Business leaders today don’t need to be big data gurus to discover new ways to boost revenue and earnings as long as they understand the basic fundamentals of data analysis and have a few minutes to spare. Analyzing your financial statements can reveal a bounty of insightful trends and potential moneymaking opportunities that warrant and inspire a journey into the details.
Executives tend to discount the strategic value of traditional accounting reports like financial statements because they recap prior activity. But when complemented by operational measures, balanced scorecards and strategic performance measurement systems, valuable results may be found.
A dive into financial statements can create a competitive advantage by helping executives proactively identify trends and even predict future demand for products and services, says Kristy Towry, associate professor of accounting for the Goizueta Business School at Emory University.
“Consultants have traditionally used accounting data to make agile, first-mover decisions that are crucial to advancing and sustaining growth,” says Jeff Thomson, CMA, president and CEO of the Institute of Management Accountants. “Executives can follow suit as long as they know where to look and understand how to analyze data.”
Explore your income statement
Even if revenue is growing, a dive into your income statements and its supporting data can help you capitalize on emerging opportunities or head off a looming sales decline.
Which products and services are selling and which ones aren’t? Are customers responding to social media outreach or specific promotions? Are they opting for lower-price items with fewer frills or are they willing to splurge on luxury models? And what do these trends mean for the future?
A review of sales records may reveal an opportunity to sell more products and services to existing customers or shift your product mix without increasing overhead. A review of operational data may highlight areas of excess capacity that can be used to generate additional sales and profits.
“Segmenting your customer base by key demographics and tracking their activity and behaviors can illuminate opportunities to grab additional market share through upselling or by offering current customers discounts for purchasing greater quantities,” Thomson says.
Simply repositioning a product or putting it on the front page of your website can boost sales and profits without raising costs, says Alan Reinstein, professor of accounting at Wayne State University. In fact, storing raw materials and products for an extended period of time can tie up cash and erode profit margins.
“Grocery stores put milk near the back of the store because it forces customers to stroll past higher margin products,” he says. “It doesn’t cost them a dime to evaluate sales data or use the results to craft or validate the efficacy of a product-positioning strategy.”
Since a rise in customer satisfaction increases retention and generally precedes a growth in sales, using a balanced scorecard or dashboard to track revenue, sales activity and customer sentiment can help business leaders interpret the needs of the marketplace and make advantageous moves.
Robert Kaplan and David Norton of the Harvard Business School originated the balanced scorecard to give managers and executives a more poised view of organizational performance by adding strategic, nonfinancial performance measures to traditional financial metrics. A holistic view of the organization allows executives to synthesize multiple data streams and accurately predict future performance, Towry says.
“I’m an advocate of the balanced scorecard because it helps business leaders change course or adjust their strategy on the fly by aggregating financial data and other key metrics and compares them to the goals in their business plan,” she says.
Unearthing moneymaking gems is often just a case of exploring your company’s financial statements
Activity-based analysis and costing is a way for managers to assess the performance of assets on their balance sheet and which products and customers are generating the most revenue and profits. The process also helps managers determine where improvements in quality, efficiency and productivity will yield the best return.
“Comparing costs with activities is common among certified management accountants because it helps management identify key cost drivers and potential savings by allocating direct and indirect costs to every stage in the order, manufacturing and distribution process,” Thomson says.
The analytical methodology often highlights opportunities to increase profit margins by outsourcing distribution or ancillary services to less costly external providers or automating manual manufacturing processes, or it may disclose an opportunity to increase cash flow by offering quick-pay discounts or incentives to major customers.
If reducing costs isn’t an option, business owners may be able to raise prices and margins for a particular product by using a formula to calculate elasticity of demand, which measures how the demand for goods and services varies with changes in price.
Generally speaking, the greater the number of substitute products available, the greater the elasticity will be. Naturally, very high price elasticity means that customers are sensitive to price changes, while very low price elasticity means you can raise the price of a top-selling product without effecting demand.
From a trend perspective, a sudden rise in price elasticity may portend an upcoming decline in sales unless executives initiate discounts or take steps to develop and launch new products.
Business owners often decide to eliminate unprofitable divisions or product lines after conducting an activity-based analysis, but they should proceed with caution, Towry says.
“Executives assume that eliminating unprofitable segments will increase profits, but the fixed expenses don’t go away,” she says. “They may end up launching a fatal cash crunch or death spiral once the revenue from that discontinued segment is no longer offsetting those fixed expenses.”
By using the financial data from your accounting system and applying alternative costing models, you’ll be able to determine how much overhead is being covered by the sales of each product and whether it makes sense to discontinue a particular segment or service.
Dare to compare
Comparing key ratios and data from your accounting system to similar companies in your industry can highlight opportunities to lower costs, increase efficiencies and improve your company’s bottom line.
Industry associations often provide benchmark data, and sites like Valuation Resources.com aggregate and provide information, research and analysis for more than 400 industries.
Start by breaking down your company’s accounting and operational data into standard industry measures, such as sales per square foot, same store sales growth or something as simple as the number of gallons of water used per car wash. Then compare your results to the standard for your industry to see where you have a competitive advantage or need to improve.
Major deviations from industry norms should invoke questions and a search for solutions, Reinstein says.
For example, a competitor may have lower selling, general and administrative expenses because they use e-commerce or distributors to push products instead of salespeople. Or they may be experts at using their point-of-sale system to increase loyalty and market share by offering customers incentives or rewards for making additional purchases.
“It’s critical to dive into the details and not ignore the trends, because a svelte, nimble company with ample cash reserves can force a sluggish competitor out of business in a heartbeat in a tepid economic environment,” Reinstein says.
Cash is king
While profits are important, cash is the key to survival for any growing company.
A cash-flow analysis tracks the movement of money in and out of your business by looking at operating, investment and financing activities. It also provides business owners with an accurate picture of their company’s profitability by using noncash items and expenses to adjust profit figures.
Another useful way to spot trends and analyze financial statements is by performing either a horizontal or vertical analysis, which compares numbers from one period to the next. The analytical methodology may point to favorable or unfavorable changes in cash flow that could spell trouble unless they’re corrected.
You’re probably in good shape if your cash is growing, and it accounts for 10 to 20 percent of your assets. If it’s not, then you need to figure out where it’s going. Is it costing you more to manufacture the same products, or have competitive pressures forced you to reduce prices during the last year?
Vertical analysis lets you compare each component of your financial statements over time to determine if and where significant changes have occurred. You may need to focus on collections or stop extending credit to major customers if receivables are growing too quickly, or you may need to reduce inventory if the payments on your short-term line of credit are chewing up cash and affecting your company’s liquidity.
Managing fixed expenses is critical for growing companies, Towry says. Otherwise, a blip in the economy can lead to an insurmountable cash shortage. Don’t just look at expenses when reviewing your financial statements. Break down fixed and variable costs and apply varying revenue forecasts to see how changing circumstances affect your cash position.
“Companies that overinvest in equipment, building leases or inventory can’t manage those costs down when the economy heads south,” Towry says. “Business owners need a cash budget and an awareness of cash in relation to profits because there’s no magic bullet for a major cash crisis.” ?
How to reach: Goizueta Business School at Emory University,
www.goizueta.emory.edu; Harvard Business School, www.hbs.edu; Wayne State University, www.wayne.edu; Institute of Management Accountants, www.imanet.org
When all is said and done, companies are generally satisfied with their new software, but their experiences are hardly a ringing endorsement for enterprise resource planning (ERP) endeavors. Among the 246 firms that completed an ERP installation within the past year, implementation exceeded budget 56 percent of the time and only 46 percent were completed on schedule or earlier, according to data from Panorama Consulting Solutions.
“The scope and complexity of ERP implementations makes forecasting treacherous,” says Zinovy Radovilsky, Ph.D., interim chair and professor of management for the College of Business and Economics at California State University, East Bay. “While cost overruns can’t be eliminated, they can be managed with the right tools and tactics.”
Smart Business spoke with Radovilsky about avoiding delays and budget overruns when tackling ERP projects.
Why do ERP projects often exceed budget?
An inexperienced project manager and a lack of historical data for enterprise-level software initiatives often result in inadequate cost estimates for items like these:
• Employee training — The most underestimated expense, since employees have to learn a brand new system.
• Integration and testing — Connecting ERP to other software programs is costly.
• Customization — Increases initial programming and configuration costs, as well as the price tag for future upgrades and fixes.
• Data conversion — Including the cost of migrating existing data to the new system.
• Data warehousing upgrades — Often needed to support daily operations post-ERP.
• Consulting fees — When something goes wrong, consulting costs run wild.
Don’t underestimate the impact of large-scale implementations on productivity. Activate one module or function at a time instead of taking a big bang approach, and offer short doses of virtual training and online tools to keep productivity high while employees get up to speed. When people can’t do their jobs the old way and haven’t yet mastered the new way, they panic, and the business goes into spasms.
What are some simple steps to keep ERP projects on budget?
First, select a qualified project manager who has extensive experience with ERP implementation and updates. Next, incorporate risk management into the budgeting process by considering every possible problem and starting with a rough order of magnitude (ROM) budget followed by a more accurate, and typically higher cost, budget estimate and finally, a definitive estimate.
Involve key managers and stakeholders in the budgeting process to ensure the estimates aren’t biased. Then, update the budget as the project progresses, using an earned value (EV) analysis approach that compares cost data to a baseline, to track your performance. Prevent misfires and crashes by conducting comprehensive load testing — using testing software and real users — before the system goes live. Finally, resist the urge to customize every little feature. Instead, choose an ERP system that supports your current business processes or use the standard functionality.
How can executives ensure the financial performance of ERP projects?
Keep employees energized by communicating a clear vision for where the system will be after the initial phase and at various intervals down the road by sharing project updates. Be realistic in setting goals and estimating how much change your organization can absorb, because a major software initiative requires stamina and commitment.
Use a software tool to collect actual data, and then periodically review project milestones, budgets, resource allocation and time/materials bookings to spot opportunities to boost ROI or reduce costs. A software tool is the only way to know exactly where you are in the project, how much time and money you’ve spent, and to forecast the cost and timeline for the entire project.
Remember, you can’t eliminate cost overruns, but they can be managed with the right tools and leadership.
Zinovy Radovilsky, Ph.D., is interim chair and a professor of management in the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-3307 or firstname.lastname@example.org.
Website: Learn more about the College of Business and Economics at California State University, East Bay.
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Abraham Lincoln may have been the first lawyer to recognize the pitfalls of litigation but certainly not the last. He noted that: “The nominal winner is often a real loser — in fees, expenses and waste of time.”
Fortunately, today’s executives have an alternative way to resolve disputes that doesn’t put your fate in the hands of a judge or jury.
“Not only is mediation less expensive than litigation, the parties are in control of the outcome and they can be completely creative in finding a solution,” says Jennifer E. Acheson, partner and insurance and bad faith expert at Ropers Majeski Kohn & Bentley PC.
Smart Business spoke with Acheson about the benefits of mediation.
What is mediation and how is it different from arbitration and litigation?
Mediation is a type of alternative dispute resolution, where a neutral or trained mediator helps conflicting parties resolve issues, ideally before a lawsuit is filed. Mediation differs from arbitration and litigation in that it’s not a sworn evidentiary hearing or trial, and the mediator doesn’t rule on the merits of the case or take sides. The parties still have the opportunity to air their grievances during caucuses with the mediator and there’s more leeway in offering testimony.
What are some common business situations where a mediator might be used?
Mediation can be used to settle a variety of disputes including:
• Employee disputes with other employees.
• Employee disputes/grievances with management.
• Sexual harassment complaints.
• Hostile workplace issues.
• Discrimination complaints.
• Americans with Disabilities Act compliance issues.
• Business partner disputes.
• Contract disputes.
How do you select an appropriate mediator, who pays for mediation and how much do mediators charge?
The actual cost of mediation varies with the complexity of the case; however, the parties split the charges and avoid the cost of pre-trial maneuvering, court reporter fees or similar expenses. Mediation is a bargain when you consider that lawsuits cost small businesses $105.4 billion in 2008, according to the U.S. Chamber of Commerce. Since the process of being heard is often the overture to resolution, look for a mediator who is a close and patient listener.
Is mediation confidential?
Yes, anything said during the course of mediation is inadmissible in court, and the communication among participants is confidential. In fact, the mediator needs permission to disclose information revealed during individual caucuses with the other party. This protection even extends to the settlement agreement, unless the parties agree to waive confidentiality. In contrast, trials are normally open to the public.
What happens if the parties can’t agree?
Unlike arbitration or trials, which have a mandatory and possibly binding decision, the mediator doesn’t have the power to force the parties to reach an agreement. The process is voluntary and either party can withdraw at any time. If the parties can’t resolve their issues in one session, with the parties’ permission, the mediator can continue the process until the dispute is resolved.
Is an agreement made at mediation enforceable?
A mediation agreement is enforceable as long as the authorized parties agree on a deal and sign the memorandum. If a party refuses to comply, the parties can appoint the mediator as an arbitrator for the sole purpose of rendering an award that complies with the agreement, as long as the dispute hasn’t gone to litigation. If the matter is already in litigation, a motion for enforcement can be brought under the civil code. This makes mediation an enforceable and cost-effective alternative to litigation.
Jennifer E. Acheson is a partner, insurance, and bad faith expert at Ropers Majeski Kohn & Bentley PC. Reach her at (650) 780-1750 or email@example.com.
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Business leaders often rely on intuition when making critical decisions, but according to The Economist Intelligence Unit, executives dramatically increase their chances of success when they bring facts and data into the decision-making process.
“Although beliefs and instincts help executives make expedient decisions, they aren’t always good decisions,” says Dr. Chongqi Wu, assistant professor of management for the College of Business & Economics at California State University, East Bay. “Business leaders become better decision makers when they take advantage of the facts derived from data analysis.”
Smart Business spoke with Wu about the benefits of incorporating big data and analytics into the decision-making process.
Why is fact-based decision making superior?
Although intuitive decision making is simplistic and quick, a lack of underlying data makes it hard for executives to diagnose and correct problems when something goes wrong. Instead of compounding the problem by making another bad decision, executives can drill down into the data to determine the cause of misfires and use factual analysis to set a new course. Actually, studies show that cumulative improvement is hard to obtain when executives react to problems instead of using facts to make prudent business decisions. And since most of your competitors are probably using data, companies that base decisions on gut feel or instinct are at a competitive disadvantage.
What types of decisions or problems are best solved by big data?
In general, data-driven decision making works better at an operational or tactical level since there are relatively fewer risks involved. In fact, when aided by technology, data makes it easy to automate rudimentary tasks and decisions.
Conversely, strategic decisions still require intuition and judgment, but injecting data analysis and modeling into the process can significantly improve the odds of success. Don’t think of gut-based and fact-based decision making as competing concepts because they actually complement each other. For instance, cross-functional teams often use data to project outcomes and validate the return on proposed programs or new products. It also helps diverse teams build consensus by using facts instead of politics and personal preferences to reach conclusions. Strategic decision making still requires risk taking, and success may hinge on market timing, execution and luck. Data just makes executives better gamblers.
What’s the best way to incorporate data into the decision-making process?
First, executives need to lead the way in supporting cultural change by acknowledging the importance of data in the decision-making process. Next, use data modeling to project probable outcomes and evaluate ideas, since facts and knowledge generated from analyzing big data provide a common ground on which ideas can be debated. Finally, force your team to analyze data by asking questions during the evaluation process so they learn how to marry facts and instincts.
Do executives need copious amounts of data to conduct modeling and analysis?
It’s hard to estimate, but simply put, gather as much relevant data as possible. However, there’s no reason to wait; start small and start immediately because there’s no need to invest in expensive systems or software. Purchase information from third parties, tap free sources to validate ideas, use economical cloud services and software as a service programs to analyze information, and begin collecting in-house data. Finally, run an experiment or test to see how much data you actually need to project the return on a small marketing project or idea.
How can executives gain the confidence to make data-backed decisions?
Even though great decisions don’t always produce great outcomes, you’ll gain confidence by realizing that great decision gives you the best chance to succeed. For example, it’s a great decision to have Kobe Bryant take the final shot when the Lakers are behind because, with a career field goal percentage of 45.4 percent, he gives the team the best chance to win. But data also shows he’ll miss about 55 percent of the time. Luck and timing still play a key role in determining success.
Dr. Chongqi Wu is assistant professor of management, College of Business & Economics, at California State University, East Bay. Reach him at (510) 885-3568 or firstname.lastname@example.org.
Event: See a calendar of upcoming seminars hosted by the Department of Economics.
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Every entrepreneur dreams of the day his or her fledgling startup becomes a going concern, but you could end up losing everything — including your house and your car — unless you take steps to separate and protect your personal assets.
“Owners should have limited liability for business debts and obligations,” says François G. Laugier, partner and director for Ropers Majeski Kohn & Bentley PC. “Incorporating sooner rather than later offers considerable protection with virtually no downside.”
Smart Business spoke with Laugier about the benefits of incorporating at the right time.
When is the right time to incorporate?
Owners expose themselves to liability for their company’s actions and debts the minute their venture becomes operational or starts hiring employees. So, it’s time to incorporate when your startup begins interacting with third parties or logs its first sale. Whether you manufacture food products or develop software, you could lose everything unless you form a legal business structure to safeguard your personal assets.
What are the advantages of incorporation?
Incorporating not only keeps creditors from attacking your own assets and employees from suing you personally, but it also increases a company’s credibility and raises the valuation you can expect to receive from a prospective acquirer. A corporation is always perceived as a safe and familiar recipient where a business can accumulate intellectual property and other assets such as patents, trademarks and copyrights to subsequently transfer them to a new owner or heir. And consumers, vendors and partners often prefer doing business with an incorporated company. Incorporated businesses can also offer stock options to employees and contractors, thereby attracting the best technical talent and, in turn, the most influential investors. And, history shows that buyers are willing to pay more for a business that is incorporated, has a well-maintained corporate book, complete with up-to-date annual records and government filings, and that has received guidance from reputable and competent lawyers, accountants and advisers.
What are the different legal vehicles available for incorporation?
Entrepreneurs of for-profit ventures usually consider a limited liability company (LLC) or a corporation when selecting a legal entity. For budding companies, a LLC is often the preferred choice because its shareholders, called members, only pay taxes on profit distributions at the member’s personal income tax level, while profits are otherwise taxed at both the corporate and personal level when generated through the activities of a corporation. For the IRS, a LLC is known as a ‘disregarded entity,’ as its profits and losses essentially pass-through to the owners. But if you soon plan to raise venture capital or offer employees stock options, a corporation is the better vehicle. Get advice from your lawyers and accountants, but remember the conversion of a LLC into a corporation is a relatively simple legal process. Conversely, there will be a host of negative tax consequences if you convert a corporation into a LLC.
How can business owners limit their personal liability by incorporating?
If your budget is so tight that you can’t hire a lawyer, it’s tempting to incorporate on the Internet, but the lack of a formal business structure and legal guidance can leave you just as exposed as if you had not incorporated. To limit liability, you must ensure your company is sufficiently capitalized, has complied with securities regulations when issuing shares and soliciting investment, and you haven’t commingled personal and company funds. You must also record the proper documents on the federal, state and local levels and maintain a good record of all accounting transactions, meeting minutes and periodic filings so savvy creditors can’t attack your assets by piercing the corporate veil.
When shouldn’t a business incorporate?
It may not make sense for an independent consultant or a very small business to go through the incorporation process. Their limited exposure may not require the protection and cost of a corporate entity. But for everyone else, there’s no reason to link your personal assets to the company’s fate.
François G. Laugier is a partner and director at Ropers Majeski Kohn & Bentley PC. Reach him at (650) 780-1691 or email@example.com.
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International expansion is a great way to grow as the U.S. economy slowly recovers, and the population and per capita gross domestic product of countries such as India and China continue to rise. But finding funding for exports can be difficult, unless you leverage a government-backed program.
“Why turn away sales when you can get working capital assistance through government programs to penetrate red hot foreign markets?” says Alfred Ho, vice president and enhanced credit specialist at California Bank & Trust.
Smart Business spoke with Ho about the benefits of leveraging guaranteed export financing.
What is the working capital guarantee program?
U.S. manufacturers were struggling to compete overseas, as foreign sales and receivables are generally excluded from traditional lending programs. So, to spur exports and domestic hiring, the federal government offers guaranteed financing programs administered by the Small Business Administration (SBA) and the Export-Import Bank of the United States (Ex-Im Bank).
The loan proceeds under these programs can be used to purchase supplies and equipment, hire staff or, in the case of the SBA’s Export Express program, even attend an overseas trade show. And because the terms are flexible, owners can use the loan proceeds to fulfill a large contract or several small deals.
How do the programs help small businesses?
The programs encourage banks to lend to small businesses by guaranteeing 90 percent of the loan amount and allow loan officers to consider foreign receivables and work-in-progress during the underwriting process.
Plus, if a standby letter of credit is required to support a bid bond, advance payment guarantee or performance bond, the collateral requirement to have one issued is only 25 percent, instead of the 100 percent in traditional cases. This provides an edge for a U.S. company in its quest for overseas contracts.
How much can companies borrow and what does it cost?
The SBA export working capital program permits loans below $5 million. It charges an upfront fee of 0.25 percent of the loan amount and an annual utilization fee of 0.55 percent, which is assessed monthly.
There’s no limit to how much you can borrow from Ex-Im Bank, and its upfront fees range from 1 to 1.5 percent of the loan amount. The loan interest rate is based on the prime lending rate plus a spread. Interest rates for larger loans are based on the London Interbank Offered Rate,
which is currently hovering around a 52-week low.
What are the eligibility requirements?
Requirements differ among the programs but they all require a firm purchase order prior to advance and, minimally, shipment from a U.S. port to a country acceptable to Ex-Im Bank. Goods and services shipped must have at least 51 percent U.S. contents. Certain products are excluded from the programs. A company must also have a positive net worth and be profitable for the last three years to qualify.
For other qualifications and restrictions, talk to your lender or visit the SBA or Ex-Im Bank websites.
How can business owners find a participating lender?
Your local SBA or Ex-Im representative can provide referrals, but you can look for a Delegated Authority Lender who has the ability to expedite your loan.
Your banker can walk you through the lending process and share helpful ideas. The banker should be able to suggest ways to lower the risk of international commerce.
The important thing is: Don’t venture into the international marketplace alone. Find a competent banker to serve as your guide.
Alfred Ho is vice president, enhanced credit specialist at California Bank & Trust. Reach him at (213) 593-2118 or firstname.lastname@example.org.
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Just when the construction industry was about to emerge from the doldrums, a series of game-changing events has raised the stakes for some of its major participants. Design professionals and contractors face increased risk and liability following the introduction of new design standards and several precedent-setting court decisions.
“The convergence of recent activities is a call to action for architects and contractors,” says Steve Erigero, a partner specializing in commercial litigation at Ropers Majeski Kohn & Bentley PC. “They must take immediate steps to minimize exposure.”
Smart Business spoke with Erigero about the ways design professionals and contractors can benefit from the rebound while limiting their exposure.
What’s behind the rise in liability for contractors and design professionals?
Design professionals were largely immune from liability under California Senate Bill 800, but that changed when a California appeals court ruled that homeowners and homeowners associations could now sue them for defects.
Then, the California Legislature eliminated another safe harbor, when it decided that contractors and developers could no longer pass liability to downstream parties like subcontractors.
Finally, the escalation of green building projects has resulted in a host of new design standards and certifications. Professionals who fail to comply with Leadership in Energy and Environmental Design or other green building standards may be held liable for any shortcomings.
What are the most common risks associated with development projects?
Architects can be liable for construction defects, delays or cost overruns resulting from plan deviations as well as the improper installation or under-performance of specified building materials. For instance, they can be liable for a leaky window, even when the framer or product manufacturer is at fault. In addition, design professionals risk becoming a deep pocket if a general contractor is underinsured or files for bankruptcy.
To protect themselves, architects need to perform visual inspections throughout the course of construction and make sure their contracts include clauses that limit pass-through liability.
How can professionals minimize exposure to risk and liability?
The first step is to conduct a risk assessment and an insurance review. Even a high-deductible insurance plan may be better than going bare, but you need facts to assess your exposure and determine your risk tolerance.
Next, be cautious about signing indemnification agreements given the court’s reinterpretation of Senate Bill 800’s statutes. A contract review may reveal opportunities to insert clauses that limit liability and damages, especially in California.
Finally, consider the capitalization and financial stability of builders and developers before taking on a project. You certainly don’t want to be the last guy standing in the event of litigation.
How can professionals head off potential problems by working with legal counsel?
Besides helping with contract and insurance reviews, your lawyer can alert you to possible trouble by monitoring litigation activity on your current projects. It may be possible to mitigate risk by purchasing insurance if you receive a timely warning. He or she can help contractors decide whether to hire employees or continue subbing work out. Since contractors can no longer pass-through liability, it may be less risky and more profitable to exercise greater control over the construction process. Your lawyer can even help you compete for new deals by creating several versions of the same contract with varying levels of liability. That way, you can tailor your risk each time you bid on a project.
The key is to take immediate action so you don’t miss out on the long-awaited rebound in the construction industry.
Steve Erigero is a partner, Commercial Litigation, at Ropers Majeski Kohn & Bentley PC. Reach him at (213) 312-2013 or SErigero@rmkb.com.
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As discrimination and harassment claims continue to rise, an up-to-date employee handbook has become a practical and affordable first line of defense for beleaguered employers. Between legal costs, court costs and settlement fees, an employer’s tab for a single claim now averages $100,000 to $250,000.
“A well-written handbook not only communicates the company’s policies and procedures, it nips problems in the bud by establishing the framework for a professional work environment,” says Elise Vasquez, labor and employment partner at Ropers Majeski Kohn & Bentley PC.
Smart Business spoke with Vasquez about the all-important role of an employee handbook in preventing lawsuits and claims.
What are the traditional components of an employee handbook?
Every handbook should start with a statement from the company, which establishes the expectations for a professional work environment where people are treated with dignity and respect, and violations won’t be tolerated. Other bare bones policies include:
• Equal employment opportunity and anti-discrimination — Make sure your policy covers all protected classes including disabled workers and applies to promotions and compensation as well as hiring practices.
• Employment verification and eligibility (I-9) — Require new hires to provide proof of their eligibility to work in the U.S. within 72 hours.
• Anti-harassment — Prohibit all forms of workplace harassment and retaliation, not just sexual harassment.
• At-will employment — Make it clear employment is not for a guaranteed time period and can be terminated at any time by the employee and employer.
• Family and Medical Leave Act — A must-have policy for companies with 50 or more employees.
• Maternity/paternity leave — Your policy should cover all California laws that pertain to disability pregnancy and paternity leave.
• Written acknowledgement and right to revise — Reserve your right to revise the handbook and include a receipt, which states that the employee has received, read and understood the material.
Should employers include other policies based on recent changes in the law?
Employers bear the burden of proof in wage and hour disputes. Employers, therefore, need to include a break and meal period policy for all their non-exempt workers consistent with the most recent California Supreme Court decision in Brinker Restaurant Group v. Superior Court of San Diego.
Another good practice is to include policies governing employee sick time, vacation, jury duty, and other forms of paid or unpaid leave.
Lastly, a policy setting forth the unacceptable or acceptable use of social media during work hours — especially on company-issued technology — is recommended and ensures compliance with California’s Social Media Privacy Act.
What are the best practices for enforcing the rules?
Employers must have systems in place to enforce the mandatory anti-harassment and discrimination policies and complaint procedures. Likewise, employers should not impose non-mandatory policies and procedures they do not intend to follow.
Inconsistent enforcement and subjective decisions will favor the litigious employee. Close loopholes, clarify gray areas and ensure reliable application by providing complementary policy training for employees and managers. Managers play a key role by modeling appropriate behavior and consistently enforcing the policies and procedures.
How often should employers review and update their handbook?
Employers should revise their handbooks annually at the end of the year. This ensures compliance with any new laws moving into the new year. Should you need to revise a policy sooner, notify employees via a companywide email and, where possible, include a copy of the policy with an acknowledgement in employees’ paychecks. While no policy is foolproof, an employee handbook is a cost-effective way to reduce risk when combined with open communication, consistent enforcement and appropriate training.
Whether your wish list includes manufacturing, medical, transportation or technology equipment, how you finance major purchases may not only impact the return on your investment but the success of your entire company.
“Financing decisions impact cash flow and a company’s ability to capitalize on opportunities or respond to adversity,” says David Beckstead, Pacific Region sales manager for the Equipment Financing Division at California Bank & Trust. “Executives need to weigh their options carefully before making a decision.”
Smart Business spoke with Beckstead about the need for prudent financing decisions when purchasing machinery and equipment.
What should executives consider as they are reviewing various financing options?
The rule of thumb is to match the financing terms to the life of the asset. In other words, it’s best to use short-term financing for short-term business needs, and longer-term financing for long-term business assets such as equipment that will generate revenue or reduce operating costs for the foreseeable future.
You can avoid finance charges and interest by paying cash, but leasing the equipment or borrowing the funds lets companies preserve capital for other purposes. You should also consider the tax implications and the ultimate cost of the equipment along with your ability to make a substantial down payment to secure a traditional bank loan.
When does leasing make sense?
Leasing makes sense when companies want to preserve cash for future growth or expansion, they need flexibility or they don’t have a lot of cash to put down. Since leasing companies usually maintain ownership of the asset, companies can upgrade or return the equipment should their needs change. For example, you can align the lease terms with a customer agreement or upgrade to a bigger, faster model as your company grows. Plus, most leasing companies don’t require a down payment and it may be possible to negotiate a longer-term payment plan, improving cash flow.
With leasing you can usually deduct the lease payments as a business expense on your tax return, and on short-term leases the rental expense may provide a better tax benefit than depreciating the asset. You may be able to transfer the risk of ownership to the leasing company depending on the type of lease.
How can executives research the market and secure favorable leasing terms?
Prioritize your needs, and then search for the best combination of rates, terms, flexibility and customer service by contacting several firms. Bank leasing companies usually have high underwriting standards but lower rates, while finance companies can be more lenient lenders but generally charge higher rates. Vendor finance companies are a third option and are generally the most flexible about taking back or exchanging equipment. However, they usually charge higher rates.
Beware of upfront payments and fees, hefty residual payments, pay-off fees and other clauses that may boost the overall cost of the equipment. In fact, it’s a good idea to ask a knowledgeable third party to review the agreement so you don’t forsake the benefits of leasing by accepting disadvantageous terms.
What should executives look for in a leasing firm?
Always consider a firm’s reputation, check its references and read its contract before requesting a quote. Contracts differ between companies and impact everything from tax deductions and residuals due at the end of the lease to the responsibility for servicing the equipment. Finally, select someone you trust. Your financing partner should provide funding and be committed to your success.
David Beckstead is Pacific Region sales manager for California Bank & Trust Equipment Finance. Reach him at (949) 457-0458 or email@example.com.
Website: Business owners and entrepreneurs can visit our Business Resource Center.
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Whether your day in court resulted in a jubilant victory or disappointing defeat, the verdict may not stand as thousands of cases are appealed in California every year.
Given the complexity of appellate law and the uniqueness of the process, savvy executives don’t wait until the trial is over to devise a winning strategy.
“Any company that is concerned about a trial outcome, good or bad, needs to be thinking about the possibility of an appeal from the outset,” says Susan Handelman, a partner at Ropers Majeski Kohn & Bentley PC. “It can hurt your chances if you wait until the last minute to understand the process or seek expert advice.”
Smart Business spoke with Handelman about the appeals process and the benefits of proactive preparation.
When is it possible that a company will face an appeal?
Once a judgment is entered in the trial court, the losing party has the ability to seek a review of the judgment by a panel of appellate judges. Appellants often cite a procedural error or the way the law was applied by the trial judge or jury as the impetus for their appeal.
After reviewing written submissions from both parties, the appellate court has the option to affirm, modify or overturn the lower court’s verdict, or even order a new trial. Because it puts the original outcome back up for grabs, this can mean that an appeal can be, for both parties, a truly crucial interaction with the court system.
How does the process differ for appellants and respondents?
Appellate court proceedings are very different from those in trial courts, given that the judges focus on the actions of the lower court instead of hearing lengthy factual arguments and witness testimony to reach a decision.
The appellant is responsible for initiating the appeal and generally has the burden of proving that a prejudicial error was made in the trial court. The respondent must validate their win by providing a thorough and accurate accounting of the trial and must legally and factually support the efficacy of the original decision.
Since the appellant files only two written briefs and the respondent gets only one brief to make their case, it’s imperative that the attorney’s logic, reasoning and legal arguments resonate with the appellate judges.
How long does the appeal process take and what’s involved?
An appeal can take anywhere from 18 to 30 months once the appeal is filed. If the parties don’t want to wait, they may have an opportunity to settle their differences in the interim by participating in mediation that is fully or partially funded by the court.
Having an appellate attorney who knows the ropes is critical because, other than briefing, the only presentation to the appellate panel is an oral argument that lasts just 30 minutes and must be on point.
Since success in appeals court hinges on different issues and tactics than a traditional trial, some companies take a long view and hire an appellate specialist from the outset to monitor important litigation.
Is the appeal final or are there more options?
The decision made by the appeals court isn’t necessarily the end of the road. The party that lost can request a rehearing by the appeals court and they may try to appeal the decision all the way up to the California or U.S. Supreme Court.
However, it takes considerable time, money and expertise to continue the appeals process and you may run out of options, since the high courts don’t hear every case.
The bottom line is that waiting and seeing is not the most viable strategy when an appeal can be a real game changer.
Susan Handelman is a partner with Ropers Majeski Kohn & Bentley PC. Reach her at (650) 780-1759 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC