Lisa Murton Beets
The Employee Free Choice Act (EFCA) — also known as the Card Check Bill (H.R. 800, S. 1041) — would make it much easier for employees to organize in the United States. Passing it in 2009 is widely speculated to be a top priority of organized labor, which has amassed significant resources to do so.
“The EFCA would amend the National Labor Relations Act, the federal law that generally governs labor matters,” says Todd Sarver, member of the business department, labor and employment litigation, McDonald Hopkins LLC.
“The legislation has been presented in 2003, 2005 and 2007, when it came close to passing. Because this is an election year, there is an extremely heightened sensitivity now to it passing. The best thing companies can do now is be proactive with their employees. Treat them fairly and consistently. Make sure they are educated as to all the benefits they currently enjoy working for your company.”
Smart Business spoke to Sarver about what the potential coming changes will mean for employers and how they can begin to prepare.
What are the prospects for the EFCA passing next year?
In 2007, the House passed it by a vote of 241 to 185. After that, it got held up in a Senate subcommittee. However, organized labor is very committed to this legislation and continues to commit resources to getting it passed. In fact, the AFL-CIO has committed one million members to urge representatives to pass the legislation after the elections this year.
On the other side of the coin, the U.S. Chamber of Commerce strongly opposes the legislation, which it says will ‘upend decades of settled labor law in order to give organized labor an unfair advantage in union organizing, at the expense of both employees and employers.’
The Chamber has countered by launching its own Workforce Freedom Initiative and ‘card check petition.’ The issues are being debated fiercely on both sides, but organized labor backed candidates who supported the EFCA for the 2008 elections and, if elected, those representatives will be expected to vote for the legislation.
How would it change current U.S. labor law?
Currently, there are two ways employees can become represented. The first is by voluntary recognition. Under this scenario, a union that has acquired more than 50 percent of signatures in a bargaining unit can then go to the employer and claim representation, the employer can agree, and then the two sides begin bargaining. The much more common scenario is that when a union obtains at least 30 percent of signatures of the bargaining unit, it then files a petition with National Labor Relations Board to represent those employees. The board conducts a secret ballot election from there.
The EFCA, if it becomes law in its current form, would create an ‘involuntary recognition’ scenario. The union would be able to be certified the moment it collected more than 50 percent of signed authorization cards. Once the National Labor Relations Board recognized the union, the collective bargaining process would begin immediately. The parties would have 90 days to reach agreement after bargaining began. After that, a mediator would assist for 30 days and if agreement were still not reached, a third-party arbitration panel would make decisions as to what terms and conditions would apply during the first two years. The EFCA also would add liquidated damages for successful claims by individuals terminated for exercising their rights.
How would such changes affect employers?
With the way the secret ballot process works now, there is generally a 42-day period until an election occurs. During this time, the employer can educate the employees as to what organizing will mean for the company and its employees. Under EFCA, the education process is absent and the employees will only get the union’s perspective. In addition, if the bargaining process is unsuccessful in the given time frame, a third party (arbitrators) — who has no knowledge of the company — might end up making fundamental management decisions in many areas including overtime, job postings, outsourcing, etc.
Moreover, the 90- to 120-day time frame to bargain a first contract is wholly unreasonable — it often takes approximately a year to achieve a first contract. As for costs, it is difficult to quantify the cost of union versus nonunion. It is generally estimated that costs are 20 percent greater for union companies. Part of that is because resources are diverted to areas such as collective bargaining, grievances, arbitration hearings, etc.
What can employers do in response to such legislation?
In addition to doing all the right things in regard to managing what you should be doing anyway, write to your representatives and senators to voice any opposition. Internally, be extremely aggressive on several fronts. Educate all your managers and supervisors to have firm but friendly policies in place with respect to employee relations and to consistently follow them.
Inconsistent administration of policies puts you at the highest risk for organization. Make yourself an unattractive target. The alternative could be third-party representation and, inevitably, reduced flexibility in how you manage your operations.
TODD SARVER is a member of the business department, labor and employment practice group, McDonald Hopkins LLC. Reach him at (614) 458-0042 or email@example.com.
Is your organization one that embraces people from all backgrounds and realizes that you have much to gain by doing so?
“A diverse workplace or institution is one where diversity is not only recognized but embraced regardless of ethnicity, creed, color, age, disability, sexual preference, etc. with respect and dignity, through a lens that is open to everyone,” says Dorothy Davis, director of transfer recruitment and co-chair of the diversity committee at Fontbonne University. Davis explains that “strive” is a key word when working toward diversity.
“Diversity will never be a completed process,” she says. “There is no period at the end of the sentence. You’re always building. It’s a spiral process that keeps turning and turning.”
Davis emphasizes that diversity is truly all about inclusion not exclusion. Organizations that are willing to look to and learn from others will have a competitive advantage in the years to come.
Smart Business asked Davis how companies and institutions can create environments where the differences in others are appreciated.
Why is diversity in the workplace so important in today’s business world?
Diversity lends a sense of uniqueness to a company or an institution. We can think of diversity as being a woven quilt a beautiful work of art. Patches and stitches that represent differences in one another, such as color, ethnicity, religion, age and other important factors. Diversity in the workplace provides a distinct advantage in an era when we need flexibility and creativity in order to have a competitive advantage.
What should all CEOs keep in mind as they strive toward diversity?
Striving for diversity is an evolution we must always remember that our society is diverse. Diversity in the work place is eminent companies and institutions should focus on making diversity a top priority. Striving for diversity is about change, growth and understanding the world around us. Our environment is competitive whether we’re hiring employees or recruiting students.
What are some things top management can do to ensure a diverse work population?
The commitment starts at the top by developing a diversity action plan a company-wide initiative. It should be a plan that is developed in collaboration with human resources (HR), but not separate from HR’s primary responsibilities, which often lie in hiring practices, compliance regulations, etc. Diversity in the work place focuses on maximizing the ability of all employees so that they can contribute to the organizational goals and objectives. The bottom-line of having diversity in the work place is the bottom-line.
How does diversity on campus benefit students and their future employers as they enter the work force?
Diversity on campus benefits students in so many ways. It’s important that students recognize and appreciate the contributions that other groups have made in our society.
Does diversity matter? Yes! It is the responsibility of a university to exhibit leadership by providing an environment that is inclusive for all. Universities must take the initiative to incorporate diversity throughout their curriculums by expanding campus-wide activities that offer inclusion, engagement and participation. Institutions need to create a learning environment that fosters intellectual and social growth among all students. Diversity broadens the educational experiences of all students so that they are prepared to meet the challenges and opportunities of a global society. A university should be where students go to prepare to become leaders of tomorrow.
Looking forward, what challenges will tomorrow’s work force bring?
I wouldn’t say challenges, but opportunities opportunities that are exciting! We have baby boomers changing careers; a very vibrant population that has a great deal of offer. There are new immigrants that will help shape our society by offering us new cultural perspectives. We must realize that diversity is threaded through every aspect of our lives. We must be willing to challenge and change the practices that present the barriers that individuals and groups experience.
Companies and institutions must be willing to provide resources to train new and current employees. Our society is global our neighbor next door no longer looks exactly like us. Remember that diversity is a beautiful work of art a woven quilt with unique patches and colorful threads, and one that’s stitched together to make one large masterpiece.
DOROTHY DAVIS is director of transfer recruitment and co-chair of the diversity committee at Fontbonne University. Reach her at (314) 889-1475 or firstname.lastname@example.org.
If you don’t know how your business is doing at all times, you’re headed for trouble. An early warning system? Clearly defined key performance indicators (KPIs).
“A key performance indicator is a metric that allows you to evaluate whether you are meeting a certain goal,” says James P. Martin, CMA, CIA, CFE, CFD, CFFA, a senior manager with Cendrowski Corporate Advisors LLC. “Identifying what the KPIs should be for a particular organization is part of the overall risk assessment process, which identifies any number of factors that can stand in the way of success.”
Smart Business spoke with Martin about how to effectively use KPIs to monitor whether your business is on track.
How important are metrics?
Very. If a KPI is not measurable, it will not be useful. For example, ‘word-of-mouth’ is not a useful metric. And, make sure you measure things that are relevant. Here’s an example: By using metrics, an organization named pets.com — which sold bulk pet food and the like on the Internet — determined that many shoppers were abandoning their carts at the time of checkout. Why? Because most of the products were too expensive to ship as opposed to simply buying them in the store. Pets.com went out of business because their solution was to provide free shipping. They used a metric that revealed a problem with their business model, but incorrectly interpreted it.
So how can a company best define relevant key performance indicators?
Performance indicators differ from business to business. Having clearly defined goals to start with will help the company determine what it needs to monitor. To assist in the process, use the SMART acronym; ask whether the KPI is Specific, Measurable, Achievable, Relevant and Time-bound. A KPI should be all of these.
How can this information then be used to improve efficiency?
Key performance indicators are used in many industries to monitor and improve efficiency, and thus improve the bottom line. The fast-food industry has the use of KPIs down to a science. It monitors everything — how long it takes you to receive your food, how long it takes to cook 100 burgers — the list goes on. The industry knows what needs to be accomplished to achieve its goals, and identifies a measure to make sure it happens.
Another example is a call center. Management will monitor how many people it takes to answer how many calls per day to determine ways it can improve efficiency.
And how often should a company monitor its KPIs?
It depends on many factors unique to each organization. If you’re a company in turnaround mode with low cash levels in the bank, you might be monitoring certain KPIs daily, such as A/R and average sales per day. If you’re a manufacturing company tracking production on a piece of equipment you’ve financed, maybe you are analyzing the metrics on a monthly or quarterly basis.
How would something like a ‘balanced scorecard’ play into the equation?
That means that you have to look at overall objectives holistically. If you only measure factors related to profit (e.g., how many widgets can we produce by how many workers in one hour) you might overlook quality, marketing — all the other elements that must work in harmony in order to achieve success. Your KPIs should be setup so that you are monitoring all areas of the business that tie into achieving your overall goals.
What about companies that don’t have KPIs in place; how can they get started?
They do have KPIs in place; they just may not realize it. For example, they intuitively monitor payroll — they know how many hours they pay versus periodic revenue. The first step to formalizing the process is to determine what you need to monitor and measure. Look at the current performance, benchmarks and target levels. Think about all the processes you undertake; analyze objectives and risk conditions/pitfalls to avoid.
Can accounting software make the monitoring job easier?
The monitoring of KPIs is nothing new — we’ve been doing this manually for centuries. The prevalence of computers and today’s accounting software just provides readily available information. Today’s software enables companies of all sizes to create risk models, define data criteria, set early warning triggers and alerts, etc.
How often should KPIs be revisited?
At least once a year, as part of the annual meeting to set objectives for the upcoming year. Throughout the year, new KPIs may need to be added and old ones, removed. To be useful, the KPIs that are already in place must continue to make sense.
JAMES P. MARTIN, CMA, CIA, CFE, CFD, CFFA, is a senior manager with Cendrowski Corporate Advisors LLC. Reach him at (866) 717-1607 or email@example.com or go to the company’s Web site at www.frauddeterrence.com.
If the thought of giving presentations or speeches leaves you breaking out in a sweat, rest assured that you don’t have to be a natural to be an effective speaker.
“With preparation and practice, anyone can give an effective presentation,” says Heather Norton, Ph.D., associate professor of communication at Fontbonne University. “Presenting yourself well in the workplace is critical, especially because it is so difficult to build credibility, yet so easy to lose it.
Although good communication skills have always been important in the business world, Norton surmises that expectations have grown during the last few years.
“Good communication skills are one of the things employers look for most in new hires,” she says. “Quite often, people with good communication skills move up more quickly through an organization.”
Smart Business spoke with Norton for some tips and hints on getting and holding your audience’s attention.
What can be done beforehand to ensure a successful presentation?
Too many times people think ‘good’ presentations just happen, so they wing it, and then wonder what went wrong. The key is to prepare and practice beforehand, and to follow these tips:
- Know your purpose. What message or main point do you want to get across? What is your ultimate goal?
- Know your material. You will be much more persuasive and effective if you are familiar with the product, the research and your pitch.
- Know your audience. Understand their level of familiarity with your topic so you can target your message effectively. You don’t want to tell them things that they already know, nor do you want to talk over their heads.
Consider the best way to convey your information to a specific audience. Do you really need to do yet another PowerPoint presentation? Can you just be clear about the points you are making, perhaps by using sign posts in your speaking?
Next, organize the material in logical ways (e.g., steps they can take). Don’t just jot down your thoughts. What information does your audience need first? Finally, do a verbal run-through of your presentation ahead of time. Practice it out loud sitting in your office or talk it through with someone not familiar with the subject matter who can tell you if there are any unclear areas.
What is the most important thing someone can do moments before a speech?
You’d probably think it was to reread your notes, but it’s not. Sit quietly, breathe deep, and smile! How can the presenter make sure he or she looks comfortable? Nonverbally, fake it. Most times no one can tell you’re nervous. Move away from the podium. Walk about, but don’t pace. Use natural and fluid hand gestures. These things will help you look confident and will also help eliminate physical jittery nervousness. Verbally, have the confidence to stop on occasion to ask questions at logical points. Let the audience believe you really want them to ask questions. Avoid using filler words, such as ‘like,’ ‘uh’ and ‘um.’ Take audible pauses. Don’t read off notes or a PowerPoint.
How can a presenter use verbal and nonverbal techniques to engage the audience?
Verbally, offer an effective attention getter. Stating a quick fact is a good way to begin a fact that surprises them and/or establishes the importance of the topic will let your audience know that the presentation is worth listening to. The fact should be related to the topic don’t just come in and flip the lights off! People don’t ‘come in late well’ to speeches. You have to get their attention from the beginning. Be careful with humor. Don’t start with a joke unless you really know your audience well, and you really are funny. Use a clear tone of voice and a volume that is appropriate. Women tend to speak more softly than men. Audiences tend to tune out people who speak too softly.
Nonverbally, the most important thing you can do is make eye contact. Don’t look over their heads. You don’t have to look at every person but look at segments of the audience. This will convey that you care whether they are ‘getting it.’ And if you are paying attention to them, it makes them pay attention to you.
What’s a good way to end a presentation?
First, signal that you are moving to the end, and then proceed. Don’t go on for 10 more minutes. Next, remind the audience of the main points covered. End with a memorable statement or leave them with something to consider. If it is a persuasive presentation, provide a call to action. In business, many times you want the audience to do something (e.g. ‘take these three steps’). Tell them what you want them to do. Be specific.
HEATHER NORTON, Ph.D., is an associate professor of communication at Fontbonne University. Reach her at firstname.lastname@example.org or (314) 719-3641.
Sweeping U.S. patent reforms will significantly impact businesses seeking or owning patents, or avoiding competitor patents. Bills before the House (H.R. 1908) and Senate (S. 1145) could result in new laws by the end of this year. Also, recent judicial decisions have already significantly impacted both patents and patent applications.
“The proposed reforms will make it more expensive to obtain patents and make it easier for issued patents to be challenged,” says David B. Cupar, member, Litigation Department, Intellectual Property Practice Group, McDonald Hopkins LLC. “Patent suits are probably the most expensive of any type of litigation, whether you’re the defendant or plaintiff. It’s very important to become informed now about the changes.”
Smart Business spoke to Cupar about the impending patent changes.
What is happening in the here and now?
There are two major reforms occurring, the first judicial and the second congressional. The major judicial reform is the Supreme Court’s KSR decision (May 2007), which has prompted the U.S. Patent and Trademark Office (USPTO) to change its internal guidelines for examining patent applications, making it harder to obtain new patents. In particular, the USPTO’s new guidelines broaden the scope of determining ‘obviousness’ to make it more difficult to obtain patent issuance. The second Congressional reform covers other changes to existing patent law.
What patent reforms are being considered?
The patent reforms presently found in House and Senate bills include:
- Switching from a ‘first to invent’ to a ‘first
to file system.’ In the U.S., the first person to
invent obtains patent rights. Everywhere
else, it’s the first to file. The idea in the U.S.
was to protect inventors. Now, Congress
seeks to harmonize the U.S. system with the
rest of the world. This could negatively affect
entities that don’t have capital readily available to quickly apply for patents.
- Mandated search reports. Mandated
search reports will require applicants to
report that they did a patentability search to
determine if the invention is ‘novel’ and ‘nonobvious.’ In the past, this was the
USPTO’s responsibility. This change will
require businesses to incur significant, additional expenses before applying for patents.
- New post-grant opposition system. The
USPTO will have more power to render a
patent unpatentable after granting it. This
will provide challengers with more opportunity to oppose a newly issued patent in a formalized manner to reevaluate that patent.
- Appointment of damages in a lawsuit.
Currently, a patent owner can seek damages
for an entire product even if only a portion of
it is patented. Now, damages will be limited
to the patented ‘articles’ in the entire device.
- Codification of willful infringement standard. A recent court decision requires a
patent owner to prove willful infringment by
establishing an infringer’s ‘objective recklessness.’ New language will codify this as the
standard for proving willfulness.
- Venue reform. Under the new law,
infringement suits will have to be brought in
the district court of the infringer, or where a
substantial amount of infringement is occurring. This will stop patent owners from shopping for ‘plaintiff-friendly’ courts and create a
level playing field for accused infringers.
- Marking. Products are marked with U.S. patent numbers to provide notice that the
products are covered under one or more
patents. To obtain damages, a patent owner
must show that products are marked. If
they’re not, damages are limited beginning on
the day the patent owner provided notice to
the infringer. New provisions would permit a
patent owner to obtain damages for up to
two years prior to notifying the infringer.
Who is supporting the patent reforms?
Large, high-tech companies are supporters of the reforms, as are companies that have been sued for infringement in the past and have paid significant damages afterward with what they perceive as patents that should not have been issued. They want to create a more stable environment with more certainty as to what they are facing on the patent landscape.
Who is opposing the patent reforms?
The opposition to the reform is just as large as the support. Those opposing reform include large manufacturers, universities, nonprofit research centers, individuals, and inventors, which constitute more than one-third of those seeking patents. Generally, those opposing the reforms are doing so based on specific portions of the bills.
How should businesses start preparing now?
First, follow the reforms closely over the coming months and determine how they can affect your business objectives. Second, reconsider your patent strategy based on those reforms. How do you want to proceed with applications? Perhaps you’ll want to spend less time and money on the number of applications you are filing, and focus more on ones that will provide greater quality. Third, look more closely at the invention itself and look ahead to potential issues such as obviousness. Fourth, think of creative ways that your business can use the patent reforms to your advantage. For example, the post-grant opposition could be a cost-effective way to challenge a competitor’s patent as opposed to full-blown litigation.
DAVID B. CUPAR is a member of the Litigation Department, Intellectual Property Practice Group, at McDonald Hopkins LLC. Reach him at (216) 430-2036 or email@example.com.
If you don’t know how your business is doing at all times, you’re heading for trouble. An early warning system?
Clearly defined key performance indicators (KPIs).
“A key performance indicator is a metric that allows you to evaluate whether you are meeting a certain goal,” says James P. Martin, CMA, CIA, CFE, CFD, CFFA, senior manager with Cendrowski Corporate Advisors LLC. “Identifying what the KPIs should be for a particular organization is part of the overall risk assessment process, which identifies any number of factors that can stand in the way of success.”
Smart Business asked Martin how companies can most effectively use KPIs to monitor whether business is on track.
How can a company best define its key performance indicators?
Performance indicators differ from business to business. Having clearly defined goals to start with will help the company determine what it needs to monitor. To assist in the process, use the SMART acronym; ask whether the KPI is Specific, Measurable, Achievable, Relevant and Time-bound. A KPI should be all of these.
How can KPIs be used to improve efficiency?
KPIs are used in many industries to monitor and improve efficiency, and thus improve the bottom line. The fast-food industry has the use of KPIs down to a science. It monitors everything how long it takes you to receive your food, how long it takes to cook 100 burgers… the list goes on. Fast-food companies know what needs to be accomplished to achieve their goals, and they identify a measure to make sure it happens. Another example is a call center. Management will monitor how many people it takes to answer how many calls per day to determine ways it can improve efficiency.
How often should a company monitor its KPIs?
It depends on many factors unique to each organization. If you’re a company in turnaround mode with low cash levels in the bank, you might be monitoring certain KPIs daily, such as A/R and average sales per day. If you’re a manufacturing company tracking production on a piece of equipment you’ve financed, maybe you’re analyzing the metrics on a monthly or quarterly basis.
How important are metrics?
Very important. If a KPI is not measurable, it will not be a useful metric. For example, ‘word-of-mouth’ is not a useful metric. In addition, make sure you are measuring things that are relevant. Here’s an example: By using metrics, an organization named pets.com which sold bulk pet food and the like on the Internet determined that many shoppers were abandoning their carts at the time of checkout. Why? Most of the products were too expensive to ship. Pet.com went out of business because its solution was to provide free shipping. It used a metric that revealed a problem with its business model but incorrectly interpreted it.
What is a ‘balanced scorecard’?
That means that you have to look at overall objectives holistically. If you only measure factors related to profit e.g., how many widgets can we produce by how many workers in one hour you might overlook quality, marketing… all the other elements that must work in harmony in order to achieve success. Your KPIs should be set up so that you are monitoring all areas of the business that tie into achieving your overall goals.
What about smaller companies that don’t have KPIs in place; how can they get started?
Small companies do have KPIs in place; they just may not realize it. For example, they intuitively monitor payroll they know how many hours they pay versus periodic revenue. The first step to formalizing the process is to determine what you need to monitor and measure. Look at the current performance, benchmarks and target levels. Think about all the processes you undertake; analyze objectives and risk conditions/pitfalls to avoid.
How often should KPIs be revisited?
At least once a year, as part of the annual meeting to set objectives for the upcoming year. Throughout the year, however, new KPIs may need to be added and old ones removed. To be useful, the KPIs that are already in place must continue to make sense.
JAMES P. MARTIN, CMA, CIA, CFE, CFD, CFFA, is a senior manager with Cendrowski Corporate Advisors LLC, Bloomfield Hills. Reach him at (248) 540-5760 or firstname.lastname@example.org or go to the company’s Web site at www.frauddeterrence.com.
Cost segregation studies can help you maximize tax savings and increase cash flows on your current, future or past property purchases by maximizing tax deferrals.
“Almost anyone with an interest in real property whether an owner or a tenant should consider having a cost segregation study conducted,” says Walter M. McGrail, JD, CPA, senior manager at Cendrowski Selecky PC. “Hundreds of thousands of dollars may stand to be achieved.”
Under IRS guidelines, the depreciable tax life of most commercial buildings is 39 years. Accelerated methods can be used to reduce the recovery periods for personal property and land improvements to five or seven and 15 years. A cost segregation study identifies items that can be classified properly into categories with shorter lives.
Smart Business asked McGrail about the benefits of having a cost segregation study conducted.
What is the goal of a cost segregation study?
A cost segregation study is an analysis of the costs a taxpayer has in real property in order to break out the costs attributable into shorter recovery periods for federal and state tax purposes. The benefit is accelerated tax deductions by recovering the costs over five, seven or 15 years, versus 39 years. Depending on how personal and real property is taxed in the locale where the building is located, there can be significant property tax savings, as well.
Eligible properties include new buildings under construction, existing property that was purchased recently or soon will be, and existing property that was purchased after 1986 (the IRS allows for catch-up for foregone savings). It doesn’t matter what the use of the building is; industrial, retail, commercial/office, health care facilities or even residential rental housing qualifies.
How much can be saved?
In general, it depends on three factors: the cost to acquire the building, the money you are going to put into it and how you are going to use the property. It is not inaccurate to say that you could save several hundreds of thousands of dollars. For example, if you spent $10 million on a building, you might save $250,000 to $1 million on a present value basis. We usually see a greater percentage of savings with retail, office and hotel space.
What happens during the process?
There are several phases to the cost segregation study. During the bid phase, the engineering professionals and tax accountants walk through all areas of the property with a site representative to develop a general overview. If granted the engagement, the firm’s engineers examine the architectural renderings or blueprints to produce an in-depth analysis. Next, the tax accountants take the engineers’ work and put it in format acceptable to the IRS. A report with documentation supports how the cost recovery was arrived at. During the process, the firm should examine the purchase agreement to see if it contains any stipulations on allocations. Many times, during the 11th hour of negotiations, the parties will invite their tax professionals in, and the accountants end up allocating part of the purchase price. Quite often we find something. For example, say the building sold for $10 million, but a stipulation specified that $1 million had to be allocated to good will. So you have to be careful stipulations need to be identified and honored.
Are there situations where a cost segregation study would not make sense?
It takes about five to seven years to start recouping the tax savings, so you may not realize the payback period if you plan to sell the property in short order. There may also be challenges down the road if you try to use the building for a tax-free swap, and you’ve already identified personal property through the cost segregation study. In any case, a professional can review the options with you. Every situation is different.
Any final words of advice?
Look at the level of expertise offered by the firm that will do the study. A cost segregation study is not done in a vacuum it represents the marriage of an engineer’s viewpoint with the costs involved with a property. The work needs to be integrated, and the team of engineers and tax professionals must be highly experienced and work well together. You might also want to consider what types of incentives the firm has. Larger or more experienced firms might offer contingencies. For example, they might produce the study for a fixed fee plus a percentage of the tax savings recovered for you.
Who wouldn’t want an office of experts managing their financial affairs and planning for their family while also providing relief from the mundane aspects of wealth?
“With the creation of multifamily offices, the benefits of a traditional separate family office can be achieved at a substantially reduced cost while at the same time keeping the financial affairs of each family completely separate and confidential,” says Steven Y. Patler, JD, CPA, managing director with The Prosperitas Group LLC in Bloomfield Hills, Mich. “It provides a solution for families who don’t want the administrative burdens or can’t justify the costs of establishing their own family office. Objectivity and independence are key indicators that separate a real multifamily office from an organization that claims to be a family office.”
Smart Business asked Patler what types of families would be best served by a multifamily office.
Why would someone want to use a multifamily office rather than a single-family office?
The most obvious benefit is cost efficiency. Single-family offices generally will not make sense for families with a net worth of less than $100 million. On the other hand, multifamily offices have much lower net worth thresholds. In fact, many existing single-family offices have closed and their families have become clients of multifamily offices. Besides the obvious cost efficiencies, a multifamily office has greater buying power. This makes it possible for clients to have greater access to investment vehicles and potentially with lower fees. Furthermore, the multifamily office advisers typically will have broader and deeper experience because they are regularly exposed to the challenges faced by many different families.
Describe a good candidate for a multifamily office.
Basically, a multifamily office can be beneficial to most high-net-worth families/individuals. This could range from a widow or widower with significant investment assets to a large multigenerational family that runs its own business, to a business executive who does not have the inclination or time to properly attend to his or her own financial affairs. Those experiencing a liquidity event, such as selling a company, are also good candidates. Furthermore, a multifamily office can serve an important role in providing much needed continuity for the family at times of illness or death.
What types of services does the multifamily office provide?
The specific services provided by a multi-family office should be tailored to help achieve each family’s particular goals. A multifamily office serves as a CFO or quarterback of the family’s financial affairs in addition to the role of high-level concierge. It protects the family, manages what they have and helps them plan for the future. Specific services can include integrated financial, estate and tax planning; risk management; family governance and philanthropy; monitoring third-party service providers; bill paying; and consolidated reporting. Not all multifamily offices are the same. Some are heavily investment-oriented and outsource most of their tasks, while others are more comprehensive and have employees from a broad range of disciplines. Many are ‘open shops’ that are able to coordinate and integrate with a family’s existing professionals to produce a team approach.
Why don’t more people use multifamily offices?
Most significantly, many people are unaware of what a multifamily office is and how it can help their family. Although the concept of family/multifamily office is not very well known, the number and size of multifamily offices has steadily grown throughout the country in the last 10 years, mainly through word of mouth from multi-family office clients and estate-planning attorneys.
Some people attempt to manage their own affairs or mistakenly think someone else is actually ‘looking out’ for them. We have seen examples where someone dies and his or her spouse, with no financial experience, is left vulnerable to unethical behaviors by some so-called advisers.
Another reason people may not consider a multifamily office is because they think you have to be extremely wealthy. As mentioned earlier, this is not necessarily the case. A multifamily office makes it significantly more affordable to get independent and objective professional assistance.
What is the fee structure?
Some firms charge an hourly fee, while others charge an asset-based fee. For some clients, a more attractive alternative may be to set a fixed fee based on the nature and complexity of a family’s situation. A fixed fee promotes increased communication and trust since the family members will not feel like the meter is running every time they call their multifamily office advisers. I know I am best able to serve my families the more frequently we talk.
STEVEN Y. PATLER, JD, CPA, is a managing director of The Prosperitas Group LLC, Bloomfield Hills, Mich. Reach him at (877) 540-5777 or email@example.com. For more information, go to www.prosperitasgroup.com.
While your business may seem to be far removed from the problems of Wall Street and increasing foreclosures, you’ll most likely feel the impact here in Northeast Ohio sooner rather than later.
“Business owners need to consider how the overall economic slowdown will affect them over the next three to nine months,” says Shawn M. Riley, managing partner of the Cleveland office and chair of business restructuring at McDonald Hopkins LLC. “They need to anticipate the impending challenges and become knowledgeable about their legal rights and alternatives if they find themselves in a crisis.”
Smart Business asked Riley how difficult he thinks matters will get in the near term and what companies should consider if they end up facing restructuring or bankruptcy.
What impacts will the subprime mortgage crisis and the drop in home values have on business restructurings and bankruptcies?
As homeowners see their mortgage rates reset, they will be forced to spend more of their monthly income on housing. This will crimp spending on durable goods, automobiles, appliances and remodeling. Already, some of the manufacturers of these products are seeing downturns. Chrysler, Ford and General Motors predict that 2008 will be down from 2007 and certainly from 2006. This will have a ripple effect through the economy. Consider, for example, the manufacturers of auto parts. As their orders from automakers decline, they will need to start thinking about the cuts they will have to make. They might target areas such as cleaning and janitorial services, supplies, etc. Then, what we’ll probably see, especially in the second half of 2008, is an increase in the number of businesses that file bankruptcy or that are in some type of distress — for example, with their own loan agreements. They may need to go out and raise more capital, sell the company as a stand-alone, combine with another company, or liquidate.
What other macro-economic factors will impact business restructurings?
The increase in oil prices will have a definite impact in Northeast Ohio. In addition, the inflation rate is driving the cost of goods higher and, when coupled with the decline in wealth resulting from reduced home values, consumers are spending less. This feeds the cycle of economic slowdown.
Will Northeast Ohio fare better or worse than the rest of the nation?
Unfortunately, I think it will fare worse in the near term. Manufacturing drives much of our local economy — particularly auto manufacturing — so we may bear a disproportionate part of the slowdown. All evidence from media reports indicates that Cuyahoga County and Northeast Ohio have among the highest foreclosure rates in the nation. The good news is that if we feel the pain first, we may begin recovering sooner than other parts of the country. If that is not the case, we should still be OK because as demand for automobiles and other goods begins to rise again throughout the country, demand for parts manufactured in Northeast Ohio will begin to rise again, as well.
How will the 2005 changes to the Bankruptcy Code affect business restructurings?
Before the code changed, bankruptcy was often considered a viable way to save a business and then turn it around. Today, it is still an alternative, but all parties — owners, lenders and trade creditors — see it as ‘less attractive.’ In the past, there were no limits on how long a company could stay in bankruptcy. Now, they have 18 months to complete the process. These shortened deadlines make the process more difficult.
There are other disincentives, as well. Historically, companies could offer senior management bonuses to stay and complete the reorganization process. Now, there are very severe limitations on that, so there is a very real risk of losing management. Another disincentive is the new deadline that a company has to make decisions about buildings [e.g., leases, stores], which is 210 days from filing. This creates a lot of pressure to make decisions about assets rather quickly.
The result of all this is that companies may be more reluctant to use the bankruptcy process and may try to get more creative in exploring alternatives. For example, the owners or lenders might decide it is best to sell the business to a competitor that can absorb the overhead and run the company better. Some companies do end up deciding bankruptcy is the best solution. A benefit is that it is a comprehensive process that resolves all issues once and for all.
What is your advice for companies that decide to move forward with bankruptcy?
If you don’t have the process completed within 18 months, another involved party — such as a lender, creditor or union — can come forward with its own plan. So move quickly or you run the risk that others will take charge.
SHAWN M. RILEY is the managing partner of the Cleveland office and chair of business restructuring at McDonald Hopkins LLC. Reach him at (216) 348-5773 or firstname.lastname@example.org.
As companies grow and find increased opportunities to conduct business in other states, they should be well informed as to their tax liability in each state.
States are becoming more aggressive and sophisticated in collecting taxes. These growing enforcement efforts are part of a strategy that maximizes tax revenue and addresses declining revenue bases and increased government spending.
“You could be doing business in a state and not even realize that you owe tax. You can accumulate years and years of liability,” says Thomas M. Zaino, JD, CPA, chair of the Multistate Tax Practice Group and member in charge of the Columbus office of McDonald Hopkins LLC.
Zaino cautions companies not to simply assume they are protected by federal public law 86-272 from being taxed in most states.
“PL 86-272 offers some protections, but they are very limited,” he says. “Basically, it only protects against taxes based on or measured by income. Plus, it is not applicable to the sale of services. In any case, it’s best to check with your tax adviser.”
Smart Business spoke with Zaino about the importance of properly calculating and paying state taxes — and what happens when you don’t.
Are state and local taxes really significant when compared with federal taxes?
State income taxes are typically about one-third of the federal income tax, but when all the different types of state and local taxes are added up (e.g., sales and use, property, and gross receipts taxes) the burden is about the same as the federal liability. Add 15 to 25 percent in penalties and above-market interest, and the potential exposure is very significant. State and local taxes are significant to most businesses, and the company’s leaders need to protect the business from unexpected liabilities that can hurt its financial prospects.
What do states do to identify companies that should be registered to pay tax in their state?
There are many tools states use to identify companies that have not been complying.
These include information-sharing agreements with the IRS and other states; review of federal information, such as 1099s and Schedule Ks; examination of cross-tax registrations; and comparing vendor lists of current taxpayers with registered taxpayers. There are also people who monitor activities of companies in their own states, which may include searching the Internet and examining public information on Web sites.
Don’t most states have a statute of limitations that limits how far back they may assess a company’s delinquent taxes?
No. Most companies assume there is a three- or four-year statute of limitations, but this is incorrect. The statute of limitations applies only if the company has been filing returns with the state. Otherwise, the state can go back decades. I’ve seen situations where the state goes back 12 to 15 years.
What mistakes do companies often make when dealing with state and local taxes?
Failing to invest the time to plan ahead and make sure transactions are structured in a way to minimize the state tax impact; not fully understanding the actual activities of the business in each state, perhaps due to rapid growth; failing to educate personnel operating in other states so as to prevent unintended tax consequences associated with their activities; and assuming that if the company is not generating taxable income that there is no state or local tax liability, when in fact, many types of taxes are accruing (sales tax, property tax, and gross receipts tax), which have nothing to do with taxable income.
If a company is contacted by a state regarding whether it owes tax, what should the company do?
If the company receives a Nexus Questionnaire, company officials should seek counsel from a state tax adviser before responding. These questionnaires ask broad ‘yes and no’ questions, when there may be no simple ‘yes or no’ answers. The letter doesn’t say so, but you can attach explanations for your answers rather than answering just yes or no. If you receive the questionnaire, take an inventory of your dealings in the specific state by talking with your sales staff and field personnel. Work with your tax adviser to calculate your potential exposure and how to respond to the questionnaire.
What if the company owes back state taxes?
Most states will allow you the opportunity to come forward voluntarily and anonymously to explain your situation and, as a result, limit the number of years you would need to comply to avoid penalties. Your tax adviser can assist you with a Voluntary Disclosure Agreement (VDA). Going this route, you can usually get the number of years of back tax reduced to three or four with no penalties, just tax and interest. Some states also offer periodic amnesty programs. VDAs and amnesty programs are not available to companies that have already received Nexus Questionnaires, so it’s prudent to be proactive and take an inventory of your historical and present activities now.
THOMAS M. ZAINO, JD, CPA, is chair of the Multistate Tax Practice Group and member in charge of the Columbus office of McDonald Hopkins LLC. Reach him at (614) 458-0030 or email@example.com.