There’s no one-size-fits-all plan for an owner’s exit from his or her business, which means that the process of succession planning requires a good deal of consideration and contemplation on the part of the owner.
Unfortunately, running the business often takes precedence to this important planning process that most owners would rather avoid.
“Succession planning is fraught with emotional issues for business owners, particularly if they’re the founder of the business,” says Chuck Kegler, a director of Kegler, Brown, Hill & Ritter. “Very often, owners are what they do and they have trouble envisioning themselves no longer being part of the business. They know it’s something they don’t want to talk about, unless there’s a health scare or some other triggering event.”
Smart Business spoke with Kegler about why succession plans are a necessary part of owning a business.
What issues are many owners dealing with surrounding succession and exit?
Owners are reluctant to deal with succession unless they feel financially secure. Often, if it’s a family succession, their goal is to do it in a way that they think maximizes the opportunity that the business will continue to affect their retirement. National statistics show that more than two-thirds of all businesses fail in the second generation. And the reason they fail is not surprising, considering that roughly 80 to 90 percent of all new businesses fail. So it makes sense that very often the owner’s children won’t have the skills that the parents have.
If you take lifetime financial security into account, many owners don’t feel secure selling or gifting their business to the next generation, because they don’t know how to invest the sale proceeds in a way that generates the income they need to maintain their lifestyle.
For example, assume an owner of a private business that generates $20 million a year earns $1 million a year of income, after all the expenses of the business are paid. That’s the lifestyle he’s developed. If he went to sell that business in today’s marketplace, let’s say, for a total of $5 million and paid taxes on the sale, he’d never be able to generate that $1 million a year of income based on what’s left.
That’s why owners really struggle with this process. They’re thinking they’re going to be rid of the risks of the business and retire, but then they run the numbers and they can’t maintain their lifestyle based on the results.
How does the planning process work?
Clients should start with something in writing, making a list of goals, which leads to the strategies for reaching those goals. It can take three or four meetings at times to write the goals down and fine-tune them.
Often, we share with them what other people have done in similar circumstances and have clients talk to each other, with the clients’ consent. It’s not legal advice, it’s more business advice, and it gives them a sense that they’re not alone.
What are some common exit strategies?
The typical exit strategies are 1) some combination of gifting and selling to the next generation, 2) a sale to employees or to an ESOP, or 3) a sale to a third party. A sale to a third party is not really succession, but you’re essentially saying that family is unable to run the company and it’s important to want to get the cash off the table and not have the business risk anymore. A fourth plan is: I’ll just wait until I die and let my heirs decide what to do. And that’s very often what happens. It’s more subconscious than conscious, but by not doing anything, that’s what happens.
From a succession standpoint, the most common plan we see is moving the business to the children. Owners gradually give their children some shares to incentivizes them, and they hang on to the business until they die, hoping that the children can take over. But clients need to have a clear plan on how the children are going to run it. Here, owners are worried not just about their children but all of the employees that have been with them for a long time.
There are many estate planning strategies to transfer businesses to children; the most common ones are a GRAT (grantor retained annuity trust) or an outright sale to the children. Sometimes there’s a combination of gifting and sales. But it always goes back to the goals and whether the client will be financially secure.
How can owners of family businesses develop a plan?
If a client’s estate consists primarily of the business and he or she wants one of his or her children to be in charge, the client is going to have a lot of complicated issues. The best plans are ones in which you give a separate area of responsibility to each of the children, and they get out of each other’s way. It’s not untypical to have a child who’s not great with sales or leadership in charge of the financial matters. Or another child might be in charge of a separate line of business.
We have a client who had four sons in the business. The father told his children that he needed to have one leader. He divided the company up evenly among the four sons, but gave the voting stock to one child and the other children received non-voting stock. The son with the voting stock is fair, he makes all the final decisions and he tries to engage his brothers when he can. And he’s in charge of their compensation, which gives them great incentive to work harder.
Chuck Kegler is a director at Kegler, Brown, Hill & Ritter, practicing primarily in the areas of Business & Tax, Mergers & Acquisitions and Estate Planning. Reach him at (614) 462-5446 or firstname.lastname@example.org.
Owners are often too busy running their companies to take the time to properly plan far enough ahead to their eventual departure from the business.
Tim Jochim, chair of the Business Succession & ESOP Practice Group at Kegler Brown Hill & Ritter, says that there’s often some kind of catalyst, such as a health condition, that forces an owner to begin the process.
“Succession planning should be a 10-year process, minimum, before an owner exits,” says Jochim. “It’s a planning issue, and owners should set up the process relatively early on.”
Smart Business spoke to Jochim about what business owners need to consider during the succession planning process.
What are the management issues that owners face when considering exiting the business?
The key to the long-term success is the management quality of the business, no matter who owns it. This is an area where owners of closely held or family-owned businesses probably don’t spend enough time, especially early on in the planning and development stage. They have to recruit, develop and retain good management. If it’s a family business, it becomes a little more complicated. If the owner/founder wants the family in the business and tries to devise something that is fair to the individual members of the family, that fairness he’s seeking within the family may not necessarily be best for the business. Further, you may have the complication of outside managers or executives interacting with family members.
The business should come first. If family members are involved in the business, they should a) work their way up within the business, and b) spend some time at an outside business so they gain a broader perspective of what the management process is like.
What are some of the options for transferring ownership?
The options are relatively simple and straightforward. If it’s a family business, usually there’s going to be some combination of gifting, bequest and purchase by family members. If you started a business with other investors, then generally there’s a cross-purchase agreement funded by life insurance where, if one person leaves, the others have a right to buy his or her stock. If no one wants to buy it, the company has a right to redeem it. If the company doesn’t redeem it, then the exiting shareholder can sell to the outside. Usually in the buy-sell agreement, there is a built-in process a cross-purchase or redemption and if none of those is implemented, then the outside sale comes in to play.
On rare occasions, the company does have an opportunity for an initial public offering.
In an employee stock ownership plan (ESOP), the advantage is that the purchase of the stock is deductible. It’s expensable and it is pretax dollars. So if I’m an owner and the ESOP buys my stock, it’s funded or paid for by the company, but the company can deduct that expense. If the company is a C corp., they can structure it so that they don’t pay the capital gains tax or the Ohio income tax associated with any gains from the sale. That’s two advantages of the ESOP.
How can owners decide which options are right for them as well as their companies?
An ESOP is not appropriate for all companies. Values and culture are really the drivers for owners/founders who do ESOPs. In many instances, they could sell at a higher price to an outside buyer, but they want to share their success with their employees, and they want their company to remain independent.
The decision should be made on a case-by-case basis. There are instances where it may not make sense to remain independent. You could be in an industry where the small players are getting squeezed out, and the industry is consolidating and you don’t have the technical or managerial talent to keep going. In this case, it would make strategic sense to sell to a quality, larger outside buyer. Or if you’re the type of owner who wants the last buck, a third-party sale may be a better option.
How do taxes and the financial needs of the exiting owner factor into the decision?
There are three types of taxes to consider. There are taxes upon sale of the company, taxes to the company and estate taxes. Sellers are going to pay, at a minimum, capital gains taxes and the applicable state tax on any gain, depending on the structure of that sale.
In an outside sale in an auction situation, generally that will yield a higher price than selling to an ESOP. However, as noted before, the seller has tax benefits in selling to the ESOP that he doesn’t have on the outside sale. Also, if the ESOP company is an S corporation, the profits of the company are tax-exempt to the extent of the ESOP ownership. ESOPs, as a shareholder, pay no federal or state income tax at all. That’s a little secret that most owners are not aware of. Over the past few years, many of my clients that are S corp. ESOPs went out and made acquisitions. Why? Because business was slow, the prices of the targets were low due to the recession and these companies had built up a lot of cash over several years of being S corp. ESOPs.
One of the things that frequently comes up in business succession discussions is the federal estate tax. When the owner/founder dies and the value of the company is high let’s say greater than $10 million there’s probably going to be significant federal estate taxes to pay. But with proper planning, you can reduce or eliminate this tax. If the ESOP buys the stock, a common tool is for the seller to set up an irrevocable life insurance trust. The proceeds of that trust are generally outside of the estate, so they are not subject to the estate tax. The owner can sell to the ESOP, or even sell at a lower price to the ESOP, and use some of the proceeds to set up an irrevocable life insurance trust which then provides enough proceeds to the family upon the death of the owner/founder to offset any estate tax. If a charitable trust is combined with the insurance trust, it is likely there will be no federal estate tax at all.
Tim Jochim is chair of the Business Succession & ESOP Practice Group at Kegler Brown Hill & Ritter. Reach him at (614) 462-5443 or at email@example.com.
Business owners interested in building “green” should be ready for some extra challenges. The coordination of a green building project requires the right strategies in order to reap the benefits of LEED (Leadership in Energy and Environmental Design) construction.
“Even in down economic times, green building is here to stay,” says Don Gregory, chair of the Construction and Litigation practice areas at Kegler, Brown, Hill & Ritter. “There are some tools you can use to give yourself a competitive advantage and deal with what is an increasing segment of the market.”
Smart Business learned more from Gregory about the complications involved in sustainable building projects and how to avoid common pitfalls.
Why build green?
Both public and private owners are increasingly interested in sustainability and green building as we are getting more focused on effectively using our resources. And there’s a lot of pressure to build green these days with public owners that answer to taxpayers and also with private owners who are interested in doing the right thing and showing that to customers.
There’s also the practical side of it. A lot of studies have shown that, while there can be some upfront investment in green building, it pays substantial dividends down the road in energy savings. There’s a lot of grant money that’s been tied in to this now, in the stimulus package and other legislation. It is projected that by 2015 half of all non-residential projects in this country will be green.
How does LEED fit in?
There are other rating services in addition to LEED, but LEED is the dominant player and it typically is the benchmark that’s used. For example, when the Ohio School Facilities Commission went to green building, it tied its standards to LEED standards. The Franklin County Courthouse is seeking ‘gold’ status from LEED. It’s increasingly the currency in which we measure whether a project is truly sustainable or not.
How is building to LEED standards different?
We’ve had decades to perfect contract documents for ‘normal’ construction, but LEED is so new and different. There are additional roles and requirements, and we’re still struggling with what the right contract documents ought to be and what risk ought to be assumed by both sides to those contracts.
One of the things that owners typically don’t provide for adequately in their contract documents is the risk of delays, which can occur from a lack of product availability. A lot of times, a green project will require, for example, wood from a local source within 200 miles or drywall from a sustainable source within 300 miles. Well, what happens if everyone else is looking for the same type of materials and they are unavailable, delivery is delayed or the only supplier goes out of business? Who is responsible for a) any delays while you try to secure the desired material or b) materials that become impractical to obtain? In that circumstance you’re obviously losing time or points toward LEED certification. Many times, the contract documents don’t really deal with who is responsible for that.
Owners also tend to think that because they’ve designed a project that they think is going to get gold certification from LEED that they can tell the public and the taxpayers about it. What they oftentimes don’t realize is it takes a long time and a lot of paperwork submitted to LEED before you know whether, in fact, you have achieved that status or not. And what happens if you don’t achieve the status or aren’t able to get the expected energy savings or you lose the benefit of the tax credit?
What can be done to make this process a little easier?
The more the parties think about the unique nature of a green project and provide for that in the contract documents, the less surprises they’ll have later. There are a couple of tools available now that weren’t available in the not-so-distant past. The first is that we now have people that are certified as LEED professionals. They’ve taken all the testing, they know what the LEED requirements are and have been formally approved as knowledgeable and experienced in the area of green building. The more owners can be involved with LEED professionals, whether they’re architects or lawyers or contractors, the better.
If you’re building a LEED project, you want to work with people that have done it before. We have a client here in town who built their own green office and obviously went through the experience firsthand as an owner and a contractor. That kind of experience would be helpful.
The most cutting-edge tool that’s available now and wasn’t available even a few months ago is a uniform nationwide contract document on green building. ConsensusDOCS brought together more than two-dozen construction trade associations, nationwide groups that represent owners, architects and engineers, bonding companies, and contractors and subcontractors to collaborate on and endorse the documents. The ‘ConsensusDOCS 310: Green Building Addendum’ can be found at www.consensusdocs.org. It’s the first national or uniform document that’s been created anywhere to deal with the issues of green building. It’s going to be very helpful because, for the first time, we have a document that says what expectations there will be with all project participants and their various roles.
Don Gregory is chair of the Construction and Litigation practice areas at Kegler, Brown, Hill & Ritter and served on the nationwide taskforce that drafted the Green Building Addendum. Reach him at (614) 462-5416 or firstname.lastname@example.org.
Many CEOs view their chief financial officer as just the numbers person. But the right CFO can be much more for your organization, and business leaders would be remiss to overlook the broader strategic role that their CFO can and should play. Navigating today’s trying environment puts an even bigger premium on having such a person by your side.
“An effective CFO will make a business better,” says Stephen W. Christian, managing director of Kreischer Miller. “They will contribute in many ways, including managing financial risk, identifying opportunities and serving as a sounding board for the CEO.”
Smart Business spoke with Christian about what to look for in a high-performing CFO.
What defines a high-performing CFO?
A chief financial officer should be a leader within an organization. They utilize good interpersonal skills to effectively work across functional lines with the CEO, HR, IT, sales and operations and pull everything together for the good of the company.
Finance people often have the persona of looking to the past and ‘keeping score,’ but CFOs need to be forward-thinking and solution-oriented. Another characteristic of a high-performing person in this role is that they have a deep knowledge of the business and the industry in which they operate. Intellectual curiosity propels CFOs to question processes and better understand operations. They possess awareness of the business’s critical success factors and respond proactively to operational challenges.
CFOs must have a commitment to learning and constantly bettering themselves. They can accomplish this by networking with peers in industry and trade associations, reading, attending seminars and spending time with the company’s advisers. One of the best ways to learn is to talk to people in your company. Learn from technical staff, engineers, and sales and marketing people.
How has the role of the CFO changed?
Effective CFOs expand the role of the financial recordkeeper responsible for preparing financial statements and tax returns and developing budgets to that of an operations adviser.
They add value by directing strategy, improving profitability, identifying opportunities and alerting all to the financial consequences of actions taken or planned. The position is viewed more as an investment in talent than as overhead.
For growth-oriented companies, CFOs are much more actively involved in merger and acquisition strategies, integration issues and due diligence. In addition, they are viewed as key contributors in the expanding international aspects of a business.
How do you define the performance and value of a CFO?
An organization’s credibility is enhanced by an effective CFO. They allow those dealing with the company, including lenders, insurance underwriters and suppliers, to feel confident in the business’ strategies and positions, which may result in better pricing and other terms.
The CFO also effectively utilizes the company’s professional advisers, such as the accounting and law firms, to supplement their skills.
Studying and reporting on trends, opportunities and growth initiatives, developing corporate-wide action plans to increase profitability and implementing efficient and effective tax strategies are additional ways a CFO demonstrates value.
The ultimate litmus test for a CEO to assess a CFO’s value is to ask, ‘Is my job easier and is the company better because I have this person in my organization?’ If the answer is no, perhaps the wrong person is in the position.
A high-performing CFO is a key component of building and maintaining a successful business that will overcome challenges and obstacles and take advantage of opportunities. View your CFO as an internal adviser, not as an accountant.
What are the more significant challenges CFOs have to overcome today and in the future?
There is a host of challenges resulting from the current economic climate, and a high-performing CFO is ideally situated to tackle such issues. Efficient working capital management and related bank financing matters are critical to a company’s success. Those overseeing these matters need to be more vigilant, creative and prepared.
Today, almost all companies operate globally in some way. A CFO must develop and maintain a base level of expertise in international issues, including international accounting standards, foreign exchange transactions and transfer pricing strategies.
In many organizations, the CFO either oversees or is actively involved with the IT and HR departments. Today’s CFOs need to know how to leverage technology throughout the organization for the greatest return on investment. In addition, they must be conversant on the impact of employment law and employee benefit initiatives to better understand and quantify the financial consequences of HR actions.
The challenges facing today’s CFOs are significant, but at the same time create opportunities for meaningful contribution and impact. High-performing CFOs are up to the challenge and see the opportunities available.
Stephen W. Christian is the managing director of Kreischer Miller. Reach him at (215) 441-4600 or email@example.com.
Though Issue 3 passed in Ohio by a margin of 6 percent, the debate is far from over when it comes to how this amendment will change the face of the state and the cities in which the casinos are slated to be built.
According to Michael E. Zatezalo, the managing director of Kegler Brown Hill & Ritter, there is an immense amount of work to be done before anyone can reap the benefits of tax dollars or increased tourism.
“First, the state legislature will have to set up the gaming commission,” he says. “And then they’re going to have to figure out the laws that they need to implement Issue 3, and what they’re going to leave to the gaming commission to pass in the way of rules.”
And that’s if no further amendments are put forth in the spring of 2010 to repeal or change Issue 3, which may include increasing the tax rates, the auctioning of casino licenses to the highest bidder instead of the drafters of Issue 3, or the option for the four cities of Cleveland, Cincinnati, Columbus and Toledo to veto their respective casino.
When the casinos finally do come to fruition, making them as profitable as possible for the owners and the state and integrating them into the existing regional economies will be yet another hurdle.
“What they have to try to do is capture two markets: one is the local people that are going outside the state to gamble, and second is the tourists from out of town,” Zatezalo says.
Smart Business learned more from Zatezalo about the future of gambling in Ohio.
What will be the impact of the passing of Issue 3 on businesses?
It depends on the business, where it’s located and what it does. Some of the businesses that are going to be vendors to the casino, of course, are positive about what’s happened. I’ve already had a couple of suppliers including a few from out of state contact me about licensing, asking what the state is going to do. Most vendors will need to get licensed to work with casinos. But right now it’s too soon to tell. The legislature has six months to come up with a regulatory scheme.
The racetracks are clearly going to be adversely impacted, because even if they do get the right to have VLTs (video lottery terminals), having a casino nearby is really problematical for them.
Charities are definitely going to be hurt. In any state where casinos have been legalized, charities have been adversely impacted. People are a lot less likely to go to bingo halls when they can go to a casino. Indiana’s casinos have had an adverse impact on charitable gambling in Ohio, and Issue 3 will probably have a further impact.
What about the effect on businesses in the areas surrounding casinos?
It’s hard to say. I’ve talked about this with an economics professor at University of Nevada, Las Vegas (UNLV), and he indicates that if a casino can bring in tourists from out of state and it does it in connection with a hotel, that’s a net win. To the extent that you’re just bringing in local people and they’re spending their dollars at a casino as opposed to somewhere else, for example going to the casino restaurant as opposed to the local restaurant, then it’s just trading dollars, and it will hurt the local businesses. If you do it so there’s a synergistic kind of relationship between the casino and other events and venues in the city, I think casinos can be helpful.
Businesses would be well served to tie in the presence of a casino with their own attractions. For example, if you can bring in people for a football or baseball game, you can run packages where they stay in a hotel near the casino, and spend a whole weekend instead of just coming in for the game.
What will businesses that want to work with casinos need to know?
There’s going to have to be a whole regulatory scheme set up for licensing and background checks, investigations and other decisions concerning all of the rules and regulations that govern casinos. Nevada has been doing this for years and has pages and pages of regulations. It’s not something you can just do in a day. So the specifics are secondary right now to the legislature getting something done. Businesses will need to keep abreast of the regulatory requirements as the legislative process develops.
What lies in the near future for gaming in Ohio?
The legislature is already talking about putting another amendment on the ballot. They have the authority to put in another constitutional initiative and amend this one. Already, several legislators have recommended that an amendment be proposed that provides for the option of competitive bidding and an increase in the tax percentage. So that has to filter its way through the process before it becomes clear what’s going to happen. It’s pretty aggressive to think they can get all this done in six months and do it the right way.
It’s interesting to note that the most successful gambling jurisdictions are New Jersey, Nevada and Mississippi and there have been studies by economists at UNLV that show that these states also have the lowest taxes on casino revenues. If you’re a casino operator and you have a decision to make about where to put your money, you’re going to put it in the jurisdiction where you can get the best return. This creates better properties and a better gaming experience, so the revenues go up.
Michael E. Zatezalo is the managing director of Kegler Brown Hill & Ritter, focusing his practice primarily in real estate and financing and gaming law, for which he serves as the practice chair. Reach him at (614) 462-5497 or firstname.lastname@example.org.
Cost-cutting measures have defined the business environment in 2009, but business leaders have discovered that it is equally important to increase workflow and efficiency throughout an organization. By continuing these strategies into 2010, companies can place the focus on improving processes.
“For most of 2010, you’re still going to see a lot of pressure on business expenses,” says Bill Dvorak, Chief Financial Officer and General Manager of CIMCO Communications. “A lot of the larger companies and banks are starting to show more profitability, but I don’t believe it’s because revenue is increasing, I think it’s because they are managing their expenses.”
Smart Business spoke with Dvorak about how companies can use IT to take their business processes to the next level in the new marketplace.
How is the current business climate driving changes in business strategy?
To operate successfully, top-level management knows that employees at every level need to understand the goals and objectives of the company. In addition, the long- and short-term goals that the company utilizes have to align directly to those strategies in order to be effective.
For example, if 2010 looks like a year of tremendous revenue growth, then a company would gear strategy around supporting sales and adding products. If creating operational efficiencies is a more realistic goal, a company may alternatively receive more benefit from cost savings than going after sales in a tight market.
How can technology solutions be part of these strategies?
Any kind of technology change requires a certain amount of re-engineering of the business. Business leaders must think through what they want to achieve from an investment in technology. Just jumping into something may not produce any value in fact, it will end up being a point of frustration and adding costs.
You have to figure out where you need to go next, what you’re trying to accomplish and then find the technology that will get you there. Voice over Internet Protocol (VoIP) gives you a lot of flexibility and cost savings if it’s installed and engineered properly within a business.
For example, a company might invest in a VoIP solution to achieve long-term scalability and flexibility for the business. The result of that solution may allow employees to work remotely, therefore causing real estate costs to decrease.
What other technology solutions can be part of a strategy that promotes efficiency?
- Multiprotocol label switching (MPLS) is used in multisite operations, connecting all locations and creating an open flow of communication. Converged voice, video and data run over a secure, private network scalable to the growing needs of a company.
- Ethernet provides more bandwidth at a more reasonable price and can lower support expense for a company. This scalable solution offers a variety of bandwidth options, which makes it easier for companies to change as they grow.
- Managed services provide expertise, particularly for small and medium-sized companies that need to focus their IT resources in other areas. Outsourcing services such as a router, firewall and bandwidth monitoring unburdens a company’s IT staff to focus on more critical issues.
If blended with the same vendor that provides your telecommunications, you can achieve relatively inexpensive pricing and get a single point of contact for the services.
What should IT managers know about implementing new solutions?
Not every solution is the right fit for every company. What are you trying to accomplish? Can you accomplish your goals with the staff and expertise you currently have?
You may need to work with a technology provider that can bring the expertise and resources that will help you structure that strategy.
For example, you may hear that VoIP is a really good technology, but you’re not quite sure how it works and whether it’s right for your company. The right technology provider will have a staff of engineers that will help determine your needs and design a solution specifically for your company.
How can companies measure the ROI of technology investments?
A simple, high-level metric to use is expenses as a percent of revenue. If you want your technology to make you more efficient, then your operational expenses should come down as a percent of revenue. It’s very simple and easy to measure, and it’s something you can do every month.
But if the strategy of installing a new technology such as VoIP, for instance, is to make you more effective in generating sales, new sales growth would be a better barometer. Just make sure that your metrics are parallel to your goals and you’ll be able to effectively measure your investments.
Bill Dvorak is the Chief Financial Officer and General Manager of CIMCO Communications. Reach him at (630) 691-8080 or email@example.com.
There’s never been a better time to develop a relationship with a reliable staffing agency.
As the economy begins to ramp back up, there will be starts and stalls along the way, and using a staffing agency will give you the flexibility to increase or decrease your work force depending on your needs.
“As you start to see a slight pickup in business but not enough to commit to hiring full-time employees, one option is to turn to the staffing industry,” says Rob Wilson, president of Employco Group Inc., a division of The Wilson Companies. “You do pay an increased price to the staffing agency, but you don’t have to worry about employee turnover, your cash flow is better and workers’ compensation claims are covered by the staffing agency.”
Smart Business spoke with Wilson about how to work with a staffing agency to meet your needs in a recovering economy.
How can business owners find the right staffing agency to meet their needs?
Many businesses are being solicited by temp agencies right now. There are a lot out there, so it is important to do your due diligence when selecting an agency. Look for a credible and reputable company with a solid track record. Ask about its recruiting process and hiring procedures, and whether it only provides documented, legal employees.
You may want to take a look at the industries that the agencies provide temps to and reference their client lists to see the types of companies they work with and make sure that they are able to supply the right candidates as it relates to your company and industry. There are many agencies that only supply within a certain geographic area or industry, so it’s important to make sure they have candidates with the skill level and experience that you need.
How does the hiring process work?
Typically, you’d want the staffing agency to go through its interview and screening process and then send you what it identifies as the best candidates. Depending on the job description, you may either want to look at resumes off a short list and interview candidates before making a decision, or you may just want to try out the most qualified person who is recommended for the job. The good thing with working with an agency is that if a person shows up to work and isn’t quite what you are looking for, you can call for an immediate replacement.
A good agency should be able to send you a same-day replacement so that you are not left stranded with a gap in your staff.
How can you ensure the quality of the candidates?
Training is very important when it comes to the quality of candidates. Whether you’re hiring a full-time person or a temp, ideally you want to bring in someone who is as qualified and trained as possible so he or she can jump right into the position and handle the work that needs to be done.
The goal is to minimize your downtime internally from a training standpoint. You typically would want to use an agency that tests all its employees from a skill set perspective, especially if you’re looking to fill a specific type of job.
For a manufacturing company, it’s important that temps go through some type of safety training. Bringing in a worker who has no safety training, whether the person is legal and documented or not, could hurt your business.
The workers’ compensation on the temp should be provided by the staffing agency, but you’ve got exposures to your company, as well. Make sure you are protected against any liability that may be caused by the temp, whether it’s an injury or damage to your facilities.
There was a case through another staffing agency where a temp drove a forklift into a water pipe and flooded the company’s warehouse. The company had damaged goods, as well as repairs. In a case like this, it’s important that the driver has documented forklift training certification and that the staffing agency has insurance coverage on its employees for their actions.
What is the advantage to an employer of hiring temps?
The company is not committing to hire someone on a full-time basis as a full-time employee. By using a staffing agency, you can hire a person for only the hours a week that you need.
If you don’t think the person is qualified, you can let the agency know that this person isn’t performing to your expectations and ask for someone new. You don’t have to terminate the employee all of that is done by the staffing firm.
If you’re getting ready to hire someone permanently, you’re getting a chance to have this person work at your business and see if it’s the right person for you. It’s like test-driving a car. You’d have to talk to the staffing agency about hiring that person permanently, and there’s typically a buyout of some sort, but it’s dependent on how long the person’s been there.
You’re also not responsible for the payroll for that person immediately. Typically, you’re paying the staffing agency the following month, which is good for your cash flow. And a lot of your employment exposures are transferred to the staffing agency. All of that is great for the business. Also, if the orders that you needed to fill drop back down, you just call the staffing agency and tell it you don’t need the person anymore.
Rob Wilson is president of Employco Group Inc., a division of The Wilson Companies, which provides human resources outsourcing, staffing and insurance for 400 small and medium-sized Midwest companies. Reach him at (630) 286-7345 or firstname.lastname@example.org.
Deciding on a maintenance provider for your company’s post-warranty data center requirements involves a host of factors, including cost containment considerations, service level requirements, engineering capacity and capability, and the extent to which the provider complements the organization’s current maintenance strategy.
The ideal solution is one that supports an organization’s vendor rationalization and cost containment strategy while giving the organization greater control over the lifecycle of its technology investments.
More and more, independent service organizations (ISOs) are working with clients to deliver a single-source solution for the IT equipment maintenance, making cost reduction and management of the maintenance of the equipment a much simpler endeavor.
“Given the current economic climate, organizations are looking to gain greater control and maximize their return on all technology investments,” says Ted Rieple, executive vice president of business development with Park Place International. “Engaging an ISO is a tremendous mechanism to maximize a return on investments in technology infrastructure by reducing the cost of maintaining it.”
Smart Business learned more from Rieple about how to leverage a business relationship with an ISO and an OEM (original equipment manufacturer) and what working with an ISO can do for a company’s bottom line.
Do IT decision-makers have a perception of the differences between ISOs and OEMs?
IT professionals operate in a dynamic and fast-paced environment. The immense pressure to reign in costs while constantly innovating invariably makes it difficult for them to find the time to evaluate maintenance options. First and foremost, organizations need to recognize that there are options for hardware maintenance beyond extended warranty through the OEM. Second, OEMs often will leverage ISOs to deliver service. So while the perception may be that the OEM is delivering the service directly, the truth of the matter is that in many cases that OEM service is being delivered by an ISO.
When clients are trying to understand the difference between ISO support and that of an OEM, it is important to share the variety of options available to them with an ISO and the extent to which OEMs use ISOs for service delivery. It quickly becomes clear that an ISO is really a wonderfully cost effective mechanism to simplify maintenance of the mission-critical hardware.
How does engaging an ISO help a company to reduce costs?
Original equipment manufacturers tend to be focused on selling equipment and supporting only the products they manufacture, whereas ISOs allow clients to consolidate vendors by maintaining multiple OEM platforms. ISOs also have the distinct advantage of leveraging the research and development investments made by manufacturers in product development without having to make those direct investments. As a result, an ISO’s cost structure tends to be far lower than that of an OEM, allowing them to pass a 40-55 percent savings on to the client.
There is also the benefit of simplified management of not only the maintenance of that equipment, but also the administration with a single point of contact with simplified billing options.
Are there opportunities for an OEM and an ISO to work together to assist organizations with their data center needs?
Many of the best-run organizations have strong OEM and ISO relationships. The ISO role should be complementary to a client-OEM relationship. An ISO can maintain equipment that is end of service life — equipment that can no longer be serviced by that OEM — which of course adds value for clients by helping them extend the useful life of mission-critical equipment. Second, an ISO can support competing equipment. So if a business has a strong EMC relationship, for example, an ISO can support its Sun Microsystems environment, its Hewlett-Packard environment or its IBM environment. So an ISO can be really complementary to an OEM relationship.
What are some complementary services that a company can expect from working with an ISO?
The complementary services include things like simplified warranty and out-of-warranty contract management. It’s analogous to having a homeowner’s insurance policy, auto insurance policy and life insurance policy with one insurance agent — it just makes things easier.
Also, because of the ‘lean’ nature of many IT departments, an ISO can assist with the relocation of data center equipment. This is a useful service for clients to provide resources, time and ultimately the functionality and accountability that they need. An ISO can act as an extension of an IT department when resources may not be available. Also, many organizations need secure disaster recovery plans following strict mandates and regulations based on industry. This is a great complementary service for an ISO to offer.
Finally, ISOs are also a good resource for replacement parts. By virtue of being in the maintenance business, a significant requirement of that is you need to maintain significant replacement parts inventories. This is another complementary service that an ISO can provide beyond just maintenance.
Ted Rieple is the executive vice president of business development with Park Place International. Reach him at (440) 991-3104 or Ted_Rieple@parkplaceintl.com.
Through years of trial and error, Mary Rodino, Chief Marketing Officer of CIMCO Communications, has learned that retaining a customer base involves five key strategies: defining your customer experience, unifying your customer process, standardizing your customer process, creating a perceived value, and developing an effective customer loyalty strategy.
“A lot of companies are fighting to stand out,” Rodino says. “If you keep doing the same things, you’re guaranteed to be left behind.”
Smart Business spoke with Rodino about how companies can look for constant improvement within their customer service practices to differentiate their products and services.
How does a company define its customer experience?
The customer experience is defined by every single touch point in the organization. From the first sales call to a signed contract, every touch point in that path should convey your customer experience. If a company is trying to provide a very high-touch experience to the customer, he or she needs to be treated that way all along, whether it’s a service being delivered in a professional manner or a product being delivered on time. Every process that touches the customer must be identified so it can be replicated.
The biggest challenge for every company is consistency, and this is where effective training and consistent values across the organization are imperative. If everyone knows that his job is to treat the customer with a sense of urgency, as if the customer were paying his salary, it creates an incentive to provide the highest level of service.
What aspects of the customer process should be evaluated?
The customer process should be evaluated at every interaction point with the customer. Do customers really want a live experience because the particular product or service that they have ordered from you is complex and they need a live resolution? Or is it something they could take care of via a Web portal or through an online trouble-reporting system? You can use the findings from your customer interaction evaluation to ensure that the customer experience is consistent for each specific segment. That evaluation process has to be communicated and replicated throughout the organization.
The other challenge is to communicate with customers cost-effectively. You may want to give customers a live support person, but perhaps they’re spending a very low amount, or it’s a low-cost product, and you can’t afford to have a live person help them. Segmentation can help you identify areas that may need different customer communication processes.
How can companies ensure that employees are doing their part for the customer?
In my experience, you must hold every single employee and department accountable for the customer experience. No matter the role they play within the company, employees must understand how their job impacts customers or other departments that directly deal with customers. For example, if the shipping department shipped something out late and the company wasn’t able to bill it in this month’s cycle, it has impacted revenue.
Chain reactions such as this eventually affect everyone and make it difficult for departments to reach desired performance levels. A good starting place is to share customer feedback with key departments. There’s nothing more poignant than reading live data from a customer.
The next component of accountability is compensating employees in a way that is directly correlated with customer churn. So you’re compensating them appropriately when customers leave or when new revenue is signed and driving the right behavior through the whole operation and shipping/delivery cycle.
How can companies impact their customers’ perceived value?
Customers want to feel that they’re getting more for their money. It can be as simple as an account executive taking the time to walk a customer through his or her bill or adding on an additional feature to the product for a reduced cost.
For example, a company like ours needs to make sure that the company using our solutions understands not just what the solution is but also the applications and features of the solution. Offering training or extra support materials can be a great added value that a competitor may not offer.
What strategies can companies use to create customer loyalty?
A company must define itself in order to be differentiated by the type of loyalty programs it offers. For example, a law firm needs to offer strong relationship loyalty and provide its high-level customers with a high-touch experience, whether it’s being available to them more often or providing consulting services. Other companies might offer what’s called program loyalty. A good example of program loyalty would be a frequent buyer program, where the more business you do with someone, the more discounts you get. Offering customers incentives or discounts for providing a lead or referral also builds strong loyalty.
It’s also extremely important to have a consistent program where you can measure customer satisfaction. Whether that is through events or through regular surveying, feedback from customers gives you the information you need to begin building both proactive as well as reactive loyalty efforts.
mary rodino is the Chief Marketing Officer with CIMCO Communications. Reach her at (630) 691-8080 or email@example.com.
When you think of disaster recovery, you might envision physical threats, like fire, flood, tornado or some other kind of devastation that wipes out the data center. But, with everyone’s increasing reliance upon technology, a “disaster” can be any event that makes the organization’s data unavailable, even for a short period of time. It could even be someone unplugging a cable or the network becoming unavailable.
Regardless of how you define a disaster and the threats that can cause it, having the proper systems and a plan in place to preserve and recover data is a vital endeavor that’s different for every company.
“The real key to a successful disaster recovery plan involves honestly answering questions about your systems and data,” says Dave Sullivan, general manager, Technology Solutions Group, Park Place International. “Then you need to understand the cost of the disaster recovery technology and what it provides you within that continuum so you can make the right trade-off for the company.”
Smart Business learned from Sullivan how a business can ensure it has the right plan in place to protect its data when the worst happens.
Where should a company begin when designing a disaster recovery plan?
Companies need to evaluate every business system that they have and answer two questions: How long can the business afford to have the system unavailable after a disaster? And how much data is a business willing to lose, and recreate, after the disaster?
Answering the first question tells a company what disaster recovery systems it needs and how quickly they must be deployed. And answering the second question lets you know if your current systems are backing up your critical data often enough.
Any plan needs to include periodic testing to ensure it can be successfully executed. As things change, then the plan needs to change accordingly in order for it to be relevant if and when a disaster ever hits. IT infrastructure is pretty complicated and people are continually adding to and changing things associated with their systems, storage and networks. You don’t want to be figuring it out on the fly after a disaster.
How do disaster recovery systems differ from company to company?
Financial institutions, for example, may not be able to afford any downtime, so they really need disaster recovery systems and processes that are constantly and continually backing themselves up and that they can switch over to immediately. When I talk to customers, a term they use is ‘flipping the switch.’
Other companies may be able to run really well without their computer systems for a day or even days. It depends. You’ve got to understand what the business requirements are, what is technically feasible from an infrastructure requirement and then, finally, what’s the cost. It may cost a financial institution millions of dollars for every hour that its systems are down. Therefore, it’s easy for them to invest millions of dollars in infrastructure that prevents that. Other companies may not have that luxury, and may not have that need. Any investment decision has to be factored against the business benefit versus the business cost.
Can disaster recovery systems be managed effectively by a third party?
Absolutely. I think if you talk to organizations today that perhaps don’t have plans in place, oftentimes it’s because people are busy doing their own jobs and they really don’t have the time, much less the expertise, to put a plan in place and keep it updated. And certainly the ISO will have the skills and resources to help a company do that. I’m also a proponent of ownership and involvement by the organization itself. If you don’t own it, it probably won’t work when you need it. So you need to couple the outsourcing to an ISO with the ownership that is ultimately going to be yours when disaster hits.
An ISO can help you develop a plan, understand your options, and walk you through the justification process of what you’re willing to spend versus what you could lose in the event of a disaster. And then, of course, they will assist you in the execution of a plan should a disaster occur.
The ISO doesn’t have any hidden agendas in helping you redeploy existing equipment as part of a disaster recovery strategy. The ISO is really motivated by what makes sense to the customer.
DAVE SULLIVAN is general manager of the Technology Solutions Group at Park Place International. Reach him at (800) 729-0313 or firstname.lastname@example.org.