out of the middle of the book, without anyone noticing. Sometimes contractors or vendors can wash away the ink on a check and type in any payment amount before cashing it. But in today’s environment, technology is a fraud enabler. Criminals can create realistic copies of your company’s checks if they have your banking information or a sample check to copy; banking passwords can be lifted by employees or visitors if they aren’t protected; and criminals can get access to your online account information by two fraudulent activities called phishing and pharming. The term phishing refers to social engineering attacks to obtain access credentials, such as user names and passwords. Pharming redirects a legitimate Web site’s traffic to a similar-appearing but bogus Web site, so users unknowingly enter their names and passwords.
What are the best practices for preventing fraud?
Create separate accounting functions for payables and receivables and use multiple employees to process transactions. Accounting checks and balances are a safeguard against errors and fraud, and you don’t want employees to become too comfortable, thinking that no one is reviewing their work.
Executives should review the bank statements each month to look for irregularities and compare checks against accounting ledgers. Most banks stipulate that fraud be reported within 60 days, so it’s incumbent upon executives to stay current in their oversight of financial records. Create written procedures directing employees how to secure blank checks and banking passwords and require them to shred cancelled or scrap checks.
Also train employees how to recognize e-mails that are really pharming and phishing attacks in disguise and install network security that screens out suspicious e-mails designed to lure employees into divulging your company’s banking information.
What should executives do if they discover check fraud?
As soon as you realize something is wrong, call your bank and make a police report, because time is of the essence. It’s best to close out the account and reopen a new one, but the decision often depends upon what has been compromised. Companies should immediately notify their vendors, because replacement checks will need to be issued on the new account.
How can a bank help?
First, issue as few checks as possible. Pay vendors and employees electronically and use Internet banking because it gives you a real-time view of what’s happening with your accounts. If you have a high number of transactions, consider positive pay. Positive pay is an automated fraud detection tool offered by the cash management department of most banks. It matches the account number, check number and dollar amount of each check presented for payment against a list of authorized checks issued by the company. All three components of the check must match exactly or the bank will not pay on the check.
Your banking representative should be partnering with you and suggesting proactive systems and procedures to keep your business from becoming a fraud victim.
SHERRI COPE is vice president of Risk and Operations for Fifth Third Bank, Tampa Bay. Reach her at (813) 306 2499 or Sherri.Cope@53.com.
Proactive funds management is to working capital what blocking and tackling is to football, so CEOs who consistently execute the fundamentals and a well-designed game plan won’t be forced to rely on a Hail Mary pass to improve cash flow. Ideally, CEOs need only tweak their strategy to fund working capital, speed up cash collections or discover new accounting efficiencies in response to changing economic conditions. But oftentimes, CEOs focus strictly on the cost of working capital solutions without considering their long-term impact or they fail to proactively manage funds; so when the economy swings, they’re behind the curve.
“Every business and every industry is different in terms of acceptable debt ratios, investment ratios and days sales outstanding (DSO), but regardless of the industry specifics or the economic conditions, if you’re managing your working capital position appropriately, everything else just falls into place,” says Sandy Ritchie, CTP, Vice President and Treasury Management Sales Manager for Fifth Third Bank, Tampa Bay.
Smart Business spoke with Ritchie about how CEOs can manage their company’s working capital position effectively.
What are the best tactics for improving cash flow through receivables and payables management?
Every business should have a stated process for collecting money in a fast and efficient manner. Track and monitor the average number of days it takes your customers to pay and proactively work with late customers so you’re not caught by surprise by a growing increase in your accounts receivables balance or a cash shortage. Accepting credit cards, debit cards and collecting payments through a lockbox are all ways to decrease DSO and improve cash flow. While these solutions require a small fee, the upside includes reduced staff time devoted to collections activities, drafting reports or creating bank deposits.
Once your company is receiving payments more quickly, the next step is to lengthen the time you have the funds. Pay your vendors with a purchasing card to improve float and review all partner agreements so they are paid at the maximum allowable limit. Renegotiate to more favorable payment terms with vendors.
How can reporting help?
No matter how you choose to collect the money, regularly review reports that detail each type of transaction as well as a consolidated report detailing your company’s total cash position; also make certain your reports tie together seamlessly and that the data flows into the general ledger. A regular review of real-time cash transactions will reveal opportunities to speed up collections, and report efficacy will enhance your company’s fraud protection program because it’s the gaps in reporting and the lack of real-time data that can leave the door open for fraud. A plus to putting all your transactions through one bank is that CEOs can benefit from comprehensive online reporting tools that update every day, without adding systems or staff.
What are the best practices for proactive funds reviews?
CEOs should schedule reviews with their bankers at least annually but as often as monthly if cash is tight. Take the opportunity to shop the banking competition at least once a year so you know what tools are available; hiring a new CFO or controller can be an opportune time to conduct a market survey. Banks are continually bringing new automated enhancements forward, such as online treasury management and online securities purchase and, best of all, it’s not necessary to be a big business to qualify for the services. Many of the packages are bundled, making them affordable for any size company. Then, when the working capital fundamentals are in place, CEOs can make small adjustments in reaction to market changes. For example, if your company experiences a 10 percent drop in deposits, a simple phone call can turn off the overnight investment sweep or turn on your company’s line of credit sweep. Because you know your company’s cash position through real-time data capture and know your options, you can make adjustments before a cash crunch becomes critical.
What working capital expertise should CEOs expect from their banker?
Your banker should not only offer fund management solutions, he or she should demonstrate the impact of his or her recommendations on the company’s financial statements. CEOs should furnish their financial statements and a chronology of their current accounting systems, including the requisite soft costs, such as staff time and labor needed for each type of transaction. The banker should be able to demonstrate the cash flow improvement and any reductions in overhead and other costs resulting from the solution. If the banker can’t quantify the savings from increased efficiency, try another banker. CEOs need to be open to new ways of doing things and they also need to consider the opportunities that result from implementing a comprehensive solution.
SANDY RITCHIE, CTP, is Vice President and Treasury Management Sales Manager for Fifth Third Bank, Tampa Bay. Reach her at (813) 306-2463 or firstname.lastname@example.org.
Consumers like the convenience of buying online, buying over the phone or purchasing gift cards, so offering these options exposes your company’s products and services to new customer segments and often expands your selling hours without adding brick and mortar or additional staff. Expanding your business through the use of merchant services can increase revenue without increasing fixed costs.
“Some customers prefer the convenience of consolidated credit card statements or receiving frequent flier miles or cash rebates for their purchases; still others can’t qualify for credit cards, so they use debit cards to complete their transactions,” says Mark Hayes, vice president and commercial merchant sales manager for Fifth Third Bank. “Strategic use of merchant services can expand your markets and customer base and, perhaps best of all, they level the playing field between small and midsize businesses and the big guys.”
Smart Business spoke with Hayes about how CEOs can win new customers by expanding their use of merchant services.
What are some merchant services available to businesses?
Merchant services provide businesses with a set of comprehensive solutions for accepting credit cards, debit cards and online payments from customers. The solutions are often provided on a turnkey basis, including point-of-sale (POS) equipment, shopping carts and merchant accounts or through referrals to qualified vendors, making it convenient for small business owners. Merchants can track their transactions online in real time and download sales data into software programs like Quicken. Greater data capabilities allow owners to view their average sale transaction amount, and then experiment with ways to increase it and discover growth opportunities by analyzing customer buying trends and habits, and then add new customer segments.
Also, POS equipment is now available that uses wireless technology to transmit transactions, so merchants can accept credit cards from customers at flea markets, trade shows or in their homes.
How can merchant services improve the customer experience?
Giving customers every possible way to do business with your company improves their experience and makes it more likely they’ll buy from you again. Statistics indicate that it costs more to get new customers than to retain old ones and that customers will spend more when they use a credit card to pay for transactions. Gift cards are becoming increasingly popular with consumers. Buyers don’t have to worry about selecting the right size or color, and the recipient gets exactly what they want, so offering gift cards provides customers with a fast and less-stressful shopping experience. Also, it’s unlikely a consumer would pay for high-ticket items with anything but a credit card, and busy people and younger consumers want to purchase online, so unless you give them what they want, they’ll go somewhere else.
What are the cost implications?
The fees for credit card processing average 2 to 3 percent of the total transaction amount and a POS terminal and software can average $300 to $500, while wireless terminals average $800 to $1,000; set-up fees are fairly nominal. The cost of taking payments over the Internet is sometimes less expensive for the upfront costs but can be more expensive for each transaction because of the higher V/MC interchange fees. Also, while some consumers still pay with checks, it can take a few days to receive notice of returned items, while credit card and debit transactions are verified on the spot.
What security is best for these types of transactions?
Make sure your equipment and third-party processor is PCI compliant, which stands for Payment Card Industry Data Security Standard. Any organization that accepts payment card transactions must be in compliance with the standards. Your merchant banker can refer you to vendors that meet the security standards.
How can a merchant banker help?
Merchant services bankers can provide you with turnkey solutions and equipment financing to help you expand your business through enhanced payment options. They should be able to either lease or sell you a POS terminal. Some business owners opt to lease first, then purchase later, so they can try the equipment before committing. A merchant services banker can also help your company expand into e-commerce by recommending a shopping cart vendor for Internet purchases. If you select the same bank for your merchant account and merchant services, the money from transactions normally transfers into your account in 24 hours instead of 48, which improves cash flow. Your banker should also be able to give you advice and ideas about the best ways to expand your business through the strategic use of merchant services, so owners should see them as a complete resource to build revenue.
MARK HAYES is vice president and commercial merchant sales manager for Fifth Third Bank. Reach him at (813) 306-2407 or email@example.com.
The incentives provided under the Economic Stimulus Act of 2008 will expire on Dec. 31. The legislation was designed to provide economic stimulus through incentives for business investment. It was originally estimated that businesses would save $50 billion in near-term taxes through a temporary change to the tax code that allows companies purchasing new equipment in 2008 to deduct up to $250,000 in qualifying capital expenditures as well as reinstating bonus depreciation to allow businesses to deduct 50 percent of their capital asset expenditures for 2008. With only a few months left in 2008, CEOs must act now or risk losing out on the opportunity.
“Essentially, for every dollar businesses invest on assets this year, they’ll save up to 45 cents in tax benefits, lowering their effective cost for purchasing the asset,” says Kevin Krogstad, senior tax manager with Haskell & White LLP. “Companies that need new manufacturing equipment, vehicles, computers or office furniture should buy now to get the tax savings. The equipment must be purchased and placed into service during 2008 to qualify, so CEOs should review their needs to avoid missing out on the benefit.”
Smart Business spoke with Krogstad about the Economic Stimulus Act’s parameters and the associated tax savings.
What are the increased expensing limits under the Economic Stimulus Act?
The Economic Stimulus Act increases the annual expensing limit under IRC §179 from $128,000 to $250,000 beginning in 2008. The investment ceiling limitation was also increased from $510,000 to $800,000. Thereafter, the amount eligible to be expensed is reduced dollar for dollar for purchases exceeding the $800,000 ceiling. For 2008, a taxpayer’s expensing limitation is phased out completely for the year, once its investment in qualified property reaches $1,050,000.
It’s important to note that the maximum amount that may be expensed under §179 is limited to the amount of taxable income resulting from the taxpayer’s active trades or businesses, so effectively, your business must be in the black to qualify. However, in most instances, a taxpayer should still elect for the deduction, as making the election will preserve the right to carry depreciation forward to other years. Absent making the election, the taxpayer can recover the cost of the investment only through depreciation deductions spread over the applicable recovery period.
Which businesses stand to benefit?
As a result of this incentive, most small companies and even some midsized businesses with moderate capital equipment needs will be able to obtain a full deduction for the cost of business equipment and machinery purchased in 2008, reducing their effective cost for those assets. And one more bit of good news, for federal tax purposes, there’s no alternative minimum tax (AMT) adjustment with respect to the property expensed under §179.
Does the act reactivate the bonus depreciation benefit enacted under prior stimulus packages?
Yes. The act provides 50 percent bonus depreciation for both regular and alternative minimum tax purposes for ‘qualified property’ acquired during 2008. The remaining 50 percent of the asset’s basis is eligible for regular depreciation deductions over the asset’s applicable recovery period. Qualified property is defined as having a recovery period of less than 20 years, which includes most office furniture, office equipment, computers, off-the-shelf computer software, water utility property and qualified leasehold improvement property. The property must be new, and there can’t be any previous contracts showing the intent to purchase the assets before 2008.
Does the act expand the deduction for luxury autos?
The maximum first-year depreciation for luxury autos has increased by $8,000, from $2,960 to $10,960 for qualified autos, trucks and vans placed into service in 2008. The vehicle must meet a 50 percent business use test to qualify. CEOs should note that the maximum §179 deduction for sport utility vehicles weighing more than 6,000 pounds remains at $25,000.
Do these same benefits apply to California tax calculations?
At this time, California has not adopted the federal provisions. The maximum §179 deduction for California tax purposes is $25,000, and because the property ceiling for California is $200,000, the §179 deduction is completely phased out once qualified property additions for the year reach $225,000. So as far as California is concerned, assets will continue to be depreciated over their applicable recovery periods. CEOs should note that this may create significant federal versus California basis differences upon the ultimate disposition of assets in the future.
In addition, taxpayers should be aware of these differences when calculating taxable income projections for purposes of making estimated tax payments for 2008. Overall, if these purchases will include assets your business needs to expand or even maintain its competitive advantage in the marketplace, the tax benefits might be too good to pass up, but you’ll have to hurry.
KEVIN KROGSTAD is a senior tax manager with Haskell & White LLP. Reach him at firstname.lastname@example.org or (949) 450-6200.
The recent drop in real estate prices may have been painful for sellers, but for those looking to buy homes, the decline in values coupled with the decrease in mortgage lending rates may spell the best opportunity in years. It appears the decline in the market may have leveled off and, historically, the leveling off period has preceded the next market upturn.
Best of all, buyers can still secure mortgages that don’t require huge down payments.
“The bottom of the market may be in sight,” says Tony Taveekanjana, senior vice president for the Residential Mortgage Division at Fifth Third Bank (Tampa Bay). “The number of new housing permits has started to increase and the prices of resale homes are no longer declining. All of this points to a leveling off in the market. The current market conditions have increased the affordability index for qualified buyers, but the key is not to wait too long because more stringent loan qualifications may be coming.”
Smart Business learned more from Taveekanjana about how buyers can cash in on the current real estate market.
What are the best opportunities in the market?
Here in Florida, we’ve had a substantial decline in home prices. The weather is great, the schools are good; so for many people, this market represents a golden opportunity to own a home. Foreclosures aren’t for everyone. However, those houses are often best for people with good home improvement skills and a lot of time to put some TLC into the property. But with real-estate-owned properties, you might be able to secure the house and the financing directly from the bank currently holding the property. Look at each bank’s Web site for available properties and seize the opportunity because banks have no motivation to be property owners. Even if a well-tended resale property is best for you, the average loan amount for a home here in the Tampa area is now below $200,000, and that opens the door for some very attractive loans.
Is it still possible to get a loan without a large down payment?
An FHA loan allows you to finance up to 97 percent of the home’s purchase price, if the loan amount doesn’t exceed $292,500. So you only need 3 percent down, and of that 3 percent, part of it can be used toward closing costs. The interest rate is also very competitive; it’s comparable to what banks and mortgage lenders are charging for 30-year fixed loans. If you have a military background, you can get 100 percent financing through a VA loan for loan amounts up to $417,000.
Are adjustable rate mortgages still a good way to go?
If you don’t plan to be in your home for more than five years, adjustable rate mortgages with a fixed period of three to 10 years can still be a good vehicle to get into the market. Starting interest rates are in the low 5 percent range, so if you know you want to take advantage of the current prices and perhaps move into a different home in a few years or use your home as an investment, this type of loan is still better for those buyers than a 30-year fixed mortgage.
Have lending qualifications changed?
Lenders are looking for security, so having a good FICO score, a low debt-to-income ratio as well as history of no late payments, especially no late mortgage payments, is important. But if you don’t meet all the qualifications, you may still be able to jump into the market by following one of these recommendations: First, before applying for a loan, get a copy of your credit report and clear up any errors. If you don’t have a stellar history, you may have time to establish a better track record before home prices return to preslide levels, and second, consider an FHA or VA loan if you have a less than perfect credit. The qualifications are asset-driven, not credit-score-driven. So if you have money in the bank and a low debt-to-income ratio those loans could be a possible option.
Why is the timing vital?
Besides the fact that you want to get into the market before real estate values begin to rise, banks have not yet fully instituted rate premiums for less-qualified borrowers. But, that change may be coming and very quickly we might see risk-based pricing where lenders raise interest rates for borrowers who don’t meet all the criteria. The qualification guidelines will only get tighter from here and, as home values begin to rise, you’ll qualify for ‘less house,’ unless your income rises substantially.
TONY TAVEEKANJANA is senior vice president for the Residential Mortgage Division at Fifth Third Bank (Tampa Bay). Reach him at (813) 306-2609 or Tony.Taveekanjana@53.com.
Darren Richardson was constantly managing through either the high end of the current business cycle or the low end. No sooner would Mad Catz Interactive Inc. celebrate a profitable year, then the five-year peak marketing cycle of the latest Xbox or PlayStation console would end, dragging the company’s customized product line down with it.
Following the last roller-coaster ride in 2006, Richardson, who serves as president and CEO of the computer and console gaming accessory manufacturer, decided it was time to reposition the company away from all the peaks and valleys.
“Everyone in the company had worked very hard, and in 2005, we had a record good year,” Richardson says. “Then in 2006, we had a record bad year, and we gave back all the profits we had made the previous year. It felt like all our efforts had been for naught. After doing some analysis, I came to the conclusion that we needed to change our positioning and move away from being a high-volume, low-priced supplier to a low-volume, high-priced leader.”
Richardson locked himself in his office for four days after the company reported a loss for fiscal 2006, getting down into the SKU-level detail for each product at every retail account and creating a mini profit and loss statement for every placement. The analysis paid off because it was after that data review that Richardson decided to change the company’s entire value proposition, a decision that later benefited the bottom line.
After the close of the company’s 2006 fiscal year, Richardson and his team set out to reposition Mad Catz during the next 12 months. Despite backing away from some business, the company’s revenue for fiscal 2007 remained relatively unchanged. Most notable, however, was the fact that its gross margin percentage nearly doubled in 2007, generating $25 million in gross margin versus the $12.6 million in gross margin it earned during the prior year. That gross margin swing returned the company to profitability and allowed Richardson to pay down debt. Richardson says his main lesson was that generating unprofitable sales revenue doesn’t always translate to shareholder value.
Walk away from unprofitable customers
Any CEO who says it’s easy to walk away from revenue has never done it. There’s both security and cachet for companies that attain high levels of market share and Mad Catz previously aspired to reach the top position. But for a company with $100 million in annual revenue in a cyclical niche industry, the line between profit and loss at its current margin was precariously thin.
“When you looked at our numbers from a high level, overall for each product and customer, everything looked OK,” Richardson says. “But there can be hidden costs associated with selling to large retailers, so you have to look at the detail. You have to consider the freight and logistics costs, and with some accounts, the cash-to-cash cycle can be lengthy, and then you also have to consider the company’s overhead in servicing the account. In addition, we often had the company’s operating capital tied up in unprofitable products, which precluded us from expanding beyond the cyclical hardware marketplace. After looking at the numbers in great detail, I presented my idea to the management team, which was basically that we make every product profitable. It came as a bit of a surprise to everyone because it was the opposite of anything we’d ever done before.”
Richardson began taking steps to make each product and each retail placement profitable, knowing that if his ideas failed, he would stop manufacturing the product. His team approached each customer and presented ways to make the relationship more of a win-win situation.
“We didn’t leave anyone high and dry,” Richardson says. “But we did collaborate with each customer about improving our profitability. In some cases, we were able to start using our customer’s supply chain instead of ours because they were open to the idea. Leveraging their system affords us better logistics pricing, and secondly, you have to look at where you bring value. We don’t bring any value in terms of logistics it just adds to our operating costs.”
While the margin improvement plan was successful, some products were eliminated. The subsequent reduction in revenue caused Richardson to reduce the company’s head count by 20 percent to 165 employees.
He says he favors sharing the pain across the company when forced to make staff reductions, and while Mad Catz initiated most of the terminations, not everyone embraced the change in strategic direction, and some people left of their own accord, giving Richardson a little less control over the outcome.
“It was tough for some people because I really think they thought it was the wrong thing to do,” Richardson says. “I was surprised when a couple of people left. In retrospect, I wish I would have fought a little harder to keep some really good people who didn’t stay. It was especially hard on our salespeople because they had to fight for the business initially, and then they had to go back and try to make it profitable.
“During times of change, you really have to spend time talking with a lot of people, and you do a lot of traveling. The toughest part of repositioning the company was the downsizing and convincing everybody that this was the correct strategy, and of course, the investment community always takes a wait-and-see attitude.”
The positives from the downsizing not only included a reduction in overhead, Richardson says it made the company more nimble and ready for the next phase, which included adding back more profitable growth. In addition, he says that he’s made one more permanent adjustment from his business analysis experience: He now requires the sales staff to complete a thorough profitability analysis before he agrees to a new customer relationship.
Eliminate peaks and valleys
Richardson’s ultimate goal was to develop markets that were not only more profitable but less cyclical in order to achieve sustained top-line and bottom-line growth. By selling more products directly out of China, where they were manufactured, rather than out of California, Richardson sped up cash collections to an average of 60 days rather than the previous average of six months. With greater margins and improved cash flow, he paid down $25 million in debt, which ultimately freed up cash and credit lines for new acquisitions and the development of new products for emerging markets.
“To understand the challenge, you have to take a step back for a moment and look at where we were positioned,” Richardson says. “When you write to the console game market, your product is tied to that specific piece of hardware. When you write for the video game market, those games run on computers, so the hardware essentially remains the same, so sales are more level and the market opportunity is larger.
“The best way to take advantage of the PC market was to tie more of our gaming accessories to software, not hardware. We changed our business model to include more products created for gaming software by expanding our licensing agreements.”
Creating unique controllers, joysticks and steering wheels for all the major sports leagues games through licensing agreements gave Mad Catz a more stable revenue stream at high margins, while strategic acquisitions broadened the company’s capabilities, product lines and markets.
Specifically, the acquisition of Saitek, a leading provider of PC game accessories, PC input devices, multimedia audio products, chess and intelligent games in November 2007, added nearly $43 million in revenue to Mad Catz’s top line at margins that were generally higher than those for Mad Catz existing products. In addition, it moved Mad Catz forward into the PC marketplace and strengthened the company’s position in Europe, where it had achieved only 22 percent of its 2007 sales prior to the acquisition.
“We made some strategic acquisitions in some adjacent categories that use the same skill sets, and they’ll allow us to leverage our existing distribution system, so they make sense for us,” Richardson says.
The combined results from all of Richardson’s 2007 initiatives allowed him to reduce prices for some products late in the year, while maintaining margin improvement. That move helped Mad Catz regain some of its earlier lost revenue. Reduced prices and the advent of new accessories create value for the ultimate end customers, the gamers, who are always seeking the thrill of a new gaming experience.
Take control of your destiny
Richardson’s final steps of Mad Catz’s repositioning plan included moving the company back into the game publishing business. The company is creating software for the next generation of hot games that fall under the emerging category called social gaming, where the gaming experience requires greater levels of human interaction by participants. This time around, Mad Catz won’t merely ride along on the coattails of the console makers during the marketing upsurge phase, it will publish the games and manufacture the customized accessories, bundle the products and exercise much greater control over its own destiny.
“While I think that adding incremental growth capability has been the right move for our company, it has to be achieved through the right products that can achieve our desired value position and stabilize our revenue,” Richardson says.
Along those lines, the company also just started marketing a new interactive audio device that sits outside the ear, allowing music listeners using iPods and MP3 players to engage in the listening experience while remaining more aware of their surroundings. The new product capitalizes on the company’s existing distribution system and further diversifies its product lines.
The complete suite of new products has helped Richardson achieve his ultimate goal of repositioning the company as a value leader by enhancing its position with major retailers such as Best Buy, Wal-Mart and GameStop. Mad Catz is no longer simply a niche vendor of low-margin products to the big box stores. Richardson has the sales team acting as category specialists offering both a suite of high margin, emerging technology products along with space and product placement expertise to retailers.
While Mad Catz has increased its head count back up to 260 employees, primarily through acquisitions, the assimilation process is challenging for a company of its size, and the pressure is on Richardson and his team to show more top-line growth in 2008 and a return for the acquisition expense.
“To move a company to a position where it shows consistent growth can take many years, and you have to be incredibly persistent because you are bound to hit some bumps along the way,” Richardson says. “My advice to other CEOs is to really do some soul-searching when you hit a difficult year and agree on a strategy quickly and act on it decisively. We really didn’t have a lot to lose after 2006, so there was nothing holding us back from making the changes. Now, you can actually see some improvements, and that’s helping everyone feel better about our direction.”
HOW TO REACH: Mad Catz Interactive Inc., www.madcatz.com
Mike Murphy is committed to the idea that quality and continuous improvement drive comprehensive business results.
Murphy, president and CEO of Sharp HealthCare, is so convinced about his theory that since 2001, he hasn’t led just one major quality initiative at Sharp, he’s led multiple projects using Malcolm Baldrige evaluation criteria and Lean Six Sigma improvement processes to make sweeping changes at the not-for-profit health care organization.
Murphy has also engaged the expertise of quality gurus from General Electric and the Disney Institute, and he’s even given new clout to the voice of the customer by inviting unhappy patients to speak about their experiences to Sharp’s management team.
“When I looked at the feedback from our stakeholders, who are the patients, physicians and employees, all the data pointed to the fact that we were doing OK, not great,” Murphy says. “I knew we could do better. I think focusing on quality is the right thing to do, and then everything else you need to accomplish just falls in line.”
Focusing on quality also aligned the organization with emerging trends in the health care industry, which means pushing providers and executives toward a greater focus on quality. Many health insurance carriers are now measuring patient satisfaction with their health care providers and posting that information on their Web sites, and many private and government health plans have initiated or announced plans to reimburse providers through pay-for-performance systems.
In addition, there’s extreme competition for health care workers, and it’s only forecasted to get worse as the baby boomers retire. That situation presents huge challenges for Murphy because Sharp is one of the largest employers in San Diego County with more than 14,000 employees, who are in the driver’s seat when it comes to choosing employers.
By starting with a focused plan, listening to feedback and then implementing Lean Six Sigma programs, Murphy has been able to make quality the engine that drives Sharp HealthCare.
Start with a master plan
When Murphy took the helm at Sharp in 1996, he found a health care organization in the midst of a huge financial crisis. After succeeding in turning the organization around, Murphy says the timing was finally right to get serious about quality at Sharp HealthCare.
“We had just been through some very challenging times,” Murphy says. “It was 1999, and for my first three years in the job, all my efforts had been focused on making financial improvements. Now, it was finally time to look at strategic planning and where we could go from here. The strategic plan is a vital component to launching a quality initiative because all of your improvement activities need to be focused around achieving your organization’s vision and goals.”
Murphy had his eye on the Malcolm Baldrige award from the outset and created a new vision for the organization that doubled as a quality master plan.
The Baldrige award is given annually by the president of the United States to businesses that are judged to be outstanding in seven areas: leadership; strategic planning; customer and market focus; measurement, analysis and knowledge management; human resource focus; process management; and results.
Murphy named his plan “The Sharp Experience.” The plan featured six pillars of excellence: quality, service, people, finance, growth and community, which mirror the seven evaluation criteria for the Baldrige award.
The plan became the center of Sharp’s quality improvement universe around which all improvement projects orbited. Murphy employed a number of different quality improvement methodologies, some concurrently, including the Baldrige and Lean Six Sigma processes. Keeping the plan at the center of all quality improvement activities eliminated confusion among Sharp’s employees and also provided focus for the organization.
“I used multiple quality improvement methodologies because each system offers its own unique structure for evaluating your current processes, identifying performance gaps and creating solutions,” Murphy says. “So looking at our operation through each system’s criteria took us to a higher performance level. As a CEO, if you use different quality processes, you have to be careful that the different processes aren’t in conflict with each other. The way to avoid conflict or duplicity is to tie everything back to your company’s specific improvement plan.
“If a review of any area of your current operation using a different quality evaluation process suggests that improvements are still needed, that change will take you further toward your overall vision, so it brings value.”
Listen to the voices
Feedback plays an important role in any quality improvement process.
“There was a book that came out in the 1990s called, ‘If Disney Ran Your Hospital: 9 1/2 Things You Would Do Differently,’ and it was revolutionary in the health care industry because it brought a new way of thinking about service and customers,” Murphy says. “We studied Disney, and we ended up hiring consultants from the Disney Institute to help us begin our first quality improvement initiative. We started by reviewing feedback from focus groups comprised of our three stake-holder groups patients, physicians and employees and we used their feedback to identify our initial 12 major project areas. An example would be the goal of improving patient satisfaction, which, of course, ties back to one of our pillars of excellence.
“Next, we needed to develop an infrastructure to drive our process. We organized a senior leadership team made up of 26 midlevel managers and VPs, called the model developers, to establish a structure. The model development team devoted more than half their working hours to quality during the first four to six months of the program, and they were tasked with recommending a quality improvement structure and a communications system.”
The model developers recommended 100 different action teams, and more than 1,000 employees, including physicians, volunteered to serve on the teams.
“It’s important to provide your quality improvement teams with all the tools they need and the complete leeway to investigate the challenges and recommend solutions because no
one knows the answer about how to improve quality before you begin,” Murphy says.
Sharp conducted quarterly leadership development sessions where the model developers were trained on the fundamentals of the quality improvement process, and the model developers, in turn, passed the information along to their teams.
“With more than 1,000 employees involved, it was really never a problem getting employees to buy in,” Murphy says. “Also having so many members of your senior leadership team involved in the process pulls everyone together. The projects dealt with small components that support the main goal, such as increasing patient satisfaction by reducing wait times in the emergency room. The teams made recommendations about how to improve the process, and those were referred back to senior management for approval.
Surveys were used throughout the process to benchmark progress.
“We were constantly measuring the voice of the customer through patient satisfaction surveys and employee satisfaction surveys,” Murphy says. “If we didn’t think we were making enough progress, we changed the tools or our solutions based upon the feedback we received.”
Gauging progress by collecting employee feedback was vital to measuring quality improvement progress.
“We set annual goals for our organization’s progress tied to each pillar, a process that served as a spark plug to help drive us forward, and we reviewed our goals and our progress each year during our annual employee meeting. In addition, we included those major goals in the performance plans for everyone at the line-manager level and above. It gets everyone focused and engaged when you bring the performance criteria into individual plans, and the employees were excited at our annual meeting when they saw how we had progressed through the various cycles of improvement as documented by the feedback from the stakeholder surveys.”
After two years, Murphy wanted to take Sharp’s quality improvement initiative to the next level, so he sought guidance from GE, a company that’s renowned for making financial improvements through the use of Six Sigma. Six Sigma was originally designed to enhance the performance and bottom lines of manufacturing companies through a defect elimination process called process mapping. It also uses the voice of the customer to determine if a step in the manufacturing process adds value or can be eliminated. The lean version of Six Sigma produces faster results and is better suited for service industries.
“What we learned from GE really gave us the ability to refine our improvement processes in a more efficient way through the Lean Six Sigma disciplines,” Murphy says. “We trained a number of our leaders and they became black belts in the Six Sigma process.
“We also started looking to other top-performing hospitals for best practices, and we learned from them. For example, we needed to streamline our coordination of out-of-network patients who come to one of our hospitals for treatment, usually through the emergency room. We visited another hospital and installed their system for coordinating those patients and their medical plan benefits, which, in turn, drove significant improvements in a number of other systems, including faster collection of insurance payments. We also changed our admitting process for emergency room patients and really shortened our wait times. Of course, shorter wait times not only improve patient satisfaction, but our staff feels better about the service they’re delivering and medical outcomes improve. So just making that one change positively impacts almost all the pillars under The Sharp Experience.”
By taking best practices from other organizations, Murphy was able to make changes quicker.
“Looking at the best practices of other health care organizations really added velocity to the quality improvement process, and the Lean Six Sigma methodology gave us a more defined structure for making evaluations and changes,” Murphy says.
He isn’t certain how many quality projects an organization can sustain at one time, but he cautions CEOs to be committed if undertaking a major quality improvement initiative because just one project can take as long as four months to complete.
Murphy’s theory encouraging CEOs to focus on quality and everything else will follow has paid off for Sharp. During the six-year quality improvement process, Sharp’s revenue increased $900 million reaching $1.9 billion for fiscal 2007. The company also won the Baldrige award in 2007.
“Quality really brings you efficiency and loyal customers,” Murphy says. “Our overall financial performance is now above the norm for a health care organization in this part of the country. Our employee satisfaction is almost at 100 percent, our patient satisfaction is averaging scores near the top quartile and employee turnover is down, averaging just 13 to 14 percent.”
Perhaps part of the Baldrige award criteria should include the phrase: Those without perseverance need not inquire because Sharp HealthCare applied two times for the Baldrige award before winning last year.
“CEOs really have to be committed before deciding to engage in a major quality initiative because it’s a lengthy process,” Murphy says. “But I think it really gives the organization direction because everyone knows where you’re going, and if you’re committed to process improvement, it will force you to look at data and make changes in your organization. The journey toward quality really never ends, and the awards are something you achieve as an organization because it takes a collective effort. Be sure and celebrate your successes along the way. It will keep all your employees engaged in the journey.”
HOW TO REACH: Sharp HealthCare, www.sharp.com
While the need for executive protection is universally recognized in publicly traded companies, CEOs of closely held companies often fail to understand that they have some of the same exposures as their counterparts in public firms. Directors and officers in closely held corporations can be sued for unfair competition, restraint of trade, wrongful termination or harassment, says Royce Sheetz, a commercial insurance broker with Westland Insurance Brokers. They may have personal liability whether the claimants are relatives, shareholders or investors.
The best time for CEOs of private firms to seek and secure protection is sooner rather than later, because as the time nears for a sale or an IPO, it may become too expensive or difficult to secure the coverage that you need.
“With all insurance, it is easier to secure coverage if you have a documented history,” says Sheetz. “As companies approach a financial event, such as bringing in outside investors, an IPO, or even the sale of the company, they will find it much easier to find adequate limits at an affordable premium if they already have a track record. Fortunately, there have been changes in coverage and availability that make securing the insurance more affordable from the outset.”
Smart Business spoke with Sheetz about how CEOs can benefit from the recent changes in executive insurance protection.
What are the policy form changes that CEOs should be aware of?
There has been an increase in flexibility when purchasing coverage that simulates a ‘cafeteria plan’ in employee benefits insurance. This enables a CEO to combine a number of different coverages in one policy under a single liability limit. Here are the types of coverage that are available and a brief description of their protection.
Directors and Officers Liability (D&O) - The directors and officers of a company make operating decisions every day, and those decisions could ultimately result in litigation by other businesses for wrongful business practices, such as fraud or unfair competition. Also, D&O provides protection in the event investors sue the executives if they don’t get the return that they anticipated.
Employment Practices Liability Insurance (EPLI) - Employment-related offenses include wrongful termination, harassment (sexual and otherwise), discrimination, failure to promote, even failure to hire.
Fiduciary Liability - This provides coverage should employees (or former employees) sue the company because the pension and or retirement plan didn’t perform up to expectations. The Enron situation of several years ago is the most obvious example of the need for this coverage, but any company with any kind of retirement plan (401[k], profit-sharing, etc.) has this exposure.
Internet Liability - Any company that uses e-mail or has its own Web site has exposures in this area.
Errors and Omissions (E&O) - This is professional liability for those companies that might need it, such as computer technology firms.
Crime Provides expanded crime coverage, such as employee theft or unauthorized credit card usage, which may not be available in a standard business package insurance policy.
Kidnap and Ransom (K&R) - Because it provides coverage should you or your employees be the victim of a kidnapping or some other form of extortion, this is very important if a company has employees traveling internationally.
How have these policy changes affected premiums?
There have been two very positive changes. First, there are more carriers offering coverage, so pricing is more competitive. Also, when these coverages were purchased a la carte, each policy was subject to its own minimum premium, which could have been $2,500 to $5,000. Now with only one policy, there’s only one minimum premium charge for all of the coverages you select.
Buying the insurance when your risk is lower will also help keep your premiums more affordable over time. It’s like buying auto insurance: it’s harder to secure and more expensive if you wait until you have an accident.
What factors should CEOs consider when purchasing executive protection coverage?
It’s important to consider your business plan and any upcoming changes, such as bringing in outside investors, new product development, adding a location or increased hiring. All of these events increase your exposure, so it’s better to contemplate them in advance when you are making your purchase so you can select higher limits from the outset.
What role should my broker play?
In order to partner with your broker successfully, it is important to share all anticipated changes in your business. The application for coverage will ask about plans that will increase exposure and your broker will have the best advice about how to secure the coverage you need well in advance of the event.
ROYCE SHEETZ is a commercial insurance broker with Westland Insurance Brokers. Reach him at (619) 584-6400 x3261 or email@example.com.